Good morning. A few quick housekeeping items to start:
- If you couldn't join us for yesterday's "House Call" weekly update, CLICK HERE for access to the event details (includes video replay and materials link).
- Tom will be on The Pitch this morning at 11am ET (6 ideas in 60 minutes - always fun).
- We're looking forward to our Executive Insights Call tomorrow at 12:30 PM ET on Health Care Staffing (AMN) & Digital Health [they are hot!] with Robert Longyear (CLICK HERE for event details (includes video and materials link or Add to Calendar).
Johnson & Johnson ($JNJ) reported this morning. We spent a fair amount of time explaining our forecast algos yesterday with a particular focus on JNJ. JNJ beat and offered a tempered raise that will likely be received as negative. The topline guidance was raised by 10s of basis points and EPS by $0.05 at the low end. The organic operational growth rate for JNJ in the US – a reminder, we were looking for an incremental slowdown – came in at +3.9% vs. our Forecast Algo 3.7% - 4.0% and the consensus at 5.2%.
The commentary in the press release and presentation doesn't paint an overly positive picture of 1Q21, which rhymes with our concerns following UNH's blowout quarter. Said differently, what's good for UNH is not great for others. Knees were down 13% YoY, and the CFO said, "Medical devices are coming back, but are not all the way back," during an interview that spent more time on the vaccine than results earlier this morning.
- Oncology - "IMBRUVICA growth driven by market-leading share and increased persistency as patients extend the duration of therapy, partially offset by COVID-19 related market dynamics including new patient starts and longer-term scripts written in the same quarter of 2020."
- Knees - "Decline driven by the negative impact of COVID-19 and changes in channel mix."
- Contact Lenses/Other - "Growth primarily driven by market recovery, new products, and channel inventory changes in the U.S. and Japan."
The slope of the line here for health care is what matters. Abbott's ($ABT) results are somewhat similar in that it recommitted to its guide, but the momentum for the sector will likely remain challenged near-term until we gain clarity on 2022. We love our pent-up demand thesis and think we're "in it" - however, we can't ignore that timing is an issue, with the last couple of weeks of March being the inflection point (vs. earlier in the quarter). JNJ has a large weight in the $XLV, so we'll have to see how it and the ETF perform today.
ABT positive recovery comments: "Worldwide Medical Devices sales increased 13.1% on a reported basis in the first quarter and increased 8.8% on an organic basis. Strong growth in the quarter was driven by continued recovery from the COVID-19 pandemic," but they didn't raise the guide. "We're off to a very strong start to the year, with all four of our major businesses achieving strong growth...We're particularly pleased with the growing momentum of several recently launched products and continue to forecast more than 35% EPS growth for the year."
- GoodRx ($GDRX) announced the expansion of Manufacturer Solutions with the acquisition of HealthiNation - "As part of its Manufacturing Solutions business, GoodRx works with manufacturers to deliver affordability solutions such as co-pay cards, patient assistance programs, and other savings options directly to consumers. In turn, GoodRx provides manufacturers with a targeted and efficient way to connect their brands with millions of high-intent consumers. With the extensive video library, editorial expertise, and resources of HealthiNation, GoodRx will be able to provide manufacturers with new ways to reach large audiences contextually relevant to their drugs." We think this might be evidence of GDRX's ability to bolt interesting things onto its chassis; however, upside from Manufacturer Solutions isn't what we're playing for. We think GDRX will capture a meaningful percentage of the prescription shoppers that will grow as a result of a return to in-person care.
- $AMN is rotating toward MQ4. We got involved early, and think we're into the next wave of growth. The bullish JOLTS data (all-time high), wage pressure, burnout, and a general supply/demand imbalance are all positives. We'll vet this one further tomorrow on our call with Rober Longyear.
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DarioHealth ($DRIO) - The catalyst wasn't going to be one quarter, and our timing wasn't great. We're "long" DRIO for the incremental updates - i.e., evidence that some piece of the $600 million pipeline is coming through. DRIO has a price-competitive product with better/real AI in a market that craves AI. The company should fare well relative to the competition and low 2022 estimates. The thesis hasn’t changed. If anything, the way guidance interpreted leaves a ton of room for upside into 2Q21. We put it on at ~$28.
- THC and HCA - These forecast algos suggest some same-store volume and pricing growth, but pricing looks like it’ll slow.
HCA looks a little better on sequential acceleration in volume and a little better on pricing.
- LH+DG - The forecast algos suggest that big numbers are coming for 1Q21. Recall that the base tests are $5-$15 per test and COVID-19 tests are $75-$100. So, there are some meaningful offsets to consider here going forward. We're not interested in the short side, yet.
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Natera ($NTRA) claims look really good. We need to dig into Signatera, but will do so ahead of earnings. The tailwind for NIPT remains.
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$NEO remains on our radar and we're looking for an inflection point. There should be upside for 1Q21 based on the claims trend.
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$NVTA is one we've been more focused on as it looks like a sizeable beat is coming. The work on ArcherDX is what's taking time.
Anchored Multiplex PCR is super interesting, and the MicroQuad setup is encouraging.
Other Company News/Updates
Cigna (CI) - From here, CI should provide a tailwind to MDLive downloads. The company announced the closure of the acquisition of MDLIVE by Evernorth.
Oscar (OSCR) names new virtual-first care division president ($) - "The pace of adoption by payors like Oscar and Cigna of virtual first primary care points to the race to serve the consumer by the US Medical Economy from multiple angles. When a patient has a medical need, convenience may trump that the physician is part of the insurance company, the least popular industry in the Healthcare ecosystem. Oscar also outsources its tech services to other payers and providers, like Cigna."
CVS Health (CVS) - New Aetna plan leverages CVS Health’s enterprise strengths - Linking the patient through to the insurance through the Health Hub and CVS infrastructure is an interesting vertical integration. We've been waiting to hear news or updates on how this thing might all work together. "The company said it has already seen success with the introduction of the plan in 2020 in Kansas City and most Texas markets, and anticipates offering the plan in up to 15 U.S. markets by the end of 2021."
SOC Telemed (TLMD) updated its Investor Presentation this morning - we're intrigued by its positioning in the market.
MICROQUADS* & Position Monitor
As a reminder, if you have questions about the MicroQuad process, please try to find ~20 minutes to watch our Dec 30, 2020 call replay: Process & Utility of the Hedgeye Health Care #MicroQuads - CLICK HERE for event details (includes video link and materials link).
Other News/Quick Links
Good, quick summary of recent activity: Anthem, UnitedHealthcare & more: 6 payers expanding digital health strategies
Virta Health Raises $133M to Expand Type 2 Diabetes Reversal Platform - The Series E financing follows a recent $65 million raise in December of 2020, nearly doubling the company’s valuation in just 5 months to $2 billion.
Calendar
All data available upon request. Please reach out to HealthCareTeam@Hedgeye.com with any feedback or inquiries.
Have a great day out there!
Thomas Tobin
Managing Director
203-562-6500 x145
ttobin@hedgeye.com
Twitter
LinkedIn
Justin Venneri
Director, Primary Research
203-562-6500 x127
jvenneri@hedgeye.com
Twitter
LinkedIn
William McMahon
Analyst
203-562-6500 x145
wmcmahon@hedgeye.com
Twitter
LinkedIn
*Please note, not all Position Monitor names make it into the MicroQuad output - most likely due to a lack of sufficient historical trading and estimate data.
