1、1See 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
2、 that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.North America Equity ResearchJanuary 2020PharmaceuticalsChris Schott,CFA AC(1-212)622-J.P.Morgan Securities LLC2020 US Pharma HC Conference PlaybookChri
3、stopher Neyor(1-212)622-J.P.Morgan Securities LLCEkaterina Knyazkova(1-212)622-9576EJ.P.Morgan Securities LLCXiling(Cici)Chen(1-212)622-0364XJ.P.Morgan Securities LLC2Overall Positioning For US PharmaMajor PharmaWe see an ongoing new product cycle translating into an upward bias to our near-andlong-
4、term estimatesPricing concerns remain a key focus point of discussion on the group but we seecommercialpricingdynamicsalreadywellreflectedinour/Streetestimatesandgovernment reform appears manageableAdmittedly,the 2020 Presidential Election season rhetoric remains a wild cardOur recommendations are s
5、kewed towards names with the longest runways for EPSgrowth(LLY,MRK)or those trading at a steep discount to peers(BMY)Favorite ideas:LLY,MRK,BMYSpec PharmaWe are marginally less bearish on the group relative to 2018/2019 with earnings havinglikely bottomed for most names and opioid liabilities increa
6、singly reflected in valuation.However,with leverage still elevated and growth uninspiring,we still do not see acompelling reason to broadly own the group.Favorite ideas:CHRS,MYL.Least favorite names:ENDP,AMRX,MNK,TEVAAnimal HealthMost attractive fundamentals(and highest valuations)in our coverage,bu
7、t we continue tosee the potential for top-and bottom-line beats for both ZTS and ELAN.Both areparticularly interesting names on any broader market pullback.Favorite ideas:ZTS,ELAN3Key Events/Themes To Watch At The ConferenceMajor PharmaOn 2020 guidance,as in the past,we expect guidance to be release
8、d with 4Q results in late Jan/early Feb vs.at the conference.That said,we will be looking for any additional 2020 color from PFE,BMY and MRK.Biz dev priorities remain a key topic of discussion(especially after last years BMY/CELG announcementahead of the conference).We are expecting fewer mega deals
9、 in 2020 vs.2019 but would not be surprised tosee several tuck-in deal announcements.MRK,LLY most in focus among our large caps regarding bizdev in 2020With pricing reform dominating headlines and the 2020 election season approaching,we will be listening forincremental commentaries on HC reform and
10、overall price dynamics.BMY and LLY shares remain mostsensitive to Medicare/Medicaid policy headlinesPlease note:ABBV,LLY,JNJ,MRK and PFE will be doing fireside chats at the conferenceSpec PharmaKey topics include opioid litigation(incremental settlement discussion color),generic pricing(we seeongoin
11、g but more predictable erosion)and biosimilars.We will also be watching for any pre-announcements.While spec companies have not consistentlypreannounced at the conference,we would highlight CHRS and PCRX potential companies that couldcomment on 4QMost interesting/controversial stories within spec wh
12、ere wed be watching:MYL,TEVA,and BHCAnimal HealthWe see flea/tick dynamics as a key theme in 2020Also,while not anticipating guidance,watching for 2020 color from both companies(ZTS topline growthvs incremental spend,ELAN topline impact from competition)4Major Pharmaceuticals5Eli Lilly Highly Divers
13、ified,Top-Tier GrowthWe see LLY offering top-tier,diversified growth driven by a combination of healthy core product trends,a portfolio of new launches,next-generation pipeline assets,as well as a significant margin expansion opportunity.We expect LLYs healthy script trends for its core diabetes por
14、tfolio(particularly Trulicity)as well as strong new launch performance to drive strong top-line growth and forecast 7%sales CAGR through 2025We also see a significant margin expansion opportunity for LLY and forecast operating margin of 31%in 2020 increasing to the high 30s%over timeWe see this comb
15、ination driving 6-8%top-line growth and mid-teens annual EPS growth through much of the next decade with several sources of upside to near-and long-term numbersFurther,we see a number of 2020 pipeline catalysts with phase 3 data including tirzepatide(GIP/GLP),mirikizumab Phase 3 in UC,and Jardiance
16、heart failure trial data in late 2020 as well as Loxo-305(BTK)data,potential Verzenio adjuvant readout,sola Alzheimers call option(DIAN),&pegilodecakin(IL-10)in NSCLCQuestions for management:Focus on Diabetes,PipelineCan you talk about the competitive dynamics and pricing pressures in pharma and the
17、 diabetes space more specifically?What gives you confidence in your low-single-digit pricing erosion guidance and how are you thinking about pricing as we look forward to the next few years?On Trulicity,how sustainable is injectable GLP-1 category growth in light of Novos Rybelsus launch?Where can b
18、asal vs GLP-1 share go over time?What are you hearing from payers on Rybelsus?As we think about the 300 bps operating margin improvement you talked about for 2020 as well as your goal of mid to high 30s margins over time,what are the key drivers here as we think about SG&A vs.R&D leverage?What are y
19、our latest thoughts on the Alzheimers pipeline ahead of the solanezumab DIAN readout?How big of an opportunity would this study open up for the company?What are your business development priorities at this point?Any particular therapeutic areas or stage of development where you are most focused?Tick
20、er:LLYRating:OWMkt Cap:$126bn6MerckKeytruda Ramp,Pipeline Progression Represent Key DriversWe see MRK as one of the best positioned names in our group with an extended window of top-and bottom-line growth driven by Keytruda with potential for further upside to estimates(particularly EPS)We forecast
21、5%top-line and double-digit EPS growth CAGR through 2027 with Keytruda representing the key pillar of growth and inclusive of the full impact of the Januvia/Janumet patent expiryWhile MRK shares have had a strong run,valuation remains reasonable at 16x 2020E EPS(well below the S&P 500 but a premium
22、to Major Pharma peers)while standalone pharma trades at only 11.5x 2020 estimates after adjusting for the companys non-pharma Vaccines and Animal Health franchisesWhile Keytruda concentration remains our primary pushback,this view is misplaced in our view given the potential for significant upside t
23、o consensus estimates and 10 years until the product loses of patent protection.Further,we expect Merck to maintain significant capital deployment optionality for further share repo/biz dev to further enhance shareholder returnsQuestions for management:Focus on Keytruda dynamics,pipeline and biz dev
24、What are your latest thoughts on the Keytruda launch and what inning of the commercial ramp do you think we are in at this point?Adjuvant seems like the next major set of clinical readouts for Keytruda-what are you most focused on there?How are you thinking about Gardasil capacity and growth over th
25、e next several years?Update on the mid-stage pipeline and what the company is most excited about there?How are you thinking about opex trends over the next several years?Help us better understand the magnitude of margin expansion potential at the company MRK has maintained a more diversified busines
26、s while your competitors have continued to spin or sell non-traditional biopharma businesses,can you elaborate on your rationale behind this strategy and how you are thinking about your portfolio?On BD,what are your latest thoughts on the current landscape and how are you thinking about the type of
27、asset you are interested in(commercial vs clinical,broader platform vs single product companies?)Ticker:MRKRating:OWMkt Cap:$232bn7Bristol-Myers SquibbPositive Outlook Post-deal with Attractive Catalyst Path and Longer-Term Pipeline OptionalityWhile BMYs 2019 acquisition of CELG was controversial an
28、d the company faces a number of LOEs in the 2026-2027 timeframe,we see a favorable risk/reward post-merger for shares with the potential for both earnings upside both near and longer term as well as further multiple expansionOn the core franchise,we see potential upside to Opdivo estimates based on
29、a combination of a 1L NSCLC opportunity including CM-227 Part 1(color on label)as well as the CM-9LA data presentation(likely AACR 2020)as well as several non-lung metastatic updates(led by CM-9ER,1L RCC-TKI combo)and adjuvant readouts(bladder,etc)over the next 12-24 months.In addition,we see a numb
30、er of positive pipeline catalyst for Bristol including assets such as Ozanimod(GI indications),TYK2(psoriasis)as well as a variety of CAR-T/bispecific programs in the heme-onc space.While the company admittedly has a challenging LOE cycle emerging in 2026-2027,this dynamic is reflected in valuation
31、with the company trading at 10.5x 2020E EPS(vs 16.0 x major pharma peers)and with an extended window to address these headwinds(late-stage assets,internal R&D,bizdev)Questions for management:Focus on Opdivo,pipeline and 2020 dynamicsOn Opdivo,you talked about 2020 as the trough year for the product
32、with a return to growth in 2021+.How are you are thinking about the trajectory for that growth and any potential pushes and pulls for the product?What are some of the key Opdivo readouts we should be watching next year?Which of the adjuvant readouts are you most focused on?As we think about the upco
33、ming patent cycle in 2026-2027,what are some of the strategies and key pipeline asset that gives you confidence for navigating that headwind?What are you most focused on as we consider the pro forma companys pipeline?Any incremental color on 2020 topline and EPS dynamics relative to your initial com
34、mentary with the CELG deal?How are you thinking about capital deployment priorities over time given the substantial cash generation of the biz?Ticker:BMYRating:OWMkt Cap:$150bn8Johnson&JohnsonPharma Business Remains Well Positioned,but Litigation Challenges Remain an OverhangWe see a relatively heal
35、thy outlook for JNJ with mid-single digit sales growth underpinned by above industry average growth for the pharma business and an ongoing turnaround in Medical Device(and Consumer segment)which are showing signs of life.However,talc/opioid litigation controversies remain a significant overhang on J
36、NJ shares.With this persisting for the foreseeable future,we believe it will be difficult for JNJs valuation to normalize in the near-term.We forecast 4%sales growth and 7%EPS growth CAGR for JNJ thru 2024 with a clear reacceleration of JNJs top and bottom-line growth in 2020+led by Pharma(+6%)as we
37、ll as a gradual Medical Device and Consumer turnaround.On Pharma segment,JNJ remains fairly well positioned with above industry-average growth in 2020-2023(6%vs.4%for the group)underpinned by 10+blockbuster franchises.Outside of pharma,Med-device(and Consumer)segments are showing clear signs of life
38、 although it remains too early to declare success.At the same time,this positive fundamentals outlook is balanced by continued legal liabilities headlines on talc and opioids where we see no easy solutions and expect these headlines to continue to represent an overhang on the stock.Questions for man
39、agement:Focus on Pharma growth outlook,device reacceleration,litigationYou have targeted returning to above industry average pharma growth in 2020-2023 yet the Street is still below this target.What gives you confidence in that outlook and are there major gaps vs.consensus that youd point us toward?
40、Seems like there are a significant number of line extensions across your in-market pharma portfolio and historically seems as though the Street under-estimates the importance of these.What are the more significant ones we should be watching?Help us understand the pivots you have made in your device
41、business that have contributed to the reacceleration in growth that we are seeing?What are your key business development priorities at this point?What are your latest thoughts on talc,opioids and Risperdal?Any changes to the approaches you are taking to each litigation?Ticker:JNJRating:NMkt Cap:$384
42、bn9PfizerUpjohn Creates Cleaner Growth Story but RemainCo Valuation Appears Challenging With PFEs planned spin of Upjohn in mid-2020 creating a pure-play,innovation-driven biopharma business,we see New Pfizer positioned for significant growth with 6-7%/12%sales/EPS CAGR through 2025.However,with Pfi
43、zer facing a major patent cycle in 2026+,we believe further pipeline progression is need to justify further upside for shares from here.We see strong topline growth for New Pfizer driven by new launch pipeline portfolio which is a combination of new indication line extensions(e.g.Ibrance adjuvant)as
44、 well as new product launches(e.g.Vyndaqel,Braftovi+Mektovi,emerging JAKs),and ongoing core product growth(e.g.Eliquis,biosimilars).Further,we see a fairly meaningful operating margin opportunity in 2020+where we forecast IBT margins expanding to 42%in 2025E from 35%in 2020E.At the same time,we feel
45、 New Pfizers multiple is ahead of itself with shares trading at the high end of the peer group at 16x 2020E EPS(assuming 2020 RemainCo EPS of$2.25 and a Upjohn worth$2 per share for Pfizer holders)while the company faces another significant patent cycle in 2026+.Questions for management:Focus on pip
46、eline vs patent expirations,2020 dynamicsPfizer appears well positioned to accelerate its growth over the next 5 years but as we start thinking about the patent cycle coming in 2026,how are you positioning the company and what are some of the assets that give you confidence for navigating these out
47、year challenges?When you look at the pipeline,are there particular assets that you see driving the gap between your expectations and Street consensus?What are the top 3 under-valued assets in your opinion?Does the smaller footprint at RemainCo enable further business simplification and cost savings?
48、How significant is that opportunity?Given the cash flow profile of Pfizer RemainCo,how do you plan to prioritize share repo,dividend,and M&A/bizdev?We have a very important readout with Ibrance adjuvant this year how are you thinking about the readout and what gives you such confidence in the progra
49、m?Ticker:PFERating:NMkt Cap:$217bn10Animal Health Companies 11ZoetisHighly sustainable,best-in-class topline growth more than justifies premium valuationWe see ZTS as the cleaner of the two large cap animal health stories with the companys healthy core business and best-in-class pipeline supporting
50、continued above-industry average growth and an upward bias to topline and bottom-line estimatesWe see top-line growth for ZTS in the 8-10%range over the next several years as 1)the derm franchise continues to ramp(particularly ex-US),2)Simparica Trio launches in early 2020,3)the NGF/pain pipeline em
