瑞信-美股-医疗保健行业-生命科学与诊断：管理团队的首要问题-2019.3.8-64页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL 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.Investors should consider this report as only a single factor in making their investment decision.8 March 2019 Americas/United States Equity Research Healthcare Technology&Distribution Life Science Tools&Diagnostics Research Analysts Erin Wilson Wright 212 538 4080 erin.wrightcredit- Charles Lederer,CPA 212 538 1822 charles.lederercredit- Katie Tryhane 212 325 2713 katie.tryhanecredit- George Engroff 212 325 2289 george.engroffcredit- SECTOR REVIEW Top questions for management teams With several investor and industry conferences approaching,we have compiled a list of relevant questions and topics of discussion for respective management teams across our diverse coverage universe of Life Science Tools and Diagnostics companies,with an emphasis on the following sub-sectors:PBMs/Pharmacies,Distributors,Contract Services Organizations,Clinical Laboratories,Animal Health,Dental,HCIT,Life Sciences,among others.Please reach out to our team for copies of our latest models or other requests in preparation for your meetings.Figure 1:Life Science Tools&Diagnostics Coverage Universe Source:Credit Suisse*Covered by AJ Rice Links to recent industry research:Generic Pricing Monitor:Cautiously optimistic on January deflation trend Dental Update:Dental QTD Insights Animal Tracks:VMX LiveTakeaways from Management Meetings Drug Trend Update:January prescription sales rebound State of the CRO Industry:Biotech Funding Analysis Mixed Drug Trend Update:January prescriptions drop on tough comp PBMs/PharmaciesDentalCVS HealthCVSDentsply SironaXRAYWalgreens Boots AllianceWBAAlign TechnologyALGNDiplomat PharmacyDPLODanaherDHRHenry ScheinHSICDistributorsPatterson CompaniesPDCOAmerisourceBergenABCCardinal HealthCAHAnimal HealthMcKessonMCKZoetisZTSOwens&MinorOMIIDEXX LaboratoriesIDXXElanco Animal HealthELANPhibro Animal HealthPAHCIQVIA HoldingsIQVAratana TherapeuticsPETXICON PLCICLRPetmed ExpressPETSPRA Health SciencesPRAHSyneos HealthSYNHMedpaceMEDPHMS HoldingsHMSCharles River LaboratoriesCRLPremierPINCLabCorpLHQuest Diagnostics*DGXFulgent GeneticsFLGTLantheus HoldingsLNTHCROs/Clinical LaboratoriesInformation Technology&ServicesLife Sciences/Other 8 March 2019 Life Science Tools&Diagnostics 2 Table of contents PBMs&Pharmacies 5 CVS Health(CVS).5 Walgreens Boots Alliance(WBA).7 Diplomat Pharmacy(DPLO).9 Distributors 11 AmerisourceBergen(ABC).11 Cardinal Health(CAH).13 McKesson(MCK).15 Owens&Minor(OMI).17 Clinical Laboratories 18 LabCorp of America(LH).18 CROs 21 Charles River Laboratories.21 ICON PLC(ICLR).23 Syneos Health(SYNH).24 Medpace(MEDP).26 PRA Health Sciences(PRAH).28 IQVIA Holdings(IQV).30 Dental 32 Align Technology(ALGN).32 Danaher(DHR).34 DENTSPLY Sirona(XRAY).37 Henry Schein(HSIC).39 Patterson Companies(PDCO).41 Animal Health 43 Aratana Therapeutics(PETX).43 Elanco Animal Health.44 IDEXX Laboratories(IDXX).46 Phibro Animal Health(PAHC).49 Petmed Express(PETS).51 Zoetis(ZTS).52 Information Technology Services 55 HMS Holdings(HMSY).55 Premier(PINC).57 8 March 2019 Life Science Tools&Diagnostics 3 Life Science Tools&Diagnostics/Other 59 Fulgent Genetics(FLGT).59 Lantheus(LNTH).60 8 March 2019 Life Science Tools&Diagnostics 4 Figure 2:Life Science Tools&Diagnostics Coverage Universe Source:Company data,Credit Suisse estimates,FactSet.$in Millions,except per share data.Quest covered by AJ Rice PriceUpside/3/7/19Market52 WeekAvg DailyRevenue(CY)Avg(5yr)EPS(CY)Avg(5yr)EV/EBITDA(CY)DividendTickerRatingTargetDownsidePriceCap High LowVol(000s)20192020Rev Gr.20192020EPS Gr.2019202020192020YieldxPBMs&PharmaciesxCVS HealthCVSOutperform$7951%$52.36$67,915$82$5413,078$251,224$265,82715%$6.78$7.9011%7.7x6.6x7.5x6.8x3.8%Walgreens Boots AllianceWBAOutperform$8542%$59.79$56,409$86$595,839$139,110$143,51616%$6.62$7.1518%9.0 x8.4x7.0 x6.7x2.9%Diplomat PharmacyDPLONeutral$12107%$5.80$432$29$61,713$5,700$6,27127%$0.87$0.988%6.6x5.9x6.2x5.8x-Average-7.8x7.0 x6.9x6.5xxxDistributorsxAmerisourceBergenABCOutperform$9626%$76.33$16,112$101$691,475$181,130$190,82813%$6.99$7.5411%10.9x10.1x7.5x7.1x2.1%Cardinal HealthCAHOutperform$5720%$47.50$14,571$73$423,311$146,991$150,91311%$5.19$5.8412%9.2x8.1x7.4x7.0 x4.0%McKessonMCKUnderperform$103-8%$112.28$21,538$161$1061,663$219,363$225,3266%$13.97$14.9412%8.0 x7.5x6.9x6.3x1.4%Owens&MinorOMIUnderperform$628%$4.67$291$19$51,691$9,988$10,1831%$0.68$0.74-3%6.9x6.3x6.7x6.6x0.2%Average8%8%8.7x8.0 x7.1x6.8xxAnimal HealthxZoetis ZTSOutperform$10210%$92.55$44,310$98$772,477$6,239$6,5955%$3.47$3.8314%26.7x24.2x19.5x17.9x0.7%IDEXX Laboratories IDXXOutperform$25927%$203.89$17,536$256$176521$2,424$2,67613%$4.77$5.3518%42.7x38.1x28.7x26.4x-Elanco Animal HealthELANNeutral$3313%$29.28$10,706$38$289,333$3,132$3,1763%$1.07$1.3017%27.4x22.5x18.1x16.0 x-Phibro Animal Health PAHCNeutral$3315%$28.71$1,163$55$29141$866$9043%$1.76$2.0245%16.3x14.2x10.6x9.5x1.7%Aratana Therapeutics PETXOutperform$658%$3.80$185$7$4377$45$69-$0.10$0.37-10.2x-3.9x-Petmed ExpressPETSUnderperform$19-10%$21.02$435$48$20709$300$3106%$2.12$2.2419%9.9x9.4x6.1x5.7x5.1%Average6%24%24.6x19.8x16.6x15.1xxxDentalxDentsply SironaXRAYOutperform$5412%$48.22$10,731$59$342,213$3,955$4,0839%$2.32$2.623%20.8x18.4x15.1x13.7x0.7%DanaherDHROutperform$1369%$124.46$88,861$128$953,380$20,800$24,56612%$4.84$5.6315%25.7x22.1x19.2x15.0 x0.5%Align TechnologyALGNOutperform$27017%$230.75$18,457$399$1781,466$2,435$2,92927%$5.45$7.1929%42.4x32.1x26.4x20.4x-Patterson CompaniesPDCOOutperform$2515%$21.69$2,060$27$19919$5,661$5,8929%$1.51$1.751%14.4x12.4x10.2x9.2x4.8%Henry ScheinHSICNeutral$56-2%$57.40$8,691$91$582,195$9,948$10,3538%$3.42$3.7510%16.8x15.3x12.2x11.6x-Average13%11%23.6x19.5x16.0 x13.7xxxContract Research Organizations/Clinical LaboratoriesxIQVIA HoldingsIQVOutperform$1509%$137.85$27,267$145$921,237$11,013$11,6007%$6.30$7.1010%21.9x19.4x15.3x14.4x-ICON PLCICLROutperform$15922%$130.07$7,020$155$110266$2,818$3,0196%$6.79$7.5033%19.2x17.3x13.8x12.8x-PRA Health SciencesPRAHOutperform$11513%$101.98$6,683$122$79406$3,142$3,42919%$5.01$5.5959%20.4x18.2x14.3x13.0 x-Syneos HealthSYNHOutperform$4919%$41.18$4,251$56$34779$4,666$4,94068%$3.07$3.5371%13.4x11.7x10.9x9.9x-MedpaceMEDPOutperform$6221%$51.42$1,835$72$34837$796$89428%$2.64$2.97-4%19.5x17.3x13.7x12.3x-Charles River LaboratoriesCRLNeutral$110-21%$138.48$6,678$146$102389$2,575$2,83215%$6.46$7.2316%21.4x19.2x13.9x12.5x-LabCorp of AmericaLHOutperform$16412%$145.81$14,377$190$119758$11,531$11,90818%$11.15$12.148%13.1x12.0 x10.1x9.5x-Quest Diagnostics*DGXOutperform$10121%$83.23$11,175$116$791,353$7,676$7,8501%$6.46$6.756%12.9x12.3x9.7x9.3x2.5%Average20%22%17.7x15.9x12.7x11.7xxInformation Technology ServicesxHMS HoldingsHMSYOutperform$3513%$30.88$2,633$38$16685$646$6988%$1.16$1.315%26.6x23.6x15.8x14.3x-PremierPINCOutperform$4328%$33.60$2,143$47$29786$1,747$1,88516%$2.70$2.8811%12.4x11.7x8.2x7.7x-Average-8%19.5x17.6x12.0 x11.0 xxxLife Science/OtherxFulgent GeneticsFLGTOutperform$52%$4.92$89$6$310$26$3436%$0.02$0.24-246.0 x20.5x24.0 x6.9x-Lantheus Holdings LNTHNeutral$22-3%$22.72$876$25$13313$361$380-23%$1.16$1.20-19.6x18.9x9.8x9.6x-xIndicesxS&P 500 IndexSP502,749 2,941 2,347$167.78P/E(CY)8 March 2019 Life Science Tools&Diagnostics 5 PBMs&Pharmacies CVS Health(CVS)Fundamentals On guidance,help us think about sources of potential upside and/or downside risks?What level of EPS growth would you argue is achievable over the long term(incl.Aetna)?Can you walk us through your algorithm to get there?With your merger with Aetna,what has been the reaction from existing as well as new customers?Can you speak to how it is resonating with new and existing clients?Can you speak to RFP flow and what you have seen in terms of the decision-making pace?How have the broader vertical mergers impacted RFP volumes,retention rate at the PBM?Can you provide more color relating to synergy components and discuss the runway to your$750+million synergy goal?Have there been any notable speed bumps to date?Can you speak to reports that US District Judge Leon has ordered a review of the merger?Can you help us think about the potential outcomes of the review?On the CFO of the combined company,can you speak to why you chose someone from legacy CVS rather than someone more experienced in the managed care business?Who from Aetna remains?What are your thoughts on U.S.District Court Judge Reed OConnors ruling that the Affordable Care Act(ACA)is unconstitutional?Can you help us think about the implications of a potential roll-back of the ACA?What about the implications/feasibility of potential Medicare for All?What sort of expectations do you have baked in for brand inflation in 2019?PBM Can you speak about rebate guarantees and the expected headwind in 2019 and beyond?How can you mitigate your exposure to rebate guarantees going forward?Can you give us your view on the relationship between the PBM and payors as it stands today and where we may be headed over the next 3-5 years,particularly in the context of the movement to value-based contracting?Can you give us some detail on what you view are the most important profit drivers for PBMs and how you see this evolving over the course of 2019 and beyond?Can you share your thoughts on the recent HHS proposal including an international price index?What would be the potential implications for CVS?What are your views on HHSs proposal to remove safe harbor protections?What is the potential impact on the commercial market longer-term?Can you walk us through your new net cost pricing model and help us think about the key points of differentiation versus more traditional models?Opportunities?Risks?Can you speak to your agreement to provide PBM services to Anthem?How do the terms compare to your corporate average book of business,and what level of PBM service engagement does this contract come with?How should we think about the contribution ramp?What level of investments should we expect in 2019?Thoughts on the expedited boarding process?8 March 2019 Life Science Tools&Diagnostics 6 How important is price vs.mix of bundled services that you bring to the table in your conversations with prospective PBM customers?Which services beyond the traditional PBM offerings resonate the most strongly with customers?Retail What is your strategy for addressing the continuing lackluster front end comp trend?Can you speak to how you plan to better monetize higher pharmacy store volumes?Can you speak to recent pressures in the Long-Term Care Business(Omnicare)and how you plan to reposition the business to grow and capture share?What sort of opportunity exists in this market for CVS longer term?Commitment?Can you discuss how you plan to achieve the targeted$100-$150 million in cost saves in the LTC business?How should we think about the cadence of those cost savings?Can you discuss your Patient Care programs and how successful they have been?Can you speak to some highlights and challenges?How have these programs augmented Retail growth so far and what sort of benefit do you expect going forward?Can you speak about the HC hub stores and how they differ from current stores?What is the LT vision?Can you speak to how the Aetna acquisition supports this strategy?How should we think about the cadence of MinuteClinic growth and the near-to medium-term run rate?How have customers/patients responded to MinuteClinic offerings?Can you also discuss MinuteClinics new telehealth service offering?Aetna Color on the pricing environment for the commercial risk business?Can you also provide an update on RFP flow in commercial?How has the core commercial MBR performed relative to internal expectations in 2018?What components have trended better or worse than expected?What factors in the coming year could drive an upside/downside surprise relative to expectations?At Aetnas investor day,they noted+MSD growth in Medicare Advantage longer term,can you provide an update on LT MA growth prospects?What are the puts and takes?Aetna has 79%of its MA members in plans with 2019 star ratings of 4+stars down from 87%in 2018.Can you provide some perspective on the dynamic?Can you speak to Medicaid contract roll-outs and how they may be progressing?Opportunities in the Medicaid market?Can you help us think about government MBR and the different factors at play as we head into 2019?How should we think about the medical cost trend in 2019?Other Thoughts on Amazons acquisition of PillPack?How will this acquisition impact the competitive landscape?Will you maintain your PBM relationship with PillPack?Do you continue to believe your generic sourcing effort in Red Oak is best in class,and how do you think about this enterprise in terms of the other options available to you?What more can do you do with CAH?Update on CAH and MCK relationships?Do you see any opportunities likely to arise in specialty given the recent acquisitions in the space?Can you provide an update on the opportunity and your strategy?8 March 2019 Life Science Tools&Diagnostics 7 Walgreens Boots Alliance(WBA)General What are your thoughts on the various HHS proposals and Trumps initiatives targeting drug pricing?How could it directly and/or indirectly impact you?Can you provide color as to how you see the CVS/AET transaction affecting WBA performance and decisions?How are your conversations with payors evolving?What are your thoughts on Amazons recent entry into mail-order pharmacy with the acquisition of PillPack?What impact have you seen so far,if any,and how do you think its entry will change the competitive landscape/dynamics?What derivative impacts or externalities do you think we could see as a result of broader vertical integration across the healthcare continuum?Can you provide an update on your capital deployment priorities,particularly as it relates to share repurchases vs.strategic M&A?In terms of M&A in the US,what sorts of opportunities exist,and what could be attractive in the current market environment?Strategically,what are you looking for in an M&A target(health plan,PBM,distributor,lab,other)?Can you speak to some of the puts and takes of the gross margin trend,and what do you view as a more normalized margin longer term following the RAD asset acquisition and store optimization initiative?You recently highlighted a$1 billion in cost savings over three years.How much of the$1billion will flow through to the bottom line(e.g.gross savings)?How should we think about the cadence of the savings?In light of the lower brand price inflation environment,can you speak to your exposure to the dynamic and the potential impact of a moderation in brand inflation?Retail Pharmacy US Can you remind us the impact of generic deflation on your