Low Odds of U.S. Drug Pricing Reforms Create Favorable Valuations

Leading Independent Investment Research, Morningstar, Inc.

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Morningstar, Inc.

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Thematic (Sector/Industry)

Australia Health care / Thematic (Sector/Industry)

<ul><li class="p1">The median price/fair value in our biotech universe is 0.87, and in late September valuations fell to their cheapest levels since 2011.</li><li class="p1">While this is a far cry from the ratio of 0.73 we saw in August 2011 as the market rally was just beginning, we still think it offers a strong opportunity for investment in some of our favourite wide-moat names.</li><li class="p1">While barriers to entry appear to be relatively flat among our covered biotechs, as new products counter patent expirations and biosimilar entry, scores on other measures are increasing, as portfolios expand, productivity improves, and management focuses on therapeutic areas with better pricing power and more room for differentiation, like cancer and rare diseases.</li></ul><p>Analyst Team: Karen Andersen, CFA; Damien Conover, CFA; Alex Morozov, CFA</p><p>Full report below the fold..</p>

The median price/fair value in our biotech universe is 0.87, and in late September valuations fell to their cheapest levels since 2011.While this is a far cry from the ratio of 0.73 we saw in August 2011 as the market rally was just beginning, we still think it offers a strong opportunity for investment in some of our favourite wide-moat names.While barriers to entry appear to be relatively flat among our covered biotechs, as new products counter patent expirations and biosimilar entry, scores on other measures are increasing, as portfolios expand, productivity improves, and management focuses on therapeutic areas with better pricing power and more room for differentiation, like cancer and rare diseases.Analyst Team: Karen Andersen, CFA; Damien Conover, CFA; Alex Morozov, CFAFull report below the fold..

Mettler Toledo International Inc (MTD US)

Laboratory Corporation of America Holdings (LH US)

Laboratory Corporation of America Holdings

Morningstar Healthcare Observer: Biotech Industry Undervalued