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2 LEGAL DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at HEDGEYE 2

3 HEALTHCARE POSITION MONITOR Sentiment Investment Ideas - Longs Trade Trend Tail Sentiment Investment Ideas - Shorts Trade Trend Tail Score 1 LONG Score 1 SHORT 6 ATHN athenahealth, Inc. 93 ZBH Zimmer Biomet Holdings, Inc AHS AMN Healthcare Services, Inc MD MEDNAX, Inc. 45 HOLX Hologic, Inc. 24 MDRX Allscripts Healthcare Solutions, Inc. --- Sentiment Long Bench Sentiment Short Bench Score 1 LONG Score 1 SHORT 35 CSLT Castlight Health, Inc. Class B n/a CPHD Cepheid EVH Evolent Health Inc Class A VRX Valeant Pharmaceuticals International, Inc CERN Cerner Corporation MDSO Medidata Solutions, Inc ILMN Illumina, Inc WOOF VCA Inc ICLR ICON Plc CYH Community Health Systems, Inc Q Quintiles Transnational Holdings, Inc CRL Charles River Laboratories International, Inc DVA DaVita HealthCare Partners Inc LPNT LifePoint Health, Inc QSII Quality Systems, Inc LH Laboratory Corporation of America Holdings HCA HCA Holdings, Inc PRXL PAREXEL International Corporation DGX Quest Diagnostics Incorporated CPSI Computer Programs and Systems, Inc DATA SOURCE: FACTSET HEDGEYE 3

4 VRX WHAT S NEXT? $20 FAIR VALUE -> COULD BE $0 We don't think Valeant is worth anything more than the value of the assets management paid for them, less the accumulated debt during the 5-year, acquisition spree. Due to the lack of organic growth and internal investment, the assets on Valeant's balance sheet reflect a reasonable fair value based on market prices paid. Could be $0 if market loses faith entirely. INTANGIBLES WRITE-DOWN & CREDIT DOWNGRADE Major credit rating agencies have already put VRX on watch for possible downgrade. Doing so would significantly impair their liquidity situation and make refinancing debt due in 2017/2018 more expensive. We anticipate a large write down of the $40 bill in intangibles as the variables have changed since the time of acquisition. BOARD LAWSUITS & MANAGEMENT SHAKEUP We would be surprised if Mike Pearson survives as CEO and expect to see more senior level executives leave the company in coming months. HEDGEYE 4

5 HEALTHCARE JOB OPENINGS (JOLTS) 70.0% 60.0% 50.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % 2-Yr Average Rolling 12-mo Average 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 5

6 PEAK HC JOB OPENINGS? 1,100 HC Job Openings Average +1 Std Dev -1 Std Dev 1, x Std Deviation 900 ACA Impact DATA SOURCE: BLS HEDGEYE 6

7 HEALTHCARE JOLTS SLOWING 50.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % 2-Yr Average 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 7

8 HEALTHCARE JOLTS SLOWING 60.0% 50.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % ROC 40.0% 30.0% 1/31/ % 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% 1/31/ % 1/31/ % DATA SOURCE: BLS HEDGEYE 8

9 HEALTHCARE JOLTS % EMPLOYMENT 3.0x 2.5x HC JOLTS % of HC Employment 2.0x 1.5x 1.0x Z-Score 0.5x 0.0x -0.5x -1.0x -1.5x -2.0x -2.5x DATA SOURCE: BLS HEDGEYE 9

10 HEALTHCARE EMPLOYMENT 3.5% Employment - Health care y/y growth % 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% - DATA SOURCE: BLS HEDGEYE 10

11 HOSPITAL EMPLOYMENT 4.0% 3.5% Employment - Hospitals y/y growth % 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% - (0.5%) (1.0%) DATA SOURCE: BLS HEDGEYE 11

12 BIOTECH EMPLOYMENT 8.0% Employment - Biotechnology research y/y growth % 6.0% 4.0% 2.0% - (2.0%) (4.0%) (6.0%) DATA SOURCE: BLS HEDGEYE 12

13 PHYSICIAN OFFICE EMPLOYMENT 4.0% Employment - Offices of physicians y/y growth % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% - DATA SOURCE: BLS HEDGEYE 13

14 HCA ADMISSIONS VS JOLTS JOLTS YoY % 45.0% 35.0% 25.0% 15.0% 5.0% -5.0% -15.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % HCA SS Admissions (y/y growth %) Correlation = % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% HCA SS AdmissionsYoY% DATA SOURCE: BLS AND COMPANY FILINGS HEDGEYE 14

15 AHS ORGANIC GROWTH MODEL 35.0% Combined Model AHS: Total Organic Growth YoY % 30.0% Correlation = % Employment - Health care YoY % AHS: Total Organic Growth YoY % 30.0% Correlation = % 20.0% 15.0% Regression Includes HC JOLTS Layoffs and Discharges 25.0% 20.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% -5.0% -5.0% -10.0% -10.0% DATA SOURCE: COMPANY FILINGS AND BLS HEDGEYE 15

16 MD SAME-UNIT VOLUME AND JOLTS JOLTS YoY % 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % MD: Same-Unit Volume Growth (y/y %) Correlation = % 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Same-Unit Volume Growth % HEDGEYE 16

17 MD MATERNITY TRENDING DOWN DATA SOURCE: HEDGEYE MATERNITY TRACKER HEDGEYE 17

18 MD DEAL MULTIPLE ROIC 20% 0% -20% 9.5% 10-year IRR -12.5% 10-year IRR 20% ROIC % (ttm) 19% 18% 17% IRR % -40% 4x EBITDA -60% 6x EBITDA 8x EBITDA -80% 10x EBITDA 12x EBITDA -100% 16% 15% 14% 13% 12% 11% -120% 10% DATA SOURCE: COMPANY FILINGS HEDGEYE 18

19 MD DEAL ACTIVITY 9 8 American Anesthesiology (Mednax, Inc.) Amsurg/Sheridan # Anesthesiology Deals DATA SOURCE: HAVERFORD ASSOCIATES HEDGEYE 19

20 MD NET DEBT SCENARIOS 2,000 1,800 Net Debt Consensus Net Debt HRM $1,824 $ millions 1,600 $1,421 1,400 $1,202 $1,202 1,200 $1,127 1, $ $505 $ :E 2017:E DATA SOURCE: COMPANY FILINGS HEDGEYE 20