1 / 40

Health Care Sector Company Presentation

Health Care Sector Company Presentation. Sarah Hemmelgarn Jason Wattier Alex Wisler Billy Wong. SECTOR SUMMARY. SIM Weight (as of 7/31/2009). SECTOR SUMMARY. Defensive Opportunities Aging U.S. Population Universal health care may increase number of people insured Risks

seth-perkins
Download Presentation

Health Care Sector Company Presentation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Health Care SectorCompany Presentation Sarah Hemmelgarn Jason Wattier Alex Wisler Billy Wong

  2. SECTOR SUMMARY • SIM Weight (as of 7/31/2009)

  3. SECTOR SUMMARY • Defensive • Opportunities • Aging U.S. Population • Universal health care may increase number of people insured • Risks • Branded pharmaceuticals patent cliff • Lack of bargaining power under one-buyer system

  4. SECTOR SUMMARY • Currently underweight vs. S&P 500 • SIM weight = 13.30% • S&P 500 = 13.73% • Bring to even-weight with S&P500 • +43 basis points

  5. SECTOR SUMMARY • Current SIM Holdings: *Prices as of market close 8/10/2009

  6. SECTOR SUMMARY • Recommended Action:

  7. ELI LILLY

  8. Company Overview • Industry: Pharmaceuticals • Founded in 1876 • Develops, manufactures, and sells pharmaceutical products worldwide • Offers medicinal treatments for: • Schizophrenia, Bi-polar disorders, ADHD, Diabetes, Osteoporosis • 2008 Sales: $20.378B

  9. Company Overview SIM Basis = $45.61 Market Price = $33.83 Dividends = $1.92 Unrealized Holding Gain (Loss) = ($11.78) After dividends = ($9.86) Return to Date (after dividends) = -21.62%

  10. Strengths & Opportunities • Diversified Product Portfolio • High Dividend Yield • Currently at 5.6% annual yield • Increased in each of last 42 years • Aging population expected to drive demand for drugs

  11. Risks & Concerns • Steep upcoming patent cliff 2008 US Sales Exposed: $7,277m % of 2008 Sales Exposed: Excluding biologics 28.9% Including biologics 35.7%

  12. Risks & Concerns • Weak late-stage pipeline • Is it adequate to replace expected lost sales? • Big names to replace: Zyprexa, Cymbalta, Gemzar • Up to 35.7% of 2008 sales is exposed to generic competition through 2015 • Last major drug launch: 2005 • Not expecting a “steady stream of product introduction” until 2013 (Annual Report)

  13. Risks & Concerns • Ability to maintain current dividend payout in question • Shoring up pipeline is #1 priority • Two options: • Increased R&D spending • Purchase late-stage pipeline • R&D is costly, time consuming and risky • Acquisitions more likely due to immediate need for product introduction • Acquisitions will be priority in use of free cash • Can Eli Lilly maintain its current dividend payout?

  14. Price Target • Valuation target: $38.71 • DCF target price: $37.24 • Final target price: $37.61* • Current price: $33.83 • Upside potential (including dividends): 16.79% *Calculated from 75% DCF and 25% Valuation target prices

  15. Recommendation • Liquidate position in LLY • Why? • Significant percentage of revenue at risk for generic competition, beginning in 2011 • Concerns over relatively weak pipeline and impact on future revenue growth • Current dividend yield may not be sustainable with acquisition becoming a priority • Limited long-term upside

  16. WELLPOINT

  17. WELLPOINT • Headquartered in Indianapolis, Indiana • Managed Healthcare Organization—Largest in the United States • Sell commercial health benefits • Formed by a merger on Nov 30, 2004 by Anthem, Inc. and Wellpoint Health Networks Inc. • Anthem Blue Shield and Blue Cross licensee in 14 states—brand strength

  18. WELLPOINT • Sector: Healthcare • Industry: Managed Healthcare • Current Price: $51.90 • Market Cap: 24.66 Billion • Current SAP Weighting: 3.43% • Proposed Change: Sell 143 basis points • Proposed SAP Weighting: 2.00%

  19. Reasons for Selling • Sales and Earnings projections low

  20. Reasons for Selling • Government Regulation • Government will likely pressure Managed Healthcare Companies to cut costs • Profit Margins at risk due to increasing competition • Rising Unemployment—has not yet peaked • More unemployment means lower commercial enrollment in healthcare plans

  21. Wellpoint and Unemployment Obvious Negative Correlation Source: Spring 2009 Healthcare Stock Presentation

  22. Possible Reasons Against Taking a Sell Position: • Healthcare reform could actually benefit Wellpoint and other Managed Healthcare companies because more people will be in the healthcare system • Wellpoint is a well diversified company that often engages in mergers and acquisitions • Strong brand name with their Anthem Blue and Blue Cross brands

  23. Valuation Multiple Target Price: $64.31 DCF Target Price : $58.35 Final Target Price: $59.84* Current Price: 51.90 Upside: 15.3% *Multiple Target*25%+DCF Target*75%

  24. GILEAD SCIENCE

  25. Gilead Science (GILD) • Founded in 1987 • Biopharmaceutical company that discovers, develops and commercializes therapeutics • Focus on antiviral drugs for HIV/AIDS, hepatitis and influenza • Recently began developing drugs for pulmonary diseases

  26. Why Gilead? • U.S. HIV drug market share expanding • Diversifying product line • Increasing R&D pipeline investment • Proposed changes to health care system

  27. Why Gilead? • Products in pipeline • Darusentant • Elvitegravir • GS-9350 • GS-9150 • Aztrenam Lysine

  28. Why Gilead?

  29. Risks for Gilead • Slowdown in HIV product sales • Failure of pipeline products to gain FDA approval

  30. Price Target • Valuation target: $71.31 • DCF target: $58.50 • Final target: $61.70* • Current price: $45.76 • Upside potential: 34.84% *Calculated from 75% DCF and 25% Valuation target prices

  31. TEVA Pharmaceuticals

  32. TEVA • Company – Based in Israel, largest generic drug manufacturer in the world. • Investment Thesis: Company’s position as a leader in the generic market, relatively good valuation, along with very favorable macro trends for the generic drug industry, lead us to recommend purchasing 271 basis points.

  33. Why TEVA? • Favorable Macro Trends for Industry a) Availability of Generic Drugs as Substitutes for name-brands • Approximately 75% of all FDA-approved drugs have generic counterparts. • In 2008, 69% of all prescriptions dispensed were generics. b) Expected Growth of Generic Drug Market • $80 billion in 2008, expected to be $84 billion in 2009 and $129.3 billion in 2014 • CAGR of 9% for the 5-year period • U.S.: projected $34B in 2009 and $54B in 2014 • CAGR of 9.7%

  34. Why TEVA? c) Cost Discrepancy • National Association of Chain Drug Stores [2007]: • Average Retail Price (Brand-Name) = $119.51 • Average Retail Price (Generic) = $34.34 d) Broad-based Support from Retailers • Price Competition among retailers such as CVS, Walgreen, and Rite Aid has been a big catalyst behind the greater use of generic drugs. • Walmart’s $4 generic medicine offer • Generic drugs represent both lower costs and higher margins to these retailers than brand name drugs.

  35. Why TEVA? d) Regulatory Favoritism • For the most part, many aspects of U.S. and international health care reforms favor generics in their attempt to curb costs. • Example – Medicare Part D’s, which accounted for 19% of all retail prescriptions in 2007, “success” is attributed in large part to its significant use of generic drugs.

  36. Why TEVA? • Positives: 1)Largest generic drug manufacturer in the world 2) Enjoyed a 23% sales growth through the first 6 months of 2009 despite global recession, and only had one single-digit growth year in the past 5 years. 3) Worldwide market leader and in North America, the largest generic drug market in the world, and among the leaders in Europe. 4) Has size and capacity to capitalize on the upcoming patent “cliff.”

  37. Why TEVA? • Worries/Risks/Concerns: 1) Increased competition among generic manufacturer and from the “names” of the industry. 2) Prevalence of Generics in the market will reduce incentive for brand-names to invest in new drugs. 3) Presence in Asia not as strong as in Europe or North America.

  38. Valuation

  39. Summary • Recommended Action:

  40. QUESTIONS?

More Related