1、Healthcare Technology&DistributionPositioning Across Healthcare Technology&Distribution Thoughts Post 4Q Results to COVID-19See 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 co
2、mpanies 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 DetailsFriday
3、,March 13 1:00pm ETDial-in Info:Please contact us or your J.P.Morgan sales contact for detailsReplay through 3/20North America Equity ResearchMarch 2020Healthcare Technology&DistributionLisa C.Gill AC(212)622-Bloomberg JPMA GILLJ.P.Morgan Securities LLCMichael R.Minchak,CFA AC(212)622-Bloomberg JPMA
4、 MINCHAK J.P.Morgan Securities LLCAnne E.Samuel AC(212)622-Bloomberg JPMA SAMUEL J.P.Morgan Securities LLC2YTD 2020 Stock Price PerformanceThe S&P 500 is down-23.2%YTD in 2020 and the S&P 500 Health Care Sector Index is down-17.1%YTD.Our covered companies are down-20.5%,on average,YTD in 2020.Pharma
5、 Distributors are down-10.6%YTD in 2020,on average,with ABC outperforming MCK and CAH(ABC is down-5.3%while MCK is down-10.3%and CAH is down-16.2%).Drug Retailers are down-31.5%on average YTD in 2020.CVS is down-26.5%YTD in 2020,outperforming WBA(down-30.4%YTD)and RAD(down-37.7%YTD).Clinical Labs ar
6、e down-17.2%YTD in 2020,with DGX(down-15.3%YTD)outperforming LH(down-19.1%YTD).Dental Distributors are down-11.1%on average YTD in 2020,with HSIC down-17.5%YTD,and PDCO down-4.7%YTD.Healthcare IT is down-29.2%YTD on average in 2020 with performance somewhat mixed across the group.MDRX is down-43.9%a
7、nd is the second worst performing stock in our universe,while CERN is down-11.9%,CHNG is down-38.3%,EVH is down-34.9%,HQY is down-36.7%,HCAT is down-29.4%,LVGO is down-3.4%(the second best performing stock in our coverage universe),NXGN is down-43.9%(the worst performing stock in our coverage univer
8、se),PHR is down-21.4%and PGNY is down-26.9%.Among small/mid cap stocks not included within the five sectors discussed above,TDOC(a Telehealth provider)is up+41.9%YTD in 2020,and is the best performing stock in our coverage universe on a YTD basis.OMI(a Medical Supply Distributor)is down-20.3%YTD in
9、2020.PINC(a GPO and Technology Services provider)is down-20.0%YTD.ONEM(a Primary Care platform)is up+36.4%since the IPO on 1/30.Source:Bloomberg.Pricing as of 3/12/2020.3YTD 2020 Stock Price PerformanceSource:Bloomberg.Note:Prices as of 3/12/2020.Stock Performance YTD in 2020 by CompanyNXGN,-43.9%MD
10、RX,-43.9%CHNG,-38.3%RAD,-37.7%HQY,-36.7%EVH,-34.9%WBA,-30.4%HCAT,-29.4%PGNY,-26.9%CVS,-26.5%PHR,-21.4%OMI,-20.3%PINC,-20.0%LH,-19.1%HSIC,-17.5%CAH,-16.2%DGX,-15.3%CERN,-11.9%MCK,-10.3%ABC,-5.3%PDCO,-4.7%LVGO,-3.4%TDOC,41.9%4YTD 2020 Stock Price PerformanceSource:Bloomberg Note:Prices as of 3/12/2020
11、.Stock Performance YTD in 2020 by Sector-40%-30%-20%-10%0%10%20%12/31/191/14/201/28/202/11/202/25/203/10/20Drug DistributorDrug RetailLabsHealthcare ITDental DistS&P 500SectorReturnDrug Distributor-10.6%Dental Distributor-11.1%Clinical Labs-17.2%S&P 500-23.2%Healthcare IT-29.2%Drug Retail-31.5%5Revi
12、siting Key Themes for 2020Source:J.P.Morgan.Value-Based Care Ongoing interest in value-based models that tie reimbursement to health outcomes Companies that are part of the cost solution stand to benefit the most from this trendSpecialty Specialty remains the fastest growing area of drug spend With
13、payors looking for ways to address rising specialty costs,companies that help manage specialty spend likely to benefitKey Themes Across the SectorPolitical/Regulatory The potential for regulatory changes has led to a broader overhang on the sector However,for substantial reform to pass,would need a
14、bipartisan solution,alignment of Congress/White House,with 60 votes in the SenateCapital Deployment We favor companies with strong balance sheets and good cash flow Recent transformative deals and the potential for disruptive entrants could lead to a more active pursuit of M&A and/or joint ventures
15、in the near termThe Consumer The Single Biggest Disrupter in Healthcare Patients(consumers)are getting more educated and involved in their healthcare and making decisions on how to allocate their healthcare dollars The opportunity to engage the patient at their preferred point of service should be a
16、n important differentiator Convenience,quality and cost will be key6CVS Remains Our Top PickImplied UpsideSource:Bloomberg(prices based on 3/12/2020 close),J.P.Morgan estimates.Ticker:CVSRating:OverweightDec-20 Price Target:$97CVS Health78%Top Pick Integrated model and broad suite of services positi
17、on CVS well in an evolving marketplace characterized by the ongoing“retailization”of healthcare and shift to new reimbursement models(value-based care)CVS brings a unique integrated model to marketplace.Combined entity to drive lower overall health costs through data/analytics,more effective patient
18、 engagement and shifting care to lower cost sites Company has provided favorable outlook for next several years,with a return to double digit EPS growth in 2022 driven by integration synergies,enterprise modernization and transformation initiatives.CVS beat consensus each quarter in FY19 and raised
19、guidance with 1Q,2Q and 3Q results;initial FY20 guidance exceeded expectationsRationale:Play on key theme,with path to accelerating growth and attractive valuation7CVS Remains Our Top PickWe believe CVS is very well positioned based on evolving market dynamicsNew reimbursement modelsWe expect ongoin
20、g interest from all stakeholders in value-based models that tie reimbursement to health outcomesCVS has a broad suite of assets across the care continuum Access to high-quality lower-cost sites of care Enhanced clinical care programsWe expect the company to be a partner of choice for payors and prov
21、iders over the longer termThe“retailization”of healthcareWe continue to believe the consumer will be the single largest disrupter in healthcarePatients(consumers)are getting more involved in their healthcare and making decisions on how to allocate healthcare dollarsCVS owns the patient touchpoint ph
22、armacy is the most frequently used health benefitThe companys strong reputation and trusted brand will be key assets8CVS Remains Our Top PickCVS is the first company to combine each of the five following capabilities in-house:Source:J.P.Morgan.Note:WBA exiting wholly-owned clinic business,although h
23、ealth system partners to continue to operate clinics in Walgreens stores;WBA also has clinic relationships with United(urgent care)as well as Humana and VillageMD(primary care).Retail PharmacyHealth InsurancePharmacy Benefit ManagementCVSSpecialty PharmacyRetail-Based ClinicsUNHCIWBAANTMHUM9CVS Rema
24、ins Our Top PickWe continue to believe in the strategic rationale for the Aetna dealImproved quality of careBetter patient outcomesLower overall healthcare costsLeverage medical,pharmacy and lab data in real timeUse analytics to identify members with opportunity for targeted interventionsClose gaps
25、in care,improve medication adherence and better coordinate careImprove member engagement to drive behavior changeCVS owns the patient touchpoint through its broad retail footprintPharmacy is typically the most frequently used part of a patients healthcare benefitThis Can Ultimately Drive:We believe
26、all this should ultimately help drive profitability for the combined entityDrive patient care to lower cost settings using existing assetsUtilize retail-based clinics to reduce ER visitsMove infusion services out of the hospital settingCapitalize on emerging telehealth opportunity10CVS Remains Our T
27、op PickCVS provided favorable commentary on the long term outlook at the Investor Day in June 2019 and with the initial FY20 guidance provided in February 2020The company expects accelerating earnings growthover the next few yearsY/y adjusted EPS growth projected to be in the low-to-mid single digit
28、s in 2020(3-5%),mid single digits in 2021 and low double digits in 2022CVS also highlighted key factors underlying anticipated earnings growth,including:integrationsynergies,enterprise modernization and transformation initiatives$850$1,750$900 Integration Synergies:2019:$500M,2020:$800-$900M2021+run
29、 rate:$900Mbusiness integrationgeneral&administrative medical cost savingsTransformation Initiatives:2022:$850M,Longer term:$2.5Bmedical cost savings,membership growth,expanded use of CVS assets,increased customer satisfaction/retention,open platform/new businessEnterprise Modernization:2020:$450-$5
30、50M,2021:$900M-$1.1B,2022 run rate:$1.5-$2.0Btechnology modernization,productivity improvements$3.5B in OperatingIncome in 2022Note:Y/y adjusted EPS growth,integration synergies and enterprise modernization projections updated based on FY19 actual results and initial FY20 guidance2019202020212022+LS
31、D/MSDMSDLDD11CVS Remains Our Top PickShares have outperformed;we believe there is more room to go but execution will be keySince 4/30/19,CVS is flat vs.an-16%decline in the S&P 500,following several positive catalystsDespite some positive momentum,valuation remains attractive on an absolute and rela
32、tive basisShares had bounced off of trough multiples but remain well below historical 10-year averagesSource:J.P.Morgan estimates,Bloomberg pricing data as of 3/12/20201Q19 Earnings:Beat/Raised Guidance5/1/19Investor Day:Positive LT Guidance6/4/19Trump Administration Pulls Proposed HHS Rebate Rule7/
33、11/19Final Approval from U.S.District Court for Aetna Deal9/4/192Q19 Earnings:Beat/Raised Guidance8/7/193Q19 Earnings:Beat/Raised Guidance11/6/194Q19 Earnings:Beat/Initial FY20 Guide Above2/12/202020 Election:BidenSuper Tuesday Wins3/3/20CVS Health Forward P/ECVS Health Forward P/E Relative to S&P 5
34、007.010.013.016.019.022.03/12/103/12/123/12/143/12/163/12/183/12/20CVS10-Year Average40%60%80%100%120%140%3/12/103/12/123/12/143/12/163/12/183/12/20CVS Relative to S&P10-Year AverageCVS0%S&P500-16%WBA-23%12Other Top IdeasImplied Upside23%Source:Bloomberg(prices based on 3/12/2020 close),J.P.Morgan e
35、stimates.Ticker:LHRating:OverweightDec-20 Price Target:$204LabCorpTicker:TDOCRating:OverweightDec-20 Price Target:$146Teladoc HealthTicker:MCKRating:OverweightDec-20 Price Target:$186McKesson50%49%13LabCorp(LH/OW)In the clinical lab space,we continue to favor LabCorp(LH:OW)given its differentiated p
36、ositioning across two areas of healthcare(diagnostics+drug development).We view the recent announcement of the COVID-19 test as a sentimental positive,but unlikely to move the needle on volumes,noting that the company embedded potential disruption in the guide(China 3-4%of drug development revenue).
37、Managed care shifts are no longer a headwind for LH,and UNHs Preferred Lab Network represents an opportunity for future share capture as it ramps over timeWe remain positive on the strength in the drug development business,with growth in 2020 guided to ramp to 7-9.5%,above the historical range of MS
38、D-HSD.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 LabCorpLabCor
39、p continues to deploy capital in a shareholder friendly way,with$900M remaining on the companys authorization.In 2019,the company invested$876M in acquisitions,and repurchased$450M of stock.Relative valuation continues to favor LH,with shares trading at a 19%FY21 P/E discount to peer DGX,despite 40%
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 Ideas14Other Top IdeasWe point to a significant amount of runway in the core telehealth market;we believe COVID-19 situation could represent a catalyst to drive increase
41、d utilization of telehealth more broadlyTeladoc Health 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
42、utilization,adding new specialties/technologies,expanding the geographic footprintThe 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 believe there is a significant opportunity to gro
43、w the UnitedHealthcare business over time,and see the relationship as a key validator of Teladocs modelWe point to a multi-year opportunity in the Medicare and Medicaid markets,now that Medicare will reimburse a virtual care product beginning in the 2020 plan year.The InTouch Health acquisition crea
44、tes a leading provider of integrated virtual care across care settings,including inside the four walls of a hospital;expands addressable market by$10BTeladoc Health(TDOC/OW)15Other Top IdeasMcKesson(MCK/OW)An aging population and increased utilization of prescription drugs should continue to drive s
45、olid top line trends for the pharmaceutical distributors broadly,while MCK is benefiting from growth at key customers,including CVSThe underlying pharma distribution business is stabilizing,with branded inflation in line with expectations(mid-single digits),and the generics market is behaving in lin
46、e with their expectations(the company is sourcing effectively and the sell side is competitive but stable)We continue to point to opportunities across the companys specialty business,which includes provider solutions(specialty distribution),practice management(U.S.Oncology)and life sciences(manufact
47、urer services)The Canada reimbursement headwind has cycled,with MCK seeing nice improvement in that business,and while the UK remains a headwind,MCK is focused on actions to stabilize and grow the business and is encouraged by the NHS pharmacy frameworkA strong balance sheet and cash flow provide a
48、high degree of flexibility for accretive capital deployment(M&A or share repurchase),and we believe the company should be better able to absorb potential opioid settlement paymentsValuation is attractive,with shares trading at a discount vs.the average of the two peers on a forward P/E basis and at
49、a significant discount to the S&P 50016Key Incoming Questions Across the SpaceWhat Is the Potential Impact from COVID-19 Across Our Coverage?Potential Impact to Our Coverage from Regulatory Changes?What Can Drive a Turn in Retail Pharmacy Fundamentals/Sentiment?Opioid Exposure for Distributors/Timin
50、g of a Potential Settlement?Thoughts on the Fundamental Backdrop for Distributors?17Key Incoming Questions Across the SpacePotential for New Regulations to Drive PBM Business Model Changes?What Are the Puts and Takes Driving Clinical Lab Growth?Thoughts on Teladoc Health Following the Recent Run?Wha