Live Q & A: Health Care Position Monitor, Recent Research Updates, Q&A
Date: Monday, August 5th @ 2pm ET
Location: CLICK HERE for event details (includes video link, materials link and dial-in.) Need a reminder? Add to Outlook Calendar
OVERVIEW
Please join us for our weekly live Q&A Monday at 2:00 PM ET. The Hedgeye Macro Team has been right on both the deceleration of GDP and the risks associated with the Federal Reserve's response. For Health Care this has meant improving our sensitivity to style factors and incorporating the risks into fundamental views. For THC, where we are positive on the fundamentals, the debt factor has been toxic. For DXCM, the deceleration in growth appears increasingly likely to overwhelm the recent upside and optimism over the long term opportunity. Meanwhile, we continue to see a positive backdrop for utilization, so while the shorts are more likely to work in Quad 4, threading the fundamental needle in the short to intermediate term will be a challenge.
DXCM
- Despite the massive revenue beat, even with $25M in declared pricing headwinds, DXCM has traded off following earnings. The catalyst appears to be the guidance that was raised by $75M for 2019, but that also anticipates a substantial deceleration in growth. Based on our patient model and confirmed by claims data, we think upside is unlikely in 3Q19, which in and of itself is a negative catalyst that confirms a longer term growth deceleration.
TDOC
- Going into 2Q19 results, TDOC was our least favorite long given some concerns over utilization.
- We have pulled together data that details the "Reason for Visit" or RFV for US ambulatory care. Our initial takeaway is that the current utilization rates are low relative to the potential percentage of ambulatory medical care visits that could ever be converted, at least in the initiating episode of care, to a telehealth platform.
- Commentary on CVS was positive with additional states launching, although we continue to have questions about the extent to which nurse practitioners in CVS HealthHubs or in their MinuteCLinics will be able to fully exploit the telemedicine opportunity given rules on physician supervision.
- The Company continues to manage expectations in Medicare Advantage and offered a very plausible description of timing and negotiations. Absent a change in star ratings that fully reward use of telemedicine, especially as practiced by TDOC, there will be very little incentive for plans to pay up for the services, especially if it puts upward pressure on utilization.
DVA
- We are still doing our work on calcimimetics, but were surprised no one asked about CMS’s proposal to terminate the TDAPA if the drug manufacturers failed to submit ASP data to CMS. Apparently some manufacturers have not been submitting data or not submitting it in a timely manner. Their delays result in CMS reimbursing dialysis manufacturers at Wholesale Acquisition Cost which does not include discounts, price concessions, etc.. When CMS pays the TDAPA on the basis of WAC, they are paying more than they should for calcimimetics. For that reason, Beginning in 2020, CMS will cancel the TDAPA for a drug for which there is no ASP data submitted or no data submitted in a timely manner.
- It is unclear if DVA’s main supplier Amgen is implicated in CMS’s new policy, but if they are, an end to the TDAPA would mean that DVA would not be compensated for any calcimimetics expense until the bundle is rebased in, presumably, 2021.
- We agree with the Company’s rather sanguine view of home dialysis. As we have noted previously, it is a high mountain to climb given practice patterns, patients preference, education on options., etc.
- The company appears to be anticipating a multi-state ballot effort by the SEIU in 2020 which could prove to be more expensive than the $60 million 2018 effort in California.
HEALTH CARE LABOR DEMAND
- BLS Labor Report shows continued growth in Health Care Labor demand, accelerating sequentially from 9% in June to 12% in July on a year over year basis, and accelerating to 10% on a 2Y basis.
- The deceleration in hours worked in manufacturing sectors precedes Industrial Production and historically, Service Employment. Through prior cycles, Health Care labor behaves in a counter cyclical fashion initially, but will follow broader employment trends in a recessionary environment on a lag.
- The Quad 4 (growth slowing) environment, as we've been detailing over the last several months favors some Health Care sectors and style factors over others. Problematically, this means one can be air tight on a fundamental thesis, but wrong on the stock, particularly on the long side.
Thomas Tobin
Managing Director
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Emily Evans
Managing Director – Health Policy
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