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Healthcare Sector Recommendation

Healthcare Sector Recommendation. Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang. Agenda. Healthcare Sector Recap Recommendation Q&A. Health Care Recap. SIM Holdings. Recommendation. Buy 72 bp of Gilead Buy 100 bp of Teva Sell 84 bp of Care Fusion Reduce 50 bp of Amgen.

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Healthcare Sector Recommendation

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  1. Healthcare Sector Recommendation Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang

  2. Agenda • Healthcare Sector Recap • Recommendation • Q&A

  3. Health Care Recap

  4. SIM Holdings

  5. Recommendation • Buy 72 bp of Gilead • Buy 100 bp of Teva • Sell 84 bp of Care Fusion • Reduce 50 bp of Amgen

  6. Gilead Sciences • Founded in 1987 • Biopharmaceutical company that discovers, develops and commercializes therapeutics • Specializes in HIV/AIDS therapies and Hepatitis B therapies • Derives the majority of revenues through product sales

  7. Gilead Advantages • HIV Franchise • Atripla and Truvada account for nearly 70% of patients on HIV therapy • Patients on antiretroviral therapy has grown by 4% on an annual moving total basis • Truvada and Atripla sales have increased 30% • Gilead captures 85% treatment naïve patients • Hepatitis B Franchine • CV Therapeutics • Cayston approval

  8. Gilead- Advantages • Government Action • Veterans Administration • Medicare • California • Ryan White Healthcare Act • US Dept. of Health and Human Services • Non-retail sales

  9. Gilead- Advantages • Patent Expiration

  10. Gilead- Advantages • Pipeline

  11. Gilead- Risks • Truvada and Atripla account for 70% total revenues • Royalty revenue and Tamiflu • Pipeline • FX Exchange • Healthcare reform and reimbursements • Competition

  12. Gilead- Revenue Growth • 31% between 08 and 09, topped $7 billion

  13. Gilead- Valuation Analysis

  14. Gilead- Valuation Analysis Current Price: $47.10 Target Price: $69.11 Implied Upside: 46% DCF Target Price: $68.36 DCF Upside: 45% Weighted Average Upside: $68.74, 45.5%

  15. Gilead- DCF

  16. Gilead- Sensitivity Matrix

  17. Gilead- Performance YTD

  18. Gilead- Performance 1yr

  19. Gilead- Performance 3yr

  20. Gilead- Performance 10yr

  21. Lines of business • API- Active Pharmaceutical Ingredients. • Vertical integration • Higher operating margins • Core competency

  22. Generic drugs • 75% of sales • Must be bioequivalent of their predecessors. • Can’t be marketed until patents are expired or proven illegitimate.

  23. Branded drugs • Increased investment, expected output to be doubled between 2007 and 2012 • Risky

  24. Macro drivers in Teva’s favor • Aging of the population

  25. Increasing health concerns

  26. Increased government spending leads to cost cutting efforts=generic drugs have an advantage

  27. Company Overview (CFN) • Global medical technology company providing healthcare products and services • Offer products in areas of intravenous, infusion, medication and supply dispensing, respiratory care, infection prevision, and surgical instruments. • 2 main lines of business: • Critical Care Technologies • Medical Technologies and Services

  28. CFN Status Quo • Market Cap: 5.75 B • SIM Weight: 0.84% • Current Price: $29.7 • Target Price: $27.8 • Upside:6.81%

  29. Market Performance (6 months)

  30. Valuation Target Price = $ 28.16

  31. Leverage: • Demographic factors • Technology leadership and innovation • Favorable valuation Risks: • Inability to enhance existing products or introduce new products • Subject to complex and costly regulation • 2nd Quarter earnings drop & below expectation • Uncertainty after the spinoff from Cardinal Health • Significant amount of indebtedness

  32. Decrease Amgen Inc. (AMGN) by 50 bps Current Weight: 250 bps • Prolia (Osteoporosis drug) likely to be approved by FDA • Decrease weight to avoid loss due to failure to secure Prolia, maintain significant weight to maintain exposure to future revenue growth • No near future patent expiration • Favorable tax incentives due to increased profits and operations in international locations (Puerto Rico) tax rate dropped to 11.5% from 20% • Advancing pipeline, long term potential growth, wide variety of drugs in various phases in the pipeline

  33. Questions?

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