1、 Life Science Tools&Diagnostics Year Ahead Outlook 2020 Top Ideas:XRAY,LH,IQV,and CHWY Life Science Tools and Diagnostics|Sector Forecast We continue to view less conventional names as an attractive play in healthcare,particularly as we head into a US Presidential election year,where healthcare acce
2、ss and drug pricing will remain key topics of debate,driving heightened headline risk and volatility for associated names,including Drug Distributors.In this context,we favor Animal Health,a sector inherently shielded from traditional human health dynamics,where underlying fundamentals remain robust
3、 on healthy pet adoptions,“humanization”of pets,and market-expanding innovation,with the embrace of new alternative channels also offering support.For Dental,our focus is on renewed innovation efforts,which should offer company-specific catalysts,particularly relevant in a still lackluster,albeit se
4、emingly stabilizing,North America end market.Meanwhile,biotech funding levels remain elevated,a trend that should support growth across larger,diversified CROs,offering attractive,alternative biopharma exposure,sheltered from binary outcomes inherent in drug development.Lastly,across our current Lif
5、e Sciences&Diagnostics cohort,we favor companies with more diversified platforms,which should offer multiple levers for growth.Below,we summarize our best ideas across our broad coverage universe heading into 2020.Dental Top PickDentsply Sirona(XRAY):XRAYs management has demonstrated building tracti
6、on on its turnaround story with an aggressive restructuring plan and stepped up innovation now more meaningfully materializing as we head into 2020,and we view it will continue to reap rewards from these initiatives in 2020 and beyond.Animal Health Top PickChewy,Inc.(CHWY):As the leader in pet e-com
7、merce,CHWY is well positioned amid a robust pet care industry,with an expanding customer base,unique customer engagement,and considerable Autoship adoption supporting strong recurring revenue streams,with line of sight to(adj.EBITDA)profitability in 2020,leveraging its technology and expanding produ
8、ct offering,along with its ramping scale.Importantly,we make no changes to our positive bias on Zoetis as an industry leader,where momentum should continue on innovation catalysts bolstering an already immensely diversified global portfolio with high visibility on growth and strong cash flow charact
9、eristics.Contract Research Organizations(CROs)Top PickIQVIA Holdings(IQV):Bookings of$5.8 billion merger-to-date related to its Next Gen Solutions should contribute to more meaningful topline growth,ahead of industry,with recently unveiled medium-term guidance calling for+6-9%organic growth from 201
10、9-2022.While it has clearly set lofty LT growth goals,we view it can leverage its unmatched data assets with its size and scale to capture greater share,while also boasting a relatively diversified customer base.Life Sciences/Diagnostics Top PickLabCorp(LH):We view multiple avenues for growth across
11、 LHs diversified platform,despite continued headwinds in core clinical laboratory services,with CRO drivers and strong cash flow generation offering capital deployment flexibility,particularly relevant given its role as a leading consolidator of smaller lab operations in a post-PAMA world.We are adj
12、usting target prices across specific companies on various factors including regulatory overhangs,demand dynamics,and company-specific factors.8 January 2020 Equity Research Americas|United States DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEG
13、AL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse 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.Investo
14、rs should consider this report as only a single factor in making their investment decision.Research Analysts Erin Wilson Wright 212 538 4080 erin.wrightcredit- Katie Tryhane 212 325 2713 katie.tryhanecredit- Haley Christofides 212 325 3720 haley.christofidescredit- Matthew Urbik 212 325 2152 matthew
15、.urbikcredit- 8 January 2020 Life Science Tools&Diagnostics 2 Our Recommendations for 2020 Figure 1:LST&D Coverage Universe(Ratings and Target Prices)Source:Company data,Credit Suisse estimates We view less conventional names as an attractive play on the healthcare space,particularly as we head into
16、 a Presidential election year,where healthcare access and drug pricing will likely remain key topics of debate,driving heightened headline risk and associated volatility for associated names,including Drug Distributors.In this context,we favor Animal Health,a sector inherently shielded from traditio
17、nal human health dynamics,where underlying fundamentals remain robust on healthy pet adoptions,“humanization”of pets,and market-expanding innovation,with the embrace of newer/alternative channels also offering support.For Dental,our focus is on renewed innovation efforts,which should offer company-s
18、pecific catalysts,particularly relevant in a still lackluster,albeit seemingly stabilizing,North America end market.Meanwhile,biotech funding levels remain at healthily elevated levels,a trend that should support growth across larger,diversified CROs,offering attractive,alternative biopharma exposur
19、e,sheltered from binary outcomes inherent in drug development.Lastly,across our current(albeit expanding)Life Sciences cohort,we favor companies with more diversified platforms,which should offer multiple levers for growth.Below,we summarize our best ideas across our broad coverage universe heading
20、into 2020 as well as the key investment themes within each subsector.DentalContract Research OrganizationsDentsply SironaXRAYOutperform$65IQVIA HoldingsIQVOutperform$175Envista HoldingsNVSTNeutral$30ICON PLCICLROutperform$187Align TechnologyALGNOutperform$320PRA Health SciencesPRAHOutperform$122Smil
21、eDirectClubSDCOutperform$17Syneos HealthSYNHOutperform$66Henry ScheinHSICNeutral$70Medpace HoldingsMEDPOutperform$91Patterson CompaniesPDCOOutperform$25Charles River LaboratoriesCRLNeutral$158Animal HealthLife Sciences&DiagnosticsZoetisZTSOutperform$143AvantorAVTROutperform$20IDEXX LaboratoriesIDXXO
22、utperform$293DanaherDHROutperform$65Elanco Animal HealthELANRestricted-LabCorpLHOutperform$182Phibro Animal HealthPAHCNeutral$25Quest DiagnosticsDGXNeutral$105CovetrusCVETNeutral$11Fulgent GeneticsFLGTNeutral$12ChewyCHWYOutperform$34Lantheus HoldingsLNTHNeutral$20Petmed ExpressPETSUnderperform$16Dis
23、tributorsAmerisourceBergenABCOutperform$98Cardinal HealthCAHOutperform$56McKessonMCKNeutral$145Owens&MinorOMIUnderperform$3.808 January 2020 Life Science Tools&Diagnostics 3 Figure 2:Healthcare Subsector Price Performance Source:Company data,Credit Suisse estimates,Factset,*Dental excludes Align Tec
24、hnology Dental Companies Underlying demand dynamics remained perplexing in 2019 following a couple years of notably lackluster growth,with overall consumables trends,particularly in the US,still lagging behind what would be expected in an improved macroeconomic environment.That said,we are beginning
25、 to see signs of stabilization across the underlying end market,with constituents posting slight year-over-year improvements in 2019,a dynamic we expect to continue into 2020.Meanwhile,equipment trends were mixed in 2019,with improvement across pockets of the market driven by benefits from an IDS ye
26、ar and relative exposure to meaningful innovation,where constituents such as Dentsply Sirona are beginning to reap rewards from focused R&D efforts.Figure 3:Recent Quarterly Dental Demand Trends as Reported by Industry Constituents Source:Company data,Credit Suisse estimates Following a year of comp
27、any-specific operational issues and management turnover in 2018,we began to see traction on self-help initiatives in 2019(e.g.salesforce execution,renewed 2012201320142015Biotechnology57.6%Specialty Pharma91.7%Managed Care42.6%Contract Services42.0%Hospitals37.3%Drug Retailers&PBMs81.2%Biotechnology
28、38.8%Managed Care19.8%Contract Services37.2%Biotechnology71.4%Specialty Pharma37.3%Diagnostics18.9%Drug Retailers&PBMs32.7%Drug Distributors63.8%Hospitals36.9%Dental*14.3%Diagnostics31.8%Contract Services57.1%Drug Retailers&PBMs29.1%Animal Health11.4%Animal Health27.7%Healthcare Technology46.1%Medic
29、al Devices28.1%Clinical Laboratories10.3%Life Science Tools22.0%Hospitals44.0%Drug Distributors25.9%Life Science Tools8.9%Medical Devices16.9%Medical Devices40.9%Dental*23.9%Drug Retailers&PBMs7.9%Drug Distributors14.0%Managed Care40.3%Diagnostics23.2%Medical Devices7.7%S&P 500 Index13.4%Life Scienc
30、e Tools38.9%Contract Services22.1%Biotechnology7.6%Specialty Pharma9.0%Dental*37.0%Clinical Laboratories21.7%Drug Distributors6.9%Large Cap Pharma7.5%S&P 500 Index29.6%Animal Health19.7%Specialty Pharma3.8%Dental*6.7%Diagnostics27.9%Large Cap Pharma14.0%Large Cap Pharma2.2%Managed Care5.9%Large Cap
31、Pharma27.1%Life Science Tools12.0%Healthcare Technology1.5%Healthcare Technology3.2%Animal Health24.0%S&P 500 Index11.4%S&P 500 Index-0.7%Clinical Laboratories0.6%Clinical Laboratories-1.3%Healthcare Technology-6.6%Hospitals-17.9%2016201720182019Animal Health24.6%Managed Care47.5%Medical Devices17.3
32、%Contract Services46.2%Clinical Laboratories16.5%Life Science Tools40.5%Healthcare Technology19.6%Specialty Pharma39.2%Managed Care12.1%Diagnostics37.9%Diagnostics15.4%Life Science Tools37.3%Medical Devices11.1%Animal Health35.5%Managed Care9.3%Medical Devices34.1%Contract Services10.0%Healthcare Te
33、chnology33.1%Large Cap Pharma8.6%Dental*30.5%S&P 500 Index9.5%Contract Services28.7%Animal Health2.6%Clinical Laboratories30.5%Healthcare Technology4.6%Medical Devices22.5%Contract Services2.5%S&P 500 Index29.5%Dental*3.0%Biotechnology22.3%Life Science Tools2.3%Animal Health24.3%Life Science Tools2.
34、5%S&P 500 Index19.4%Hospitals-6.0%Managed Care19.7%Large Cap Pharma-1.4%Dental*16.9%S&P 500 Index-6.2%Diagnostics17.2%Diagnostics-8.3%Clinical Laboratories15.7%Biotechnology-8.6%Drug Distributors17.1%Drug Retailers&PBMs-9.6%Large Cap Pharma10.9%Specialty Pharma-14.7%Hospitals17.0%Biotechnology-21.9%
35、Drug Distributors4.5%Clinical Laboratories-18.1%Large Cap Pharma14.8%Drug Distributors-24.3%Hospitals-3.8%Drug Distributors-25.1%Biotechnology14.4%Hospitals-29.9%Specialty Pharma-12.8%Drug Retailers&PBMs-26.5%Healthcare Technology4.6%Specialty Pharma-36.2%Drug Retailers&PBMs-22.0%Dental*-27.8%Drug R
36、etailers&PBMs-2.1%4Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q19Consumables-NegativeNegative-MSD-L-MSD-LDD+Slightly-MSD+LSD+LSD-LSD+LSDEquipment-Positive+LSD+LSD-MSD-HSD+Slightly-MSDFlat+LSD/+MSD-LSD-MSDConsumables-2.8%-4.3%-3.6%-4.4%-7.4%-6.7%-5.2%-2.2%-1.9%-0.9%-0.4%-0.1%Equipment-1.0%-16.9%-15.
37、1%-17.7%-10.6%-20.2%5.4%-0.9%5.6%13.1%-6.6%12.3%Consumables1.9%2.5%0.8%1.3%1.9%2.7%4.7%4.3%2.5%2.5%1.3%1.2%Equipment2.7%-5.5%14.8%-0.7%18.1%4.4%6.2%5.9%-4.3%3.3%-2.9%-4.5%Consumables2.5%8.0%1.4%3.4%-2.6%2.4%3.0%3.5%3.4%5.5%2.3%4.1%Equipment-3.9%3.1%3.6%2.6%7.7%3.1%4.7%-4.2%1.3%-1.2%-2.0%7.9%Consumab
38、les3.5%2.4%2.0%4.3%3.9%-1.3%3.3%-3.0%5.4%-0.6%-4.1%3.2%Technologies0.0%-12.7%-10.0%-1.1%5.9%-1.6%-1.1%-9.3%-4.2%7.9%9.3%11.0%3MOral Care-1.0%5.0%0.0%3.0%3.0%0.0%3.0%2.0%4.0%+LSD+LSD+SlightlyColteneConsumables2.0%2.7%4.2%1.8%2.8%3.3%Dentsply SironaEnvistaPattersonHSIC N.A.HSIC Intl8 January 2020 Life
39、 Science Tools&Diagnostics 4 innovation efforts),with potentially strengthening,albeit still moderated relative to historical trends,performance in 2020.Overall,we remain positively biased on the dental market in light of favorable longer term demographics,with notably less exposure to US policy unc
40、ertainty plaguing more traditional healthcare names,particularly as turnaround stories more meaningfully manifest.Theme#1:Renewed Focus on Innovation Offering NT Upside/Catalysts Following several years of internal disruption driven by mega mergers(DENTSPLY Sirona)and management turnover(Patterson C
41、ompanies),as well as lack of prioritization as part of a larger entity(Envista Holdings,prior to Danaher spin),meaningful innovation across the dental markets remained seemingly out of focus,exacerbating an already lower growth environment.That said,management stability and reinvigorated prioritizat
42、ion initiatives across core constituents has been an encouraging dynamic,where we highlight XRAYs turnaround efforts are gaining traction under new management,while NVST is now positioned as a more nimble,standalone entity following its spin-off from DHR in September.As we head into 2020,renewed foc
43、us on the development of more meaningful innovation should drive an acceleration in growth across targeted segments,particularly as dentists are inspired to increase capital outlays in order to adopt the latest technology,a dynamic that should also benefit traditional distributors.In terms of high-t
44、ech equipment,the digitization of dentistry should remain a supportive long term tailwind for the market,particularly given 43%of practitioners still do not utilize newer intraoral impression scanners or CAD/CAM technology,according to our YTD proprietary survey work(see note Survey Says:Dental Dema
45、nd Remains Subdued).That said,penetration has been limited by high required cost outlays(e.g.too expensive),limited ease of use(plexity),and inadequate education efforts.However,more recent notable innovation by discerning constituents(XRAYs Primescan;NVSTs KaVo X Pro/X500)across the digital impress
46、ion market attempt to address key sources of friction,with focus on enhancing ease of use with gesture control capabilities and captive touch buttons,reducing scan times,and supporting increased interoperability with open-architecture systems,with some offerings also focused on addressing cost(KaVo
47、X500).All in,these products,particularly Primescan,where XRAY already has an established presence in the digital impression market,should offer a tailwind in 2020 for both the respective manufacturer as well as its distributor partners.Outside of high-tech equipment,we are also encouraged by targete
48、d innovation efforts across pockets of traditional consumables and specialty segments,representing potentially meaningful growth drivers in 2020.For XRAY,we note its TruNatomy offering(traditional consumables)and new implant system from AstraTech(specialty),among others,while for NVST we highlight i
49、ts particular focus on specialty,with recent/pending launches including its N1 implant system(specialty)and Spark clear aligner system(specialty).All in,following a prolonged innovation drought,enhanced R&D efforts at select manufacturers are clearly beginning to bear fruit,offering upside catalysts
50、 in 2020 and beyond.Theme#2:Efficiency&Restructuring Initiatives Remain Key to Stories amid Still Lackluster,albeit Potentially Stabilizing,Underlying Market In a lackluster,albeit potentially stabilizing,market,where consumable trends have remained perplexing over the past several years despite a h
