Good morning, If you couldn't join us for our themes call this past week, watch the replay and/or check out the notes w/ timestamps below! We covered a ton of ground, including an update on each of our 17 position monitor tickers, Delta variant, the #reopen, and the transition from a fee-for-service (FFS) world to value-based/at-risk care models. We've been battling through some "choppiness" given the uncertainty around 2022 estimates AND unfavorable factor/macro exposure in Macro Quad 3 (bad for small caps, health care, etc.), but we're gaining conviction in our work across the board. We expect to be more right than wrong over time, and we're always available if you've got questions, feedback, or would like to discuss/see any of the data. -
CLICK HERE for the presentation I CLICK HERE for the audio-only replay
Call Timestamps & Highlights
00:00 - 01:24 - Disclaimer & Intro
01:25 – Key Themes
- Wage inflation – the tight labor market, ATIP management, etc.
- The #reopen and advanced primary care and digital health 1.0
- Progression toward hybrid – devices in the home, digital/video comms, deeper relationships with patients – how what benefits one impacts the others (what’s good for OSH is bad for Amwell and Teladoc?)
- Cancer testing
3:26 – MicroQuads & Estimate Revision
- NTM estimate trend – what really matters – Rate of Change – Hedgeye Macro
- Rate of change getting better, but since that started in February, it’s been a tough, choppy market for us – lots of narratives, inflation, etc.
- Macro Quad 3 will inform how we screen.
- Estimate trend – price change report, backtest
06:01 – New Look for MicroQuad Bins
- A proprietary tool to look at the disparate companies and in MQ2 the best category long no matter what the macro – what’s interesting, reopen, BSX, MDT, big cap, liquid med tech – interesting in Macro Quad 3 – worth a look.
- Cancer testing, HCA, rhymes with the environment.
- MicroQuad 3 – long, but the threshold for work is higher. No definitive trends.
- MQ4 and MQ1, we see progression around a slowdown - COVID-testing, COVID comp/reopen exposure, etc. TDOC, DXCM, EXAS
08:00 – Watchlist
- Here’s what batting averages look like for Maco Quad 3 – UNH at the top of the list - decent quarter, guidance looks strange.
08:43 - Delta Variant
- Delta is up to 60% of new cases/total case volume. Overall case volume is down. We’re not seeing the hospitalizations and deaths – we run vs. confirmed cases, depressed here. Lots of uncertainty, good clickbait.
- % of people unvaccinated – slide 19 – what’s critical is that this is the issue, notwithstanding comorbidities.
- As a consequence, even if COVID-19 comes back – spikes in case volume – not going to have hospitals overrun, death, fear, public health responses to lock down. It looks like death and disability, even though delta, not going to meaningfully impact – maybe testing companies, an uptick, but the other part of that is what happens in the workplace. Being prepared – less worry.
- More data – weekly slides 20-22. We're fading the delta variant story (23).
12:26 – Transition from FFS to value-based care
- Slide 24. FFS incentivizes people to do more stuff. If you go to a surgeon, you're a nail and they're a hammer - you're going to get cut. Primary care, order tests, duplicative stuff, as many rings of the register. Leads to bad care, less time for stuff to keep you healthy. Value-based system, capitated, global payments.
- Hearing from clinicians that at end of time/rope on FFS – there’s an unwind happening.
- The infrastructure that wasn’t there 5-10-15-20 years ago is there now, and there’s money there.
- Slide 25 – all the chronic care that must be delivered… help avoid ER – a big deal for the system.
- Determinants of cost – what drives someone into the system – behavior, the social determinants of health are actually important.
15:14 – Targeting wasteful spending
- Where’s the incremental money going to come from? Wasteful spending. It’s a big chunk – double-digits, 20-40% depending on whose model. If you help someone avoid unnecessary imaging, urgent, care, ER, all the things that come out of a position with uncertainty and uneasiness (nobody to reach out to).
- Saving money by doing things – having pharmacists consulted lowers blood pressure
- Too little time or pressed for time. Can’t talk to people.
- DPC generates savings – interaction with a doctor not as important, but health coaches, touches, inexpensive time to get someone to point where comfortable with what doing and not seeing incrementally expensive care. Lots of money on the table. Volume and % of total. Dramatic and big numbers to fund things that don’t have a CPT code but help the patient remain healthy.
18:56 – Digital Health 1.0 Matrix
- Slide 30 - How robust is the digital infrastructure that lets you take risk. Can receive $X, save $Y, and can invest in $Z to keep my panel/patients healthy. FFS is on the other side - what is it about legacy that makes them unable to do this? The buy-in needed at the practice level and difficulty to execute is very high. It's a hard transition.
- In-person care vs. hybrid - 100% digital vs. 100% in-person... ATIP is one of the best stories thus far because the data is a bit of a hidden asset and competition may not be able to join them.
21:25 – Data tools; Mix of Providers and Expansion for OSH, Cano, Iora
- Find facilities, who is associated – lots of PAs, behavioral and MDs are middle group. Can make some assumptions about panel size for doctor size – 400-600 patents per panel model total patient.
- Cano, etc. Field Notes from OSH Medical Directors.
- How much cancer will come back, what will acuity look like?
- UNH, $1.80 in back half of 2021. We agree, it's a 2H21 thing.
25:46 - Reduced Access to Care
- Still, below 100% - we have over a year worth of work/medical care that hasn’t been delivered and Aggregate weekly hours – back to trend, capture some portion – 100% would be huge, 30-40-50% coming back makes the most sense.
- New patient claims – data improving sequentially – added some new things – osteoarthritis of knee and hip – preconditions for total knee or hip… documented, MRI, PT, surgery, or surgery PT.
27:25 – Forecast Algos
- JNJ forecast algo – sales growth (operational) looks good, JOLTS all-time high, remains elevated... HCA, THC.
- Taking data, push through ML system, it delivers the next data point. For pricing, obviously, some coming off because of the comp… story for hospitals in the back half, return to care, surgeries up, but labor could be a bigger deal than appreciated.
- LABS - LH, DGX - data looks good sequentially and y/y but need a lot of in-person to overcome the headwinds… maybe it’s in the numbers vs. what’s expected.
29:36 - Company updates
- ATIP & USPH – the more work we do, the more we like it, are we wrong? WebPT, Google trend, estimate trend scant with $11-$15 price targets. There’s ample support to get it into the $20s, risk-based pricing, more volume at higher prices. Long runway for consolidation in the space. USPH algo looks good.
- 31:52 NTRA – lots of non-macro drivers here – dominate NIPT, Panorama, Signatera – big, long-term multiple driver and opportunity. Lots of people are chasing the MRD space – tumor naïve – GH, or custom tissue-informed (Inivata too). Tiny penetration = large numbers. Tumor-informed preferred.
- 34:00 BFLY – de-SPAC, avoided some of the drawdown in the stock, but there's a big TAM, big opportunity, more docs to train against productive sales team,
- 35:43 AMN – Labor - COVID ICU fading, shortage of nurses for OR and in-person - in JOLTS data. How far away from deploying their own staffing? Risk of margin erosion if they have to dip into the market. They seem totally capable of delivering care, adding some tech.
- 37:15 GH – return to care around cancer. It's all about the claims and being in MQ2. They have an MRD product, but have colon cancer screening coming and a great panel test - Guardant360.
- 38:00 – DRIO has been up and down for us, mostly down, but our view is that the timing is now, and it seems like there's been a good start to 3Q, more deals to come, we think.
- 38:48 – EYE - slide 59 – this has been one of the more durable ideas. The metrics we’re looking at, government-based, consumer traffic into stores related to vision care, up and to the right. It all looks very strong. Forecast algo vs. weak 2H guide.
- 40:20 – ONEM has been a horror show. Had it right, suffered, stock ripped again back to the $40s, now back in the shitter. Could have reacted more quickly to 1Q21, but thesis drifting a little. 630k on our tracker, decent upside to consensus and guide. Estimate trend – people taking numbers down, MQ4, bad. Then they bought Iora – go back to APC – what hearing from network on Iora is it's a compelling story, and we're not going to capitulate here. Field Note supports + view.
- 43:00 - NEO – claims data hasn't accelerated, but we're keeping an eye on it because 60% is direct (TCPC)… calls w/ pathology around cancer testing strong – knocking it down the position monitor.
- 43:35 - TXG is interesting here - NIH grant data – ties super tight to revenue. Single cell standard but seeing a slowdown – rate of change in grants doesn’t look great or supportive of where expectations are. In MQ3, could be interesting short.
- 44:45 – NVTA - we tried rally hard to get long. Were short, got hurt, don't understand hook on ArcherDX - if you know something, please let us know. The claims look great.
- 45:30 - GDRX – MAU expectations – could be a big problem. We moved to bench. If they miss that again, they are in big trouble. Where they’ve guided – in-line is not enough to be there. The #reopen, pantry effect…telemedicine… the incremental, new patients, claims trend – new patient is accelerating way past pre-pandemic level. Get to new patient volume, 70-75% of the time, walk away w/ script.
- 46:48 – EXAS remains a short – competition on multiple fronts, new RNA FIT, colonoscopies, colon cancer testing… are they the next and best liquid biopsy company? Maybe, but there are many, and there’s really long ramp. NTRA, by comparison, has a unique opportunity. If marginal weakness, mix of colonoscopy reverts – in-person vs. remote… negative.
- 48:06 - ARKG – MQ slowing, factors that sit inside the portfolio – easy to put on as a hedge. Looking for shorts – hard w/ reopen and Macro Quad 2 – now that in Macro quad 3…growth vs. inflation. If you creep up the discount rate, you can crush your returns (in a bad way).
- 49:51 – AMWL/TDOC – We got a lot of questions about AMWL and we debated putting it back as a best idea. TDOC, customers and Livongo sell-through – a ton of it – respectively – in a risk-based world, where do they fit? It’s not a clear cut +.
51:52 – Macro Quad setup
- Moving to Macro Quad 3 - choppier period. Already have health care slowing - lower exposure, shorts higher probability.
52:45 Q&A
- 52:45 - ATIP, BFLY, NEO – big hits lately - factor exposure? The way this works – analysts share upside, blamed for downside… yes, factor exposure is a big deal. Brought ATIP to the pitch and felt like, “Dude, bringing small cap to the table...” – It’s a great story - think about the estimate trend – can’t win if numbers aren’t going up or numbers are going down. The factors enhance marginal problems or the “gravitational pull of a negative narrative”
- ATIP looks like a ball under water – but if you’re wrong, you’re screwed. The temptation, avoid a key narrative. Nothing fundamental – risks most acute, ATIP at the top, more work, wish there was another spot at the top of the PM.
- Why are you not recommending a hedge? USPH, ATIP… I don’t know. Don’t have an edge on USPH – it’d have to be a cleaner – maybe hedge w/ another services company. Not clear cut as a pair.
- 56:22 - ONEM Iora thesis change – not sure about the culture match? They sounded similar. Aggressive is the wrong word – Messianic Vigor – mission-based companies. Maybe that’s not a good thing – interested in doing what they think is best – could be painful or they have blinders on. The real disparateness – health coaches and doctors on Iora tending to a really different population. The data and tools sound similar. Touch and interaction are much higher with Medicare vs. concierge.
- If we see membership growth fading to punt it – so long as there’s member growth – mantra – 500k -> 5MM. they can open boxes across the country. There’s a certain amount that’s less special now – myChart works for messaging your doctor and you get a response. The legacy guys are coming back as less likely to make a change.
- 59:24 - Good way to hedge or trade around the macro risk for exposed names? Which are most exposed? Hard to know - it's the right question. Small cap, high multiple – we think upside to multiple could help – GH, $18B, ATIP, or DRIO. But, that's why ARKG is in there. With small caps down a lot already – is Macro late to the call? We made this point a while ago – you can take MicroQuad approach up to sector level – health care was going to be underwater relative to everything else – recovered earlier – covid spending and stimulus, numbers were up, then flat to sliding lower. XLRE, XLE, XLF that all agreed w/ sector exposure Macro Quad 2.
- 01:03:47 - ME – what are you seeing and can it become active? Yes, can become active – what’s the residual value of all that data? In the era of single cell and cheap whole genome, whole exome profiling, the idea that you have a database of SNIPS is not so interesting. Don’t understand the value of it. If anything, did 23andME years ago, wish hadn’t. Data privacy – what will they find out? Over the last three years, the transition to pulling information out of it, tying to protein, disease state, etc. rapidly changing. Don’t see the value – plus, SPAC, and small cap exposure.
- 01:05:33 - Volume for hospitals and labs - PCE quantity for lab is rolling over sequentially, employment not as strong. Covid testing and pricing rolling and receding, respectively, under the hood, wage growth – makes for difficult environment – in the modes for DGX and LH, less for LH w/ Covance – DGX would be the target for a short in that space.
- 01:06:58 – OSH, CANO – thoughts? Unhooking a huge fire hose of money, pulling off of legacy and FFS and even MA and plugging it into these new models. If the swing of money is real, it’s going to be hard to win, if CANO and OSH are for real – hard to do, doing it well, open up more boxes. Are you good at outreach, get them, keep happy, they win. Data is key, outreach is key, hiring is key, get it all right, the magnitude of the opportunity in 2-3-5 years. Is huge. They’ll have a critical advantage. GoodRx highlighted “do you have a relationship w/ the consumer”
- 01:08:59 - Opinion on HIMS? Don’t like it. What are they going to do in a year? Them Roman, app-based – conduits for scripts… embarrassed to get a Rx for erectile dysfunction but you get a box w/ HIMS on it? Doesn’t seem like a good idea and is eminently replaceable.
Have a great weekend.
Thomas Tobin
Managing Director
Twitter
LinkedIn
