Daily Healthcare: Bristol-Myers Beats the Drum for Celgene in 4Q18 Earnings Call and more

In this briefing:

1. Bristol-Myers Beats the Drum for Celgene in 4Q18 Earnings Call
2. Bristol Myers Squib – Reaffirming Its View on Celgene Corp
3. U.S. Equity Strategy: Has “the Pullback” Begun?
4. Thyrocare Technologies: All’s Not Well with This Wellness Pathology Leader
5. Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside

1. Bristol-Myers Beats the Drum for Celgene in 4Q18 Earnings Call

Bristol Myers Squibb Co (BMY US) announced earnings for 4Q18 this morning followed by a conference call. Most metrics beat street expectations but the withdrawal of its application for Opdivo + low-dose Yervoy for first-line (NSCLC) lung cancer patients with high tumor mutation burdens after discussions with the FDA weighed on shares of BMY today. But for arbs who have the CELG/BMY spread set up, the positive comments on the Celgene Corp (CELG US) acquisition provided further assurance of BMY’s commitment to the deal.

2. Bristol Myers Squib – Reaffirming Its View on Celgene Corp

The management of Bristol Myers Squibb Co (BMY US) reiterated its optimistic view regarding the acquisition of Celgene Corp (CELG US) on its Q4-18 earnings conference call today. Unlike most acquisitions that succeed based on cost cuts or revenue synergies, Celgene’s distressed valuation allowed BMY to swoop in and buy a leading bio-tech at a bargain price: if the pipeline succeeds. We are betting it will. If not, the robust cash flows from Revlimid make it a low-risk , low-return deal.  

3. U.S. Equity Strategy: Has “the Pullback” Begun?

The weight of the evidence suggests that the pullback has begun. This belief is supported by overbought conditions combined with the S&P 500, MSCI ACWI, and nearly all Sectors hitting logical resistance. Assuming the pullback continues, the next question is how deep or damaging will it be? In this report we highlight various market/technical indicators we are monitoring, as well as pointing out attractive set ups within Consumer Discretionary and Health Care Sectors.

4. Thyrocare Technologies: All’s Not Well with This Wellness Pathology Leader

• Thyrocare Technologies (THYROCAR IN) is the fourth largest pathology chain in India and derives 54% of revenues from the wellness/preventive segment (Rs60bn market growing at 20% Cagr). Margins in wellness are ~2x that of illness segment.
• It is positioned as the lowest price provider in the market with some of its tests priced at 50-70% discount to peers.
• It enjoys the highest operating margin in the industry with excellent control of reagent and manpower costs.
• However, hyper competition in the wellness segment is pushing down pricing. Pullback in adspends is leading to loss of market share over FY18-1HFY19.
• Two-thirds of its capital is invested in the radiology business that does not have economies of scale. Business is loss-making and a drag on return ratios.
• We expect Revenue and PAT Cagr of 15% and 12% respectively over FY18-21 in the face of intensified competition against 24% and 19% respectively delivered over FY14-18.
• Softer growth coupled with utilization of free-cash from the clinical pathology business into the capital intensive and loss-making radiology business will weigh on stock performance. We value the stock at 22.5x FY20 EPS- at 25% discount to the industry leader Dr Lal Pathlabs (DLPL IN) . Our target price is Rs 494 implying 10% downside.

5. Healthscope (HSO AU): Brookfield Makes Investors Wait, BGH Unlikely to Provide Material Upside

Healthscope Ltd (HSO AU), Australia’s second-largest private hospital operator, noted today that Brookfield Asset Management (BAM US) is seeking the necessary internal approvals to submit a binding proposal by 31 January. We believe that Brookfield will come through with its binding proposal as the delays are not due to issues cropping up from the due diligence but due to ongoing financing negotiations with multiple banks.