North America Equity Research
03 January 2019
Life Sciences Tools and Dx
Questions & Themes for J.P. Morgan Healthcare
Conference
Life Science Tools & Diagnostics
Tycho W. Peterson
AC
(1-212) 622-6568
tycho.peterson@jpmorgan.com
Bloomberg JPMA PETERSON <GO>
Tejas Savant
(1-212) 622-5650
tejas.savant@jpmorgan.com
Julia Qin
(1-212) 622-9253
julia.qin@jpmchase.com
Eleni Apostolatos
(1-212) 622-0136
eleni.apostolatos@jpmorgan.com
J.P. Morgan Securities LLC
See page 85 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aw
are 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.
www.jpmorganmarkets.com
Heading into our 2019 Healthcare Conference next week, we have aggregated key
themes and management questions for the 34 companies in our coverage universe
that will be attending (excluding PACB, given the planned ILMN merger). For
additional thoughts on the group, please see our recently-published 2019 Life
Science Tools Outlook and accompanying slides, while our updated thoughts on
med tech can also be found in the Med Tech Monitor. In addition, we will be
hosting four panels at the conference this year, with details below. Key themes:
2018 sector review: The life science tools space again outperformed broader
healthcare in 2018 (S5LSTS +13% YTD vs. XLV +0%), although premium
valuations, difficult comps and macro noise (rising interest rates, U.S.
midterms, drug pricing concerns, Brexit, FX headwinds and potential disruption
from tariffs and biopharma M&A), capped outperformance into year-end,
despite a solid fundamental backdrop across most end markets. Clearly,
investors have been willing to pay a premium for the stability offered by the life
sciences group, which remains an attractive (albeit expensive) relative safe
haven in the context of continued volatility in other healthcare sub-sectors,
including biotech, spec pharma, generics, distributors and PBMs. Within the
group, diagnostics had a particularly strong run in 2018, following several
acquisitions (e.g. Roche/FMI/Flatiron Health, MYGN/Counsyl), while more
recently benefitting from manageable/better understood PAMA headwinds (with
reimbursement for advanced LDTs shielded from deep cuts) and a rotation away
from tools in light of the aforementioned headwinds. In terms of end markets,
trends remain healthy across biopharma (biotech funding remains at near-record
levels), academic (improving funding environment globally, U.S. Government
shutdown aside) and industrial (U.S. PMI continues to hover near multi-year
highs, although OUS PMIs have moderated from peak levels), although we
continue to see signs of a rotation from growth-to-value with no follow-through
in the group following generally strong 3Q18 results.
2019 sector outlook: We expect organic growth to largely mirror 2018 for core
tools, against a fundamentally healthy backdrop across biopharma, industrial
and academic end markets, with China remaining a regional growth engine, with
the biggest obstacle being difficult comps. Importantly, we believe a case can be
made for growth to accelerate for some (A, DHR, PKI, TMO) as acquisitions are
added to the organic line for the year, while capital deployment remains an
important value creation lever for the fragmented industry. That said, despite
robust fundamentals, given a growth-to-value rotation in the broader market and
valuations that remain at/near highs (~15x forward EV/EBITDA), we believe
that companies with discounted valuations (HOLX, SYNH, XRAY) could do
better in a downturn, as long as they continue to execute on turnaround plans.
The biggest risks, in our view, are fund flows from growth to value (or from
equities to other asset classes) spurred by rising interest rates, an escalation in
trade war rhetoric (if it results in punishing tariffs on life science products) and
broader economic slowdown, while today’s biopharma M&A is likely to renew
fears of additional industry consolidation, which could pressure the CROs (and
to a lesser extent, core tools).
剩余88页未读，继续阅读
资源评论
