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Healthcare
Nick Castaldi
Chris Doyle
Brian Lowell
• Biotechnology• The Biotechnology Industry in the Health Care Sector includes companies primarily engaged in the research,
development, manufacturing and/or marketing of products based on genetic analysis and genetic engineering (including companies specializing in protein-based therapeutics to treat human diseases).
• Healthcare Equipment & Supplies• The Health Care Equipment and Supplies Industry in the Health Care Sector includes manufacturers of health care
equipment, devices, supplies, and medical products not classified elsewhere (including medical instruments, drug delivery systems, cardiovascular and orthopedic devices, diagnostic equipment, eye care products, hospital supplies, and safety needle and syringe devices).
• Healthcare Providers & Services (ESRX)• The Health Care Provider and Services Industry in the Health Care Sector includes distributors and wholesalers of
healthcare products not classified elsewhere, providers of Health Care Services, and owners and operators of Health Care Facilities and Managed Health Care.
• Healthcare Technology (MDRX) • The Health Care Technology Industry in the Health Care Sector includes companies providing information
technology services primarily to health care providers. Includes companies providing application, systems and/or data processing software, internet-based tools, and IT consulting services to doctors, hospitals or businesses operating primarily in the Health Care Sector.
• Life Sciences Tools & Services• The Life Sciences Tools and Services Industry in the Health Care Sector includes companies involved in drug
discovery, development, and production continuum by providing analytical tools, instruments, consumables and supplies, clinical trial services, and contract research services (including firms primarily servicing the pharmaceutical and biotechnology industries).
• Pharmaceuticals (Teva)• The Pharmaceuticals Industry in the Health Care Sector includes companies engaged in the research, development,
or production of pharmaceuticals (including veterinary drugs).
Subsectors
Recommendation
• Hold MDRX
• Discuss TEVA
• Buy ESRX
Austra
lia
Canad
a
Den
mar
k
Finla
nd
Fran
ce
Ger
man
y
Icel
and
Irel
and
Japan
Swed
en
Switze
rlan
d
United
Kin
gdom
United
Sta
tes
0
1000
2000
3000
4000
5000
6000
76
77
78
79
80
81
82
83
Average Life Expectancy vs. Per Capita HCE
Average Life Expectancy Per Capita Healthcare Expense
Meaningful Use Act
• Offers more than $30 billion in ARRA incentives over the next two years (by Sept. 30, 2012)
• Health entities must show meaningful use of EHRs
• Requires anyone covered by the HIPPA to adhere to new regulation by 2013
• EHR adoption is expected to grow from 12% to 90% by 2019 according to the CBO
Why Healthcare IT
• HIT Companies will benefit from ObamaCare
• Health Centers are incentivized to improve IT systems and penalized if they don’t by 2015.
• Increased demand
• Steady growth over the next few years
Allscripts
Purchase Price: $ (3-1-11)
Return:
Market Value: $
(MDRX)
What is Allscripts?
Allscripts Healthcare Solutions, Inc. provides information technology, financial support, and connectivity to hospitals, physicians, and post-acute facilities. (EHR)
• Headquarters are located in Chicago.
• Founded in 1986
Recent News
Allscripts Healthcare and Blue Cross and Blue Shield of North Carolina.
• announced new program to implement electronic health records (EHR) with more than 750 North Carolina physicians.
Two Leading Health Systems in Michigan and California Select Allscripts to Connect and Coordinate Care in Their Communities.
• provide their physicians and other caregivers with shared access to a single, unified patient record.
MDRX Q2(Thousands)
%∆ (QoQ)
Revenue $356,831 6.4%
Net Income $15,876 26%
EPS .08 14%
Beta 1.42
Financials
52 Week Range:
13.85- $18.66 -23.13
Advantages and Drawbacks
• Increased Healthcare IT Spending
• Fulfilling implementation strategies.
• Market leader
• Constantly beating expectations
• Economic slowdown Not a necessity
• Double-dip risk looming
• Increased competition
Fulfilling Implementation
Market Leader
Data Flow Per Patient
Earnings Overview
• Steady Earnings Growth
• Constantly beatings analyst consensus projections for earnings.
Competitor Analysis
Valuation Statistics
SharePrice
Market
Cap
Enterprise
Value
Enterprise Value / Revenue
Enterprise Value / EBITDA
P / E Multiple
Company Name 2010 2011E 2010 2011E 2010 2011E
Accretive Health $22.37 $2,181.0 $2,031.0 3.0x 2.0x 57.9x 20.1x 131.6x 38.6x
Athena Health $60.81 $2,127.0 $2,023.0 7.2x 5.5x 43.0x 26.6x 110.6x 66.8x
Nuance Communications $22.38 $6,839.0 $7,219.0 5.7x 4.7x 27.2x 12.1x 159.9x 14.5x
Allscripts Healthcare $18.66 $3,507.0 $3,815.0 3.1x 2.5x 18.2x 9.5x 186.6x 19.0x
DCF and Targets
12 Month Target:$21-$24.21-$27
Teva
Purchase Price: $48.84 (2-26-08)
Return: ****%
Market Value: $****** (**%)
(TEVA)
Introduction to TEVA
• No. 1 generic pharmaceutical company
• Top 15 global pharmaceutical company
• Presence in 60 countries and sales in 120 countries
• 40,000 employees
Sales
50%
35%
15%
Sales Breakdown by Geography
North Amer-ica
Europe
Latin Amer-ica and Asia 72%
12%
7%
4% 3% 1%
Breakdown by Product
Generics`InnovativeRespiratoryAPIWomen'sBiosimilars
Financials
52 Week Range:
35.00-$39.03-57.08
TEVA Q2(Millions)
%∆ (QoQ)
Revenue $4,212 3%
Net Income $576 24%
EPS .64 24%
Beta .26
TEVA in the News
• Recent acquisitions of Cephalon and Taiyo
• Significant Reduced Loss of Brain Volume in Multiple Sclerosis Patients Treated with Copaxone®
• Pfizer Inc. (PFE) Settles with TEVA over Lipitor in UK; Deal Keeps Generic Lipitor at Bay to May 2012
Advantages
• Vertical Integration
• Strong Acquisition History
• Massive Economies of Scale
• Over a quarter of a trillion dollars of U.S branded opportunity awaiting generics
• Given the international focus on lowering medical costs, the demand for generics should continue to grow.
• Strong growth potential in Europe and Asia
Drawbacks
• After 2013, the market values of patent expirations vastly decline
• Unknown growth opportunities in undeveloped emerging markets
• Potential government regulation
Competitor Analysis
Valuation Statistics
SharePrice
Market
Cap
Enterpris
eValue
Enterprise Value / Revenue
Enterprise Value / EBITDA
P / E Multiple
Company Name 2010 2011E 2010 2011E 2010 2011EWatson Pharmaceuticals $67.07 $8,996.0
$10,037.0 2.6x 1.9x 13.4x 7.6x 59.6x 12.3x
Bristol-Myers Squibb $32.82 $55,979.0
$53,626.0 2.6x 2.6x 7.3x 8.0x 17.0x 14.4x
Eli Lilly & Co $37.61 $43,540.0 $43,917.
0 1.8x 1.9x 5.4x 6.2x 8.8x 10.4x Teva Pharmaceuticals $39.03 $34,775.0
$40,059.0 2.4x 1.9x 7.7x 5.6x 11.2x 7.0x
DCF and Targets
12 Month Target:$42-$58.04-$67
Express Scripts
Price:
(ESRX)
What is Express Scripts?
Express Scripts is one of the largest U.S. pharmacy benefits managers (PBMs). Its PBM services (97% of 2010 revenue) include retail network pharmacy management and home delivery services.
Clients include health insurers, third-party administrators, employers, union-sponsored benefit plans, government health programs, office-based oncologists, renal dialysis clinics, ambulatory surgery centers, primary care physicians and others.
Why Express scripts?
• Industry leader
• Strong financials
• Solid business foundation
• Successful strategic acquisitions
• Attractive near and long term growth prospect
• Effective management
Financials
52 Week Range:
34.47-$40.42-60.89
ESRX Q2(Millions)
%∆ (QoQ)
Revenue $11,361 2%
Net Income $334 2%
EPS .66 8%
Beta 1.00
Acquisitions
Intent-behavior
Risks?
• Retailer fall-out (Walgreens)
• Stiff competition
• Room to grow organically?
• Slowdown of domestic growth
Competitor Analysis
Valuation Statistics
SharePrice
Market
Cap
Enterpris
eValue
Enterprise Value / Revenue
Enterprise Value /
EBITDA
P / E Multiple
Company Name
2010 2011E 2010 2011E 2010 2011E
CVS Caremark$34.67 $46,625
$55,508.0 0.5x 0.5x 7.3x 6.8x 14.0x 11.7x
Medco Health Solutions$49.20
$18,968.0
$23,904.0 0.4x 0.4x 7.9x 7.3x 14.5x 11.4x
Aetna Inc$37.47
$13,972.0
$17,626.0 0.5x 0.5x 5.0x 5.6x 8.2x 8.2x
Express Scripts$40.48
$19,762.0
$23,560.0 0.5x 0.5x 9.4x 8.2x 16.5x 12.3x
DCF and Targets
12 Month Target:$42-$57.40-$66
Q&A
Option 1 : Hold MDRX, Hold TEVA (Increase Weight)
Option 2 : Hold MDRX, Sell TEVA, Buy ESRX
Option 3 : Hold MDRX, Hold TEVA, Buy ESRX