Healthcare

Nick CastaldiChris DoyleBrian Lowell

• Biotechnology• The Biotechnology Industry in the Health Care Sector includes companies primarily engaged in the research,

development, manufacturing and/or marketing of products based on genetic analysis and genetic engineering (including companies specializing in protein-based therapeutics to treat human diseases).

• Healthcare Equipment & Supplies• The Health Care Equipment and Supplies Industry in the Health Care Sector includes manufacturers of health care

equipment, devices, supplies, and medical products not classified elsewhere (including medical instruments, drug delivery systems, cardiovascular and orthopedic devices, diagnostic equipment, eye care products, hospital supplies, and safety needle and syringe devices).

• Healthcare Providers & Services (ESRX)• The Health Care Provider and Services Industry in the Health Care Sector includes distributors and wholesalers of

healthcare products not classified elsewhere, providers of Health Care Services, and owners and operators of Health Care Facilities and Managed Health Care.

• Healthcare Technology (MDRX) • The Health Care Technology Industry in the Health Care Sector includes companies providing information technology

services primarily to health care providers. Includes companies providing application, systems and/or data processing software, internet-based tools, and IT consulting services to doctors, hospitals or businesses operating primarily in the Health Care Sector.

• Life Sciences Tools & Services• The Life Sciences Tools and Services Industry in the Health Care Sector includes companies involved in drug discovery,

development, and production continuum by providing analytical tools, instruments, consumables and supplies, clinical trial services, and contract research services (including firms primarily servicing the pharmaceutical and biotechnology industries).

• Pharmaceuticals (Teva)• The Pharmaceuticals Industry in the Health Care Sector includes companies engaged in the research, development, or

production of pharmaceuticals (including veterinary drugs).

Subsectors

Recommendation

• Hold MDRX

• Discuss TEVA

• Buy ESRX

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Average Life Expectancy vs. Per Capita HCE

Average Life Expectancy Per Capita Healthcare Expense

Meaningful Use Act

• Offers more than $30 billion in ARRA incentives over the next two years (by Sept. 30, 2012)

• Health entities must show meaningful use of EHRs

• Requires anyone covered by the HIPPA to adhere to new regulation by 2013

• EHR adoption is expected to grow from 12% to 90% by 2019 according to the CBO

Why Healthcare IT• HIT Companies will benefit from ObamaCare• Health Centers are incentivized to improve

IT systems and penalized if they don’t by 2015.

• Increased demand• Steady growth over the next few years

Allscripts

Purchase Price: $ (3-1-11)Return:

Market Value: $(MDRX)

What is Allscripts?Allscripts Healthcare Solutions, Inc. provides information technology, financial support, and connectivity to hospitals, physicians, and post-acute facilities. (EHR)• Headquarters are located in Chicago.• Founded in 1986

Recent NewsAllscripts Healthcare and Blue Cross and Blue Shield of North Carolina.• announced new program to implement electronic health records

(EHR) with more than 750 North Carolina physicians.

Two Leading Health Systems in Michigan and California Select Allscripts to Connect and Coordinate Care in Their Communities.• provide their physicians and other caregivers with shared access to a

single, unified patient record.

MDRX Q2(Thousands)

%∆ (QoQ)

Revenue $356,831 6.4%

Net Income $15,876 26%

EPS .08 14%

Beta 1.42

Financials

52 Week Range: 13.85- $18.66 -23.13

Advantages and Drawbacks

• Increased Healthcare IT Spending

• Fulfilling implementation strategies.

• Market leader

• Constantly beating expectations

• Economic slowdown Not a necessity

• Double-dip risk looming

• Increased competition

Fulfilling Implementation

Market Leader

Data Flow Per Patient

Earnings Overview• Steady Earnings Growth

• Constantly beatings analyst consensus projections for earnings.

Competitor Analysis

Valuation Statistics

 SharePrice

 Market

Cap

 Enterprise

Value

Enterprise Value / Revenue

Enterprise Value / EBITDA

  

P / E Multiple 

Company Name 2010 2011E 2010 2011E 2010 2011E

Accretive Health $22.37 $2,181.0 $2,031.0 3.0x 2.0x 57.9x 20.1x 131.6x 38.6x

Athena Health $60.81 $2,127.0 $2,023.0 7.2x 5.5x 43.0x 26.6x 110.6x 66.8x

Nuance Communications $22.38 $6,839.0 $7,219.0 5.7x 4.7x 27.2x 12.1x 159.9x 14.5x

Allscripts Healthcare $18.66 $3,507.0 $3,815.0 3.1x 2.5x 18.2x 9.5x 186.6x 19.0x

DCF and Targets

12 Month Target:$21-$24.21-$27

Teva

Purchase Price: $48.84 (2-26-08)Return: ****%

Market Value: $****** (**%)(TEVA)

Introduction to TEVA

• No. 1 generic pharmaceutical company• Top 15 global pharmaceutical company• Presence in 60 countries and sales in 120

countries• 40,000 employees

Sales

50%35

%

15%

Sales Breakdown by Geography

North Amer-ica

Europe

Latin Amer-ica and Asia 72%

12%

7%

4% 3% 1%

Breakdown by Product

Generics`InnovativeRespiratoryAPIWomen'sBiosimilars

Financials

52 Week Range: 35.00-$39.03-57.08

TEVA Q2(Millions)

%∆ (QoQ)

Revenue $4,212 3%

Net Income $576 24%

EPS .64 24%

Beta .26

TEVA in the News• Recent acquisitions of Cephalon and Taiyo • Significant Reduced Loss of Brain Volume in

Multiple Sclerosis Patients Treated with Copaxone®

• Pfizer Inc. (PFE) Settles with  TEVA over Lipitor in UK; Deal Keeps Generic Lipitor at Bay to May 2012

Advantages

• Vertical Integration • Strong Acquisition History• Massive Economies of Scale• Over a quarter of a trillion dollars

of U.S branded opportunity awaiting generics

• Given the international focus on lowering medical costs, the demand for generics should continue to grow.

• Strong growth potential in Europe and Asia

Drawbacks

• After 2013, the market values of patent expirations vastly decline

• Unknown growth opportunities in undeveloped emerging markets

• Potential government regulation

Competitor Analysis

Valuation Statistics

 SharePrice

 Market

Cap

 Enterpris

eValue

Enterprise Value / Revenue

Enterprise Value / EBITDA

  

P / E Multiple 

Company Name 2010 2011E 2010 2011E 2010 2011EWatson Pharmaceuticals $67.07 $8,996.0

$10,037.0 2.6x 1.9x 13.4x 7.6x 59.6x 12.3x

Bristol-Myers Squibb $32.82 $55,979.0

$53,626.0 2.6x 2.6x 7.3x 8.0x 17.0x 14.4x

Eli Lilly & Co $37.61 $43,540.0 $43,917.

0 1.8x 1.9x 5.4x 6.2x 8.8x 10.4x Teva Pharmaceuticals $39.03 $34,775.0

$40,059.0 2.4x 1.9x 7.7x 5.6x 11.2x 7.0x

DCF and Targets

12 Month Target:$42-$58.04-$67

Express Scripts

Price:(ESRX)

What is Express Scripts?

Express Scripts is one of the largest U.S. pharmacy benefits managers (PBMs). Its PBM services (97% of 2010 revenue) include retail network pharmacy management and home delivery services. Clients include health insurers, third-party administrators, employers, union-sponsored benefit plans, government health programs, office-based oncologists, renal dialysis clinics, ambulatory surgery centers, primary care physicians and others.

Why Express scripts?• Industry leader• Strong financials• Solid business foundation• Successful strategic acquisitions• Attractive near and long term growth prospect• Effective management

Financials

52 Week Range: 34.47-$40.42-60.89

ESRX Q2(Millions)

%∆ (QoQ)

Revenue $11,361 2%

Net Income $334 2%

EPS .66 8%

Beta 1.00

Acquisitions

Intent-behavior

Risks?• Retailer fall-out (Walgreens)• Stiff competition• Room to grow organically?• Slowdown of domestic growth

Competitor Analysis

Valuation Statistics

 SharePrice

 Market

Cap

 Enterpris

eValue

Enterprise Value / Revenue

Enterprise Value /

EBITDA

  P / E Multiple 

Company Name2010 2011E 2010 2011E 2010 2011E

CVS Caremark$34.67 $46,625$55,508.

0 0.5x 0.5x 7.3x 6.8x 14.0x 11.7x Medco Health

Solutions$49.20 $18,968.

0 $23,904.

0 0.4x 0.4x 7.9x 7.3x 14.5x 11.4x Aetna Inc$37.47

$13,972.0

$17,626.0 0.5x 0.5x 5.0x 5.6x 8.2x 8.2x

Express Scripts$40.48 $19,762.

0 $23,560.

0 0.5x 0.5x 9.4x 8.2x 16.5x 12.3x

DCF and Targets

12 Month Target:$42-$57.40-$66

Q&AOption 1 : Hold MDRX, Hold TEVA (Increase

Weight)

Option 2 : Hold MDRX, Sell TEVA, Buy ESRX

Option 3 : Hold MDRX, Hold TEVA, Buy ESRX