J.P. 摩根-美股-医疗保健行业-医疗科技与渠道：消费者继续重塑医疗保健-2019.9-76页.pdf

Healthcare Technology&DistributionThe Consumer Continues to Reshape Healthcare Thoughts into Year End 2019 from Legacy Companies to Recent IPOsHealthcare Technology&DistributionLisa C.Gill AC(212)622-Bloomberg JPMA GILLJ.P.Morgan Securities LLCSee the end pages of this presentation for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Conference Call DetailsThursday,September 12 11:00am ETDial-in Info:Please contact us or your J.P.Morgan sales contact for detailsReplay through 9/19North America Equity ResearchSeptember 2019Michael R.Minchak,CFA AC(212)622-J.P.Morgan Securities LLCAnne E.Samuel AC(212)622-J.P.Morgan Securities LLC2Comparables:Healthcare Technology&DistributionSource:Bloomberg.Pricing as of 9/11/2019.J.P.Morgan Healthcare Technology&Distribution Coverage UniverseCompanyTickerJPMPrice%ChangeDilutedMarket CapLT GrowthDividendTargetRating HighLowYTDSharecount(billions)2019E2020EForecast2019E2020EYieldPriceDistributorsAmerisourceBergenABCN$87.79$94.85$69.3618.0%$18.512.211.314%8.38.01.9%$95.00Cardinal HealthCAHN$48.88$58.31$41.039.6%$14.79.99.52%7.57.44.0%$51.00McKessonMCKOW$148.53$150.82$106.1134.5%$28.110.69.82%8.38.31.1%$169.00Ow ens&MinorOMIUW$8.22$18.40$2.4329.9%$0.512.611.4(9%)8.66.80.1%NAPharma Distributors average20.7%10.910.26%8.17.9Dental Distributors(covered by M.Minchak)Henry ScheinHSICN$65.84$72.81$56.587.0%$9.819.117.52%13.012.5N/A$66.00Patterson CosPDCOUW$18.39$26.60$15.73-6.5%$1.713.512.94%9.49.35.8%$18.00Dental Distributor average0.3%16.315.23%11.210.9All Distributors average15.4%13.012.13%9.28.7Retail PharmacyCVS HealthCVSOW$63.99$82.15$51.72-2.3%$83.39.29.06%8.58.23.1%$88.00Rite AidRADN$9.68$27.20$5.04-31.7%$0.5N/AN/AN/A7.37.1N/A$8.00Walgreens Boots AllianceWBAOW$58.06$86.31$49.03-15.0%$52.99.89.55%8.28.03.2%$73.00Retail Pharmacy average-16.3%9.59.36%8.07.8CVS and WBA average-8.7%9.59.36%8.38.1Clinical LaboratoriesLabCorpLHOW$174.16$178.44$119.3837.8%$17.215.514.57%12.511.9N/A$204.00Quest DiagnosticsDGXN$103.93$109.29$78.9524.8%$14.416.015.38%11.411.32.0%$111.00Clinical Laboratory average31.3%15.814.98%12.011.6OtherCernerCERNN$68.33$76.47$48.7830.3%$21.825.321.414%12.411.11.1%$76.00Change HealthcareCHNGOW$12.34$15.50$11.24NA$1.57.68.73%6.35.9N/A$18.00Diplomat PharmacyDPLON$6.55$21.48$4.17-51.3%$0.591.025.025%11.910.7N/A$6.00PremierPINCN$35.56$47.22$31.31-4.8%$4.513.212.39%8.17.6N/A$45.00TeladocTDOCOW$68.08$89.05$42.0837.3%$5.5N/AN/A45%N/AN/AN/A$82.00Healthcare IT(covered by A.Samuel)AllscriptsMDRXN$10.40$14.82$8.547.9%$1.715.313.59%7.16.6N/A$12.00Evolent HealthEVHN$7.89$29.05$5.50-60.5%$0.7N/AN/A15%N/AN/AN/A$12.00Health CatalystHCATOW$34.43$49.85$32.15NA$1.3N/AN/ANAN/AN/AN/A$50.00HealthEquityHQYOW$58.61$101.58$50.29-1.7%$4.143.836.618%27.421.6N/A$80.00LivongoLVGOOW$23.93$45.68$22.88NA$2.3N/AN/ANAN/AN/AN/A$43.00NextGenNXGNUW$15.79$22.60$13.604.2%$1.021.517.58%10.08.8N/A$17.00PhreesiaPHROW$25.61$29.38$22.05NA$0.9N/AN/ANAN/AN/AN/A$33.00Healthcare IT average(including CERN,PINC)-4.1%23.820.312%13.011.1S&P 500SPX3,000.933,027.982,346.5819.7%18.2x16.5xSource:Bloomberg and J.P.Morgan estimates.LT growth forecast from Bloomberg.*Target Prices for RAD,DPLO,CHNG,PINC,MDRX and HQY are based on an EV/EBITDA multiple;TDOC and EVH based on EV/sales multiple;all others based on a P/E multiple.Note:J.P.Morgan ratings:OW=Overweight;N=Neutral;and UW=Underweight;NR=Not Rated.Enterprise Value/EBITDA52-Week RangePrice/Earnings Ratio3YTD 2019 Stock Price PerformanceThe S&P 500 is up+19.7%YTD in 2019 and the S&P 500 Health Care Sector Index is up+5.6%YTD.However,our covered companies are up 3.5%,on average,YTD in 2019.Pharmaceutical Distributors are up+20.7%YTD in 2019,on average,with both ABC and MCK outperforming CAH(ABC is up+18.0%and MCK is up+34.5%while CAH is up 9.6%).Drug Retailers are down-16.3%on average YTD in 2019.CVS is down-2.3%YTD in 2019,outperforming WBA(down-15.0%YTD)and RAD(down-31.7%YTD).Clinical Labs are up+31.3%YTD in 2019,nicely outperforming the S&P 500,with LH(up+37.8%YTD and the best performing stock in our coverage universe)outperforming DGX(up+24.8%YTD).Dental Distributors are up+0.3%on average YTD in 2019,with HSIC up+7.0%YTD,while PDCO is down-6.5%.Healthcare IT is down-4.0%YTD on average in 2019 with MDRX up+7.9%,EVH down-60.5%(the worst performing stock in our coverage universe),HQY down-1.7%,NXGN up+4.2%and CERN up+30.3%.Among small/mid cap stocks not included within the five sectors discussed above,TDOC(a Telehealth provider)is up+37.3%YTD in 2019,and is the second best performing stock in our coverage universe despite the weakness post 4Q earnings,while DPLO(a Specialty Pharmacy)is down-51.3%YTD in 2019 and is the second worst performing stock in our coverage universe.OMI(a Medical Supply Distributor)is up 29.9%YTD in 2019.Finally,PINC(a GPO and Technology Services provider)is down-4.8%YTD.Source:Bloomberg.Pricing as of 9/11/2019.4YTD 2019 Stock Price PerformanceSource:Bloomberg.Note:Prices as of 9/11/2019.Stock Performance YTD in 2019 by CompanyEVH,-60.5%DPLO,-51.3%RAD,-31.7%WBA,-15.0%PDCO,-6.5%PINC,-4.8%CVS,-2.3%HQY,-1.7%NXGN,4.2%HSIC,7.0%MDRX,7.9%CAH,9.6%ABC,18.0%DGX,24.8%OMI,29.9%CERN,30.3%MCK,34.5%TDOC,37.3%LH,37.8%5YTD 2019 Stock Price PerformanceSource:Bloomberg.Note:Prices as of 9/11/2019.Stock Performance YTD in 2019 by Sector-40%-30%-20%-10%0%10%20%30%40%Drug DistributorDrug RetailLabsDental DistHealthcare ITS&P 500SectorReturnLabs31.3%Drug Distributor20.7%S&P 50019.7%Dental Dist0.3%Healthcare IT-4.0%Drug Retail-16.3%6Top Ideas Heading Into Year End 2019Implied Upside17%Source:Bloomberg(prices based on 9/11/19 close),J.P.Morgan estimates.Ticker:CVSRating:OverweightDec-20 Price Target:$88CVS HealthTicker:LHRating:OverweightDec-20 Price Target:$204LabCorpTicker:TDOCRating:OverweightDec-20 Price Target:$82Teladoc Health20%38%Top Pick7Top Pick:CVS(CVS/OW)We believe CVS is one of the best positioned companies across our coverage universe over the longer term,based on the integrated model and broad suite of servicesCVS is well positioned in an evolving market characterized by new reimbursement models(shift to value-based care)and the“retailization”of healthcare(CVSs trusted brand,name recognition and nationwide footprint are an important benefit)The Aetna deal brings a new integrated model to the marketplace.Combined entity to drive lower overall health costs through integrated data/analytics,more effective patient engagement and shifting care to lower cost sites At the recent Investor Day,the company provided a favorable outlook for the next several years,with a return to double digit EPS growth in 2022 driven by integration synergies,enterprise modernization and transformation initiativesWhile the performance of the Omnicare LTC pharmacy business has been below expectations,we believe in the longer term strategy and point to ongoing turnaround initiatives expected to drive improvement in 2020 We continue to believe PBMs are part of the solution to rising drug costs,and do not anticipate significant changes to the PBM business model Despite ongoing concerns,we dont view Amazon as a significant near term threat and believe it will take time for the company to add capabilities and scale up operations8LabCorp(LH/OW)In the clinical lab space,we continue to favor LabCorp(LH:OW)given its differentiated positioning across two areas of healthcare(Lab+CRO)Managed care shifts remain stable,and UNHs Preferred Lab Network represents an opportunity for future share capture as it ramps over time We remain positive on the strength in the Covance business.Initiatives are underway that would enhance the combined assets through collaborating around oncology,genetics,and drug development,or through logistics(i.e.using infrastructure of the PSCs)We believe LH is well positioned to capture the shift to consumerism,expanding its partnership with Walgreens to 600 doors across the US over the next 4 years.LH has spoken to increased volume at these patient service centers with 28%of patients seen at Walgreens locations new to LabCorpLabCorp continues to deploy capital in a shareholder friendly way,with$1.05B remaining on the companys authorization.They have guided to using all of the companys free cash flow in 2019 for share repurchases and acquisitions Relative valuation continues to favor LH,with shares trading at a 5%FY20 P/E discount to peer DGX,despite 40%of revenue derived from the CRO growing more rapidly,and noting a historical average discount of 7%over the past 5 years.Other Top Picks9Other Top PicksWe point to a significant amount of runway in the core telehealth market with a penetration rate currently below 1%Teladoc has a strong competitive positioning as the largest player with a significant first-mover advantage and the only comprehensive virtual care delivery solutionWe highlight a diversified set of growth opportunities adding new clients/lives,driving member utilization,adding new specialties/technologiesThe CVS relationship represents a key opportunity for Teladoc,as we expect CVS to actively promote telehealth as it looks to shift members to lower cost sites of careWe also point to synergies and potential cross-selling opportunities related to the Best Doctors and Advance Medical acquisitionsTeladoc can further expand the addressable market by adding capabilities in areas such as preventive care,chronic disease management and post-hospitalization care Teladoc(TDOC/OW)10Key Incoming Questions Across the SpaceThoughts on Potential Exposure to Opioid Settlements for DistributorsRetail Pharmacy Backdrop and Thoughts on CVS and WalgreensThoughts on the PBM Space and Selling SeasonThoughts on the Political/Regulatory BackdropActual Impact of Contract Shifts on the Clinical LabsThoughts on Teladoc Given Recent VolatilityWhat Does the Future Hold for DPLOLatest Thoughts on Healthcare IT/Views on Recent IPOsEnd Market Growth and Margin Trend for Dental Distributors11Potential Exposure to Opioid Settlements for Pharma DistributorsPotential exposure to opioid settlements has been a key overhang on the distributors,and in our view,a key obstacle in engaging long term shareholdersMultidistrict Litigation(MDL)in the U.S.District Court for the Northern District of OhioOver 2,000 cases filed by various counties,cities and towns nationwide have been consolidated in the MDLThe trial for 2 bellwether(Track 1)cases for Cuyahoga and Summit counties is scheduled to begin on October 21stPre-trial settlements for Track 1 cases:Mallinckrodt($30M,including$24M in cash and$6M in free drugs);Endo($11M,including$10M in cash and$1M in free drugs)and Allergan($5M)State of OklahomaPre-trial settlements by:Purdue($270M)and Teva($85M)On 8/26,the Judge ruled against J&J,and awarded$572M in damages(J&J is appealing)On August 27,NBC News reported that Purdue was offering to settle over 2,000 opioid suits for$10-$12BHowever,The AP subsequently reported on September 7 that talks with the state AGs are at an impasse12Potential Exposure to Opioid Settlements for Pharma DistributorsWe believe it is difficult to size potential exposure for distributors based on the various manufacturer settlements or damages awards,due to very different roles within the channelPharma DistributorsPharma ManufacturersDistributors solely serve as an intermediary in the supply chain,shipping FDA-approved medications to pharmacies that are licensed by the DEA and state regulatory authorities which dispense those medications to patients based on prescriptions written by healthcare professionals that are licensed to prescribe medication to treat patients under their careOpioids do have a legitimate medical purpose,and distributors do not have access to patient information,nor are they qualified to question the patient treatment plan from a licensed physicianThat said,lawsuits allege that distributors did not do enough to help mitigate the epidemicFailed to report and stop suspicious ordersFailed to providing effective controls to guard against the diversion of controlled substances for illegitimate purposes13Potential Exposure to Opioid Settlements for Pharma DistributorsProposed settlement by distributorsBloomberg reported in early August that the three large distributors had proposed to pay$10B to settle claims that they helped fuel the opioid crisis as part of talks with a group of state AGsThe AGs reportedly responded with a counteroffer of$45BKey uncertainties regarding a potential settlement:While it would depend on the details,a global settlement could be viewed positively if it allowed the companies to put the uncertainty behindIn our view,if each distributor were to hypothetically pay total penalties of$3.5-$5.0B over a period of 10+years,we believe this would generally be viewed as a positive outcome(this is within the range of expectations of investors that we have spoken with)1)How big would the settlement be?Distributors have deep pockets(especially relative to some other defendants),and generally have a higher degree of financial flexibility2)Over how many years would it be paid?Longer time period provides greater flexibility The Bloomberg report pointed to settlement amounts being paid“over decades”3)What would the settlement cover?Would it resolve all claims,including lawsuits by states,municipalities and others?Interest in resolving all cases at once vs.separately14Potential Exposure to Opioid Settlements for Pharma DistributorsWe believe the distributors have a high degree of flexibility to absorb potential settlements1.8x2.9x1.8x0.0 x1.0 x2.0 x3.0 x4.0 xABCCAHMCKGross Leverage,as of Most Recent Quarter$3.0$2.5$1.9$0.0$1.0$2.0$3.0$4.0ABCCAHMCKCash Balance,as of Most Recent QuarterThe pharma distributors generate strong and steady cash flowsSignificant free cash flow after dividendsShare repo or debt paydown can be dialed back if necessary to fund settlementsLeverage is generally lowCAH leverage is slightly elevated as it continues to pay down debt issued to fund Patient Recovery acquisitionSizeable cash balances provide dry powderCash Flow TrendsABCCAHMCKF2020EF2020EF2020EOperating Cash Flow$1.9$2.2$3.5Capex($0.3)($0.3)($0.6)Free Cash Flow$1.6$1.8$2.9Dividends($0.4)($0.6)($0.3)FCF After Dividends$1.2$1.3$2.6Acquisitions$0.0$0.0($0.0)Share repurchases($0.5)($0.5)($1.7)Debt paydown($0.1)($1.0)($0.3)FCF After All Uses of Cash$0.7($0.2)$0.6Source:Company reports,J.P.Morgan estimates15Potential Exposure to Opioid Settlements for Pharma DistributorsWhile the focus is on opioids,trends in core U.S.Pharma Distribution business are improvingBranded inflationBrand inflation trends are generally in line with lowered expectations(mid-single digit range)However,not a major earnings d