HEALTHCARE THEMES CALL

Transcription

1 THOMAS TOBIN MANAGING ANDREW FREEDMAN HedgeyeHIT HEALTHCARETEAM@HEDGEYE.COM (203) HEALTHCARE THEMES CALL JULY 14 TH, 2016 AT 11:00 M ET HEDGEYE 1

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3 HEALTHCARE THEMES 1 2 #LATECYCLE The ACA likely steepened what is typically a late cycle recovery in medical consumption. Medical consumption trends are slow to develop and can often be confused as defensive. Its different this time a steeper drop. DEMOGRAPHIC DEFLATION Commercially insured working population continues to slow. The Commercially Insured US Medical Consumer has the highest revenue and margins. Medicare beneficiaries are growing but CMS policy will need to reduce real per beneficiary spending. LATE CYCLE Healthcare is late to slow, and late to reaccelerate. HEALTHCARE DEFLATION DEMOGRAPHICS Aging Population, Medicare Mix Shift, More w/less, Incidence 3 REGULATION / #ACATAPER New enrollees from exchanges and Medicaid expansion was a one-time stimulus to the medical economy. ACA reforms will continue to put pressure on healthcare inflation. #ACATaper Pent-Up Demand High Acuity Normalization REGULATORY ACA / HDHP / CCJR Technology Transparency HEDGEYE 3

4 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 MDSO Medidata Solutions, Inc CERN Cerner Corporation 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 4

5 HEALTHCARE GROWTH SLOWING AGGREGATE SALES AND EPS TIED TO JOB OPENINGS Sales Growth 15% 13% 11% 9% 7% 5% 3% S&P 500 Healthcare - Actual Sales YoY % JOLTS Healthcare Job Openings YoY % Correlation = % 40% 30% 20% 10% 0% -10% 50% 40% 30% 20% 10% 0% JOLTS Healthcare Job Openings YoY % S&P 500 Healthcare - Actual EPS YoY % Correlation = % 16% 14% 12% 10% 8% 6% 4% EPS Growth 1% -20% -10% 2% -1% -30% -20% 0% HEDGEYE 5

6 WHERE TO FROM HERE? MEDICAL CONSUMER SLOWDOWN DATA SOURCE: NHE AND BLS HEDGEYE 6

7 ACA ENROLLMENT 30 Exchange Enrollment* Medicaid Enrollment** 25 *Includes a mix of pre-effectuated and effectuated enrollment for 2014/2015 period. February 2016 is preeffectuated only reflecting OE3. ACA Enrollment (millions) **Cumulative enrollees for expansion states relative to baseline enrollment year 5 0 DATA SOURCE: CMS, KAISER AND BLS HEDGEYE 7

8 HEALTHCARE JOB OPENINGS (JOLTS) EXTENDED AND SLOWING 1, x JOLTS - HC Job Openings Average HC JOLTS % of HC Employment +1 Std Dev -1 Std Dev 2.5x 1, x Z-Score 1.5x 1.0x 0.5x 0.0x -0.5x -1.0x -1.5x -2.0x -2.5x HEDGEYE 8

9 ESTIMATES SUGGEST ACCELERATION $60 S&P 500 Healthcare NTM $ EPS Actual Linear (Actual) $1,800 S&P 500 Healthcare NTM $ Sales Actual Linear (Actual) $1,600 $50 $1,400 $40 $30 y = 0.577x R² = $1,200 $1,000 $800 y = 18469x R² = $20 $600 $400 $10 $200 $- $0 CONSENSUS DEVIATING FROM LONG-TERM TREND Reasonable given level of M&A and Stimulus... but likely to mean revert amid slowing growth. DATA SOURCE: FACTSET HEDGEYE 9

10 BIOTECH IPO FUNDRAISING IT IS ALL ABOUT ACCESS TO CAPITAL... $25,000 Cumulative Bitoech IPO Fundraising $ NBI $4, # Priced Biotech IPOs $20,000 $4,000 $3, Gross Proceeds (millions) $15,000 $10,000 $3,000 $2,500 $2,000 $1,500 Nasdaq Biotech Index $5,000 $1,000 $500 5 $0 $- 0 DATA SOURCE: FACTSET HEDGEYE 10

11 COMMERCIALLY INSURED FLAT 250 Working Age Population (20-64) Retirement Age Population (65+) % Private Health Insurance Payment Rate as % of Medicare Payment Rate (%) Working Age Population (millions) Working Age Commercially Insured Plateaus Retirement Age Government Pay Takes Off Retirement Age Population (millions) 180% 160% 140% 120% 100% 80% 60% 40% 20% Medicaid Payment Rate as % of Medicare Payment Rate (%) - 0 0% PRIVATE HEALTH INSURANCE ~170% OF MEDICARE Mix shift toward Medicare will weigh on Hospital margins and eventually device manufacturers. DATA SOURCE: HEALTHAFFAIRS.COM HEDGEYE 11

12 45+ AGE CONTRIBUTIONS TO GROWTH 1.0% % 0.6% 0.4% 0.2% 0.0% -0.2% DATA SOURCE: U.S. CENSUS HEDGEYE 12

13 HEALTHCARE NTM EV/EBITDA 13.8x 12.8x 11.8x 10.8x S&P 500 Healthcare EV/EBITDA Average +1 Std Dev -1 Std Dev 1.4x S&P 500 Healthcare / S&P 500 EV/EBITDA Average 1.3x 1.2x +1 Std Dev -1 Std Dev 9.8x 8.8x 1.1x 7.8x 1.0x 6.8x 5.8x 0.9x 4.8x 0.8x DATA SOURCE: FACTSET HEDGEYE 13

14 #POLICY EMILY EVANS 1 ALTERNATIVE PAYMENT MODELS Health Care Payment Learning Action Network, Catalyst for Payment Reform, Vanderbilt Center for Health Care Market Innovation. Some are working, some are not we expect bundled payments will see significant take-up. 2 MACRA Has even greater potential to change how medicine is practiced than anything even the ACAPost-acute reform. POST-ACUTE REFORM 3 Post-acute care has become the focus of policy makers interest for over a decade. The trajectory of reform has steepened in recent years due to passage of the ACA. HEDGEYE 14