Q4美國藥品分發(fā)預(yù)覽：季度趨勢剖析

1、30 January 2019 Americas/United States Equity ResearchHealthcare Technology & DistributionResearch Analysts Erin Wilson Wright212 538 4080 HYPERLINK mailto:erin.wright erin.wrightCharles Lederer, CPA212 538 1822 HYPERLINK mailto:charles.lederer charles.ledererKatie Tryhane212 325 2713 HYPERLINK mail

2、to:katie.tryhane katie.tryhaneGeorge Engroff212 325 2289 HYPERLINK mailto:george.engroff george.engroffDrug Distributor UpdateSECTOR REVIEW4Q Preview: Dissecting Intra-Quarter Trends; Generic Deflation Trend Stabilizes4Q Preview & Themes: Shares for drug distributors, including AmerisourceBergen (AB

3、C, Outperform), Cardinal Health (CAH, Outperform), and McKesson (MCK, Underperform), are currently trading at a 7.0 x FY+2 EV/EBITDA on average, a meaningful discount to their 8.8x five-year historical average, with ongoing concerns related to drug pricing scrutiny, opioids, contract renewals, and A

4、mazon headlines reverberating across the supply chain, in addition to company-specific headwinds ranging from continued integration headwinds, Medical segment woes (CAH), and manufacturing suspensions (ABC). Still, our view is that some stability in the generic drug pricing environment (as supported

5、 by our analysis and industry commentary) as well as healthier than previously expected branded price inflation should drive potentially less volatile 4Q reports, barring any major contract shifts, and our focus is increasingly on contributions from faster growing, more profitable, and oftentimes mo

6、re capital efficient ancillary businesses, relevant to our theses for our supply chain companies, where we view ABC as relatively better positioned.Lackluster Rx volume, but more stable generic pricing dynamics: According to IQVIA, adj. prescription volume declined 3.0% in December, a notable deteri

7、oration from the -0.1% trend in November (4Q average volume growth of -0.8%). Based on our analysis of the total generic drug sales as reported by IQVIA on an unweighted basis, the sell-side ASP for generic therapeutics fell 10.1% in December, an improvement from the 11.7% decline in November. On a

8、sales-weighted basis, generic pricing declined 3.2% in December, consistent with the November and October trends. Moreover, according to November NADAC data, a survey performed by the CMS to gauge the average national acquisition costs for retail pharmacies across the US, 55.2% of all reported gener

9、ics experienced price declines in excess of 5%, an improvement from the October experience (52.3%). For context, ongoing generic price deflation over the past two years, has weighed on drug distributors, as price declines have led to lower gross profit dollars, and while we do not expect a significa

10、nt reversal NT, the supply chain group has noted stabilizing trends QTD, seemingly aligned with our analysis.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: CreditSuisse d

11、oes 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

12、 decision.SummaryDespite a continuing lackluster utilization environment, we are continuously optimistic as we head into 2019 on a stabilizing generic pricing landscape, as well as an incrementally healthier branded price inflation environment than previously expected (or at least better visibility

13、thereon), potential sources of near term relief. We view opioids and various adjusted accounting methodologies for associated legal and other expenses may likely be more of an area of conversation, albeit not entirely quantified. All in all, we continue to favor distributors with exposure to faster-

14、growing, higher-margin ancillary services, which should provide diversification from drug utilization/pricing, among other supply chain dynamics, while also providing higher growth potential longer term.We favor AmerisourceBergen (ABC) despite persisting setbacks with its PharMEDium business, as we

15、continue to look favorably upon contributions from its non-traditional businesses including MWI, among others. Similarly, Cardinal Health (CAH) should benefit from a faster growing specialty pharmacy business as well as gradual stepped-up contributions from its Medical segment following its recent M

16、edtronic Patient Recovery acquisition. While the quarterly performance at CAH has tested our patience, we continue to believe its diversification efforts will bear fruit, albeit a longer term dynamic than originally anticipated, particularly as it addresses headwinds at Cordis, with the implementati

17、on of technology initiatives and management changes. Following the recent naviHealth divestiture/JV, it is clear to us that it is reviewing all aspects of its business, with likely more to come, per its commentary at our Healthcare Conference in November ( HYPERLINK /s/V7eVNO4AF-YlQ6 see note). On t

18、he other hand, we remain less positive on McKesson, where its M&A strategy and reporting structure continue to obscure core business growth. Notably, focus will likely be on upcoming CEO Brain Tylers (effective March 31) strategic vision, and while the transition should not be all that surprising, w

19、e acknowledge this management change comes at a time with lingering uncertainties around the evolving underlying healthcare environment, opioids, drug pricing, among other dynamics.Below, we include our high-level thoughts on recent industry trends, as well as our expectations for each distributor h

20、eading into the quarter.2016Animal Health Clinical Laboratories24.6%16.5%2018Managed Care Medical Devices12.1%11.1%Managed Care Life Science Tools Diagnostics47.5%40.5%40.5%Medical Devices Biotechnology22.5%22.3%Life Science Tools4.3%Large Cap Pharma-1.4%Diagnostics Biotechnology-14.8%-21.9%Large Ca

21、p Pharma10.9%Hospitals Specialty PharmaHospitals-29.9% Specialty Pharma-36.2%Diagnostics Managed Care Medical DevicesHealthcare Technology Large Cap Pharma Animal Health Contract ServicesLife Science Tools HospitalsS&P 500 Index Biotechnology Specialty PharmaDrug Retailers & PBMs-3.8% Clinical Labor

22、atories-12.8% Dental*Drug Distributors19.6%17.4%17.3%16.0%9.7%2.6%2.5%2.3%-6.0%-6.2%-8.6%-14.7%-14.0%-18.1%-21.7%-25.1%Drug Distributors14.0%S&P 500 Index13.4%Healthcare Technology3.2%Dental*37.0%S&P 500 Index29.6%20172019 YTD (as of 1/29/19)Hospitals17.2%Specialty Pharma15.7%Biotechnology14.5%Contr

23、act Services12.1%Life Science Tools10.4%Drug Distributors10.3%Dental*9.1%Managed Care9.0%Drug Retailers & PBMs6.5%Clinical Laboratories5.8%S&P 500 Index5.3%Healthcare Technology5.0%Medical Devices4.5%Diagnostics2.4%Animal Health1.0%Large Cap Pharma-4.2%Figure 1: CS Healthcare Subsector Performance20

24、12201320142015Biotechnology57.6%Specialty Pharma91.7%Managed Care42.6%Contract Services42.0%Hospitals37.3%Drug Retailers & PBMs81.2%Biotechnology38.8%Managed Care19.8%Diagnostics32.8%Biotechnology71.4%Specialty Pharma37.3%Animal Health11.4%Drug Retailers & PBMs32.7%Drug Distributors63.8%Hospitals36.

25、9%Diagnostics16.7%Contract Services37.2%Healthcare Technology46.1%Drug Retailers & PBMs29.1%Dental*14.3%Animal Health27.7%Contract Services57.1%Medical Devices28.1%Life Science Tools14.0%Life Science Tools26.5%Hospitals44.0%Animal Health19.7%Clinical Laboratories10.3%Medical Devices16.9%Medical Devi

26、ces40.9%Diagnostics26.1%Drug Retailers & PBMs7.9%Managed Care40.3%Drug Distributors25.9%Medical Devices7.7%Life Science Tools38.7%Contract Services22.1%Biotechnology7.6%Dental*23.9%Drug Distributors6.9%Specialty Pharma9.0%Clinical Laboratories21.7%Specialty Pharma3.8%Large Cap Pharma7.5%Diagnostics2

27、8.5%Large Cap Pharma14.0%Large Cap Pharma2.2%Dental*6.7%Large Cap Pharma27.1%Life Science Tools11.5%Healthcare Technology1.5%Managed Care5.9%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%Contract Serv

28、ices Animal Health28.7%35.5%Dental*3.0%Drug Retailers & PBMs-9.6%Drug Distributors4.5%Drug Distributors-24.3%Drug Retailers & PBMs-22.0%S&P 500 Index9.5%Healthcare Technology4.6%Contract Services10.0%Healthcare Technology34.0%S&P 500 Index19.4%Dental*16.9%Clinical Laboratories15.7%Source: Thomson Re

29、uters Datastream, Credit Suisse; Note: Dental peer group does not include Align Technologies (ALGN)A quick cut of our previous quarter takeawaysIn the most recent quarterly report, MCKs shares were flat despite its F2Q beat on a guidance raise that did not fully encompass the EPS upside, driven by i

30、ncremental headwinds in the UK/France, as well as the impact of US customer losses and opioid litigation expenses above internal expectations ($100 million now expected in FY19). While the pricing environment appears to be stabilizing, with regulatory pressures also seemingly retreating, at least to

31、 some extent, where a split House-Senate scenario limits transformational changes across the healthcare landscape, we still maintain our Underperform on MCK. All in, we require further clarity on MCKs LT growth expectations, margin opportunity, and strategic priorities in order to become more constr

32、uctive on the stock. We are forecasting F3Q EPS of $3.19 (-6.5%, vs. consensus$3.16), predicated on +2.7% revenue growth, with +2.6% US Pharmaceutical and Specialty Solutions, +0.2% European Pharmaceutical Solutions, +11.9% Med-Surg, and +4.8% Other. We also forecasted slight EBITDA margin contracti

33、on (13 bps).ABCs shares fell 5% following its 4Q operational miss and preliminary 2019 EPS guidance unveiling of $6.65-$6.95 (vs. prior consensus $7.11), owing in large part to continuing PharMEDium challenges. While ABC was the best performing distributor in 2018 (-19.0% vs. distributor avg. 25.1%)

34、, it largely underperformed the S&P (-6.2%) also on regulatory concerns, drug pricing, and competitive landscape (Amazon) headlines, which we view as overblown. Despite ongoing PharMEDium woes and risk factors in supply contracts, we maintain our constructive thesis on ABC, where we see revenue and

35、profit drivers in a potentially stabilizing generic pricing environment, WBAs maturing pharmacy network relationships, RAD onboarding, ESRX relationship, and contributions from its other diversified non-core units as positives. We are forecasting F1Q EPS of $1.53 (-1.4% vs. consensus $1.51), predica

36、ted on +5.0% Pharmaceutical Distribution growth, tempered by ongoing headwinds at PharMEDiumand Lash, and +10.0% Specialty growth, as well as a 5 bps EBITDA margin deterioration.CAHs F1Q EPS was ahead on tax, and while profitability was clearly disappointing across each core segment, it maintained u

37、nderlying guidance. Since its most recent earnings reports, investor concern has remained around the implied 2H ramp, and while we admit 2019 clearly continues to be a transition year for CAH, expectations appear low, with upside potential from healthier than expected branded pricing inflation, a st

38、abilizing generic pricing environment, continuing strength in its Patient Recovery business, and cost saving opportunities. Though we note CAHs quarterly missteps have challenged our patience, we continue to remain positively disposed toward the stock, given the aforementioned opportunities, and vie

39、w a clearer path to profitability at Cordis can reestablish enthusiasm for shares. We are forecasting F2Q EPS of $1.04 (-33.9%, vs. consensus $1.09), predicated on -0.4% revenue growth (incl. -0.7 % Pharmaceutical, +2.0% Medical), as well as EBITDA margin contraction (67 bps).Figure 2: Drug distribu

40、tor FY+2 P/E ratioFigure 3: Drug distributor FY+2 EV/EBITDA ratio23.0 x21.0 x19.0 x17.0 x15.0 x13.0 x11.0 x9.0 x7.0 xJan-14 May-14 Sep-14 Jan-15May-155.0 x13.0 xHistorical Averages ABC: 14.9xCAH: 13.7x MCK: 13.1xHistorical Averages ABC: 9.1xCAH: 8.5x MCK: 8.9x12.0 x11.0 x10.0 x9.0 x8.0 x7.0 x6.0 xSe

41、p-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18Jan-19Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16May-16Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18Jan-19x Hist Avg ABCCAHMCK Hist Avg ABCCAHMCKSource: Credit Suisse estimates, FactsetSource: Credit Suisse estimates, Factset

42、Key Trends of Diverging Business ModelsWhile the drug distributors were traditionally seen as largely homogenous, their varying approaches to capital deployment and strategic positioning in a rapidly evolving healthcare environment have contributed to greater differentiation between the business mod

43、els of the big three drug distributors. Each company now earns a more substantial portion of its consolidated operating profit from businesses outside of traditional US pharmaceutical distribution. Below we review both the core and ancillary business operations of each distributor, highlighting how

44、the business models are diverging.AmerisourceBergen (ABC, Outperform)In a stabilizing drug pricing environment (as supported by our proprietary analysis and industry commentary), our thesis is predicated on its best-in-class partnerships that will help drive incremental market share gains (i.e., WBA

45、, ESRX) over the near and longer term, contributions from its more diversified offering of non-distribution units, as well as capital deployment optionality.While investor commentary surrounding a potential WBA/ABC deal heated up in early 2018, in the wake of consolidation across the healthcare cont

46、inuum, the speculation has subsided, albeit not totally off the table (re: change in contractual provisions). Nonetheless, we continue to view ABC as best positioned amongst the drug distributors for organicrevenue growth, though we continue to closely monitor ongoing headwinds, most notably its Pha

47、rMEDium manufacturing facility closure and its customer migration and onboarding headwinds at Lash. We highlight key areas of interest/concerns into the F1Q print.PharMEDium headwinds persistPreviously expected to be resolved by the end of F2Q18, production at PharMEDiums Memphis outsourcing facilit

48、y remains voluntarily suspended as it completes certain remediation measures. Currently, ABC is uncertain as to when the facility will be reopened, and it remains in discussion with the FDA and with the Civil Division of the DOJ to talk about potential resolutions. Importantly, half of PharMEDiums m

49、anufacturing normalized production capacity resided within the Memphis facility.Given the uncertain timing of the Memphis facility reopening, ABCs FY19 guidance incorporates a range of three scenarios at PharMEDium. The first scenario assumes PharMEDium will be a tailwind for ABC, while the second a

50、ssumes its contribution will be flat compared to FY18. The last scenario incorporates a more lengthy delay in the opening of the Memphis facility, causing a sizeable headwind for ABC in FY19. All in all, ABC expects PharMEDium to be a 2-3% impact on operating income growth in the Pharmaceutical Dist

51、ribution segment.Despite ongoing setbacks, ABC remains committed to enhancing PharMEDiums quality assurance and control program, and it continues to view strong business fundamentals. While several investors have voiced concern about possible customer shifts to competitors and insourcing due to the

52、Memphis facility shutdown, ABC emphasized that there are no other larger sophisticated competitors to meet demand, driving customers to resume costlier in-house production in the meantime. While there will be a ramp once PharMEDium re-opens, ABC expects to get back almost all lost business over time

53、.As a reminder, ABC acquired PharMEDium in November 2015 for $2.6 billion, adding the largest independent provider of compounded sterile preparations to acute care hospitals in the U.S. With about 3,000 hospital customers at the time of the deal, prior to recent complications, the highly profitable

54、business had grown at an impressive clip on further penetration of existing customers and customer additions. In 2015, PharMEDium sales totaled $470 million.Other key areas of focus:Cigna mail-order following ESRX merger: Cigna recently announced that it has entered into a mutual agreement with Optu

55、mRx whereby it will transition its pharmacy benefit management services currently provided for Cigna by OptumRx to Express Scripts, a potential opportunity for ABC. Previously, Cigna partially outsourced its PBM and mail-order pharmacy to OptumRx (current distributor CAH). When commenting on potenti

56、al implications of the CI/ESRX transaction, management noted that while ABC currently does not provide any services to CI, it could potentially pick up volume due to its strong (and recently renewed) relationship with ESRX.Ancillary services to contribute to 18% of adj. EBIT in FY18: We would expect

57、 further emphasis on MWI, World Courier, and Specialty, particularly as ABC continues to expand these ancillary offerings. We expect performance across these non-core businesses to remain key topline growth drivers both organically and perhaps through acquisition.Acquiring incremental scale or verti

58、cals No interest in Med-Surg: ABC tends to favor pharmaceutical-centric adjacencies, with no desire to conduct any manufacturing. Importantly, ABC views Med-Surg as a bundled opportunity, where a participant would need to participate both in manufacturing and distribution, an opportunity ABC does no

59、t find particularly attractive at this time. On the other hand, we view ABC remains interested in opportunities internationally, with also increased focus on its specialty franchise.McKesson (MCK, Underperform)McKessons portfolio approach to capital deployment has meant more spending on acquisitions

60、. In addition, a confluence of moving pieces including the contribution of $1.9 billion of annual MTS revenues from Change Healthcare, the sale of its EIS business to Allscripts, ramping of ClarusONE, and continued year-over-year impact of recently closed acquisitions (Rexall Health, Uniprix, CoverM