The 2021 JPMorgan Healthcare Conference has a few days left but all four of our healthcare positions have presented. Below are some key takeaways from this year's event.
Abbott Labs
Abbott Labs (ABT) CEO Robert Ford spoke Tuesday afternoon and shares are outperforming today in response. One major focus of the event related to Abbott's huge diagnostic business, and more specifically, Covid-19 testing. Although it is very reasonable of management to expect testing volumes to come down as vaccines are rolled out and (hopefully) the pandemic comes to an end, management believes testing will continue to have a role to play in the future and likened it to a seasonal flu test which tends to be in high demand in international markets. Furthermore, management believes the advancements made in testing and its Alinty product has opened the door to more opportunities in the future. On the Libre - Abbott's fast growing continuous glucose monitor-management highlighted how this is now a multibillion dollar product growing at 45%. Libre's outlook remains very bright and we expect continued growth in the future as market penetration increases and manufacturing capacity improves. On the M&A front, it sounds like management has become more receptive to strategic, bolt on deals. Balance sheet capacity is not an issue for a company, however management said they do not plan on acquiring a business that dilutes their 7%-8% top line growth rate and valuations are always a consideration. We continue to view Abbott as one of the highest quality names in healthcare and believe the market is underappreciating the many different ways management can reinvest in the business today to drive long-term double-digit percent earnings per share growth.
AbbVie
AbbVie (ABBV) presented late Tuesday afternoon and we are seeing the stock push higher Wednesday to a new 52-week high in response. AbbVie's upcoming loss of exclusivity (LOE) cycle was an important topic, but one that continues to look more and more manageable every time management forecasts its outlook for the future. Although 2023 is expected to be a down sales year as Humira goes off-patent in the United States, AbbVie expects to quickly return to growth in 2024 with modest top line growth. Looking further out, top line growth is expected to continue in 2025 with a high single digit compound annual growth rate (CAGR) for the reminder of the decade. We would characterize this outlook as an above market view, explaining why shares are up in today's session. Within AbbVie's broader portfolio, 2025 sales targets for Skyrizi and Rinvoq - Abbvie's two key growth drivers within its Immunology portfolio - were reiterated from what was revised higher at last December's Investor Day event that you can read about here. Within Aesthetics, which is the portfolio that was acquired from the Allergan deal, management estimates this business will grow in the high single digits annually over the next decade. This bullish outlook was driven by management's view of strong overall market growth, increased consumer penetration, and R&D innovation. It also sounds like AbbVie has a budding Neuroscience portfolio that could become more significant over the next decade thanks to assets such as Ubrelvy, Atogepant, and Vraylar. On the balance sheet, management reiterated its expectation to achieve a net debt-to-EBITDA ratio of 2.5x by the end of 2021 with further deleveraging action through 2023. As this is going on, management is expected to continue growing the dividend with a long-term payout ratio somewhere in the high 40% after the 2023 Humira LOE. We currently have this stock rated a TWO but we continue to find opportunity in the stock's discounted multiple and sector leading dividend yield.
Bristol-Myers Squibb
Bristol-Myers Squibb (BMY) presented Monday morning and updates from the conference have proven to be a catalyst for the stock with shares up roughly 4% week to date. See, what has held back BMY for a while was lack of clarity around what the company's financial targets were through its loss of exclusivity cycle (LOE) and in the years that follow. More guidance was given at the event, with management forecasting a low to mid-single digit revenue compound annual growth rate (CAGR) through 2025 as inline growth products and launches more than offset the LOE. This forecast was viewed favorably to the current analyst consensus view of 3.7% CAGR. Included in this new launch portfolio are the eight products with $20 billion-$25 billion of non-risk adjusted revenue replacement power. The company has spoken about this outlook previously, but at the event individual growth potential for each drug was given and this further adds transparency to what the Bristol of the future looks like. Included in this group is mavacamten, the key asset acquired from the MyoKardia acquisition that brings with it an estimated year 2029 non risk-adjusted sales potential of greater than $4 billion. Meanwhile, management said its Celgene integration is on track and they raised their synergy target for the deal by $500 million to $3 billion. And, of course, the announced $2 billion addition to the share repurchase authorization is a positive as well. Altogether, we believe Bristol-Myers presentation represented a step forward in helping investors understand how the upcoming LOEs should be viewed and how the company will grow past it. With the stock still trading less than 9x consensus 2021 adjusted eps estimates, we continue to apply a ONE rating on shares.
CVS Health
CVS Health (CVS) management presented Tuesday morning and we found the company's commentary to be more incremental than market moving. During the call, incoming CEO Karen Lynch teased an event to be held later this year where management said they will provide greater detail about the company's integrated healthcare services transformation and provide clear objectives and annual milestones. In addition, at this event management plans on discussing some of CVS Health's new and differentiated products and services that aim to improve health outcomes for consumers and lower costs. And of course, capital allocation will be updated as the company continues to pay down debt related to the Aetna acquisition and as investors we hope share repurchases return sooner rather than later. Updating on the business, management expressed its readiness to support the government with a broader vaccine rollout, indicating CVS has the capacity to administer 20 million to 25 million vaccines per month once the federal program opens up. Although the financial implications of the vaccine rollout remain unclear, we continue to expect a positive contribution to earnings from the distribution of the vaccine itself plus tailwinds related to increases in store traffic. After the stock's recent rally to a new two-year high, we downgraded our CVS rating to a TWO and trimmed our position this morning in our Alert here, but our long term thesis in this low multiple healthcare transformation story remains unchanged.