christopher kim pratik kothary clifford leung avinash...
TRANSCRIPT
![Page 1: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/1.jpg)
Christopher Kim
Pratik Kothary
Clifford Leung
Avinash Nagaraja
![Page 2: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/2.jpg)
![Page 3: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/3.jpg)
Company Snapshot
• Diversified healthcare products maker:
– Drugs, Medical Devices/Equipment, and
Nutritional Products
• Founded in 1888, went public in 1929
• Now operates in 130 countries with 72,000 employees
• With $29.5B of revenues, 9th largest
‘Big Pharma’ company
Founder: Wallace Calvin Abbott
![Page 4: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/4.jpg)
Thesis
The healthcare industry has reached an
unprecedented period of transition, out of
which Abbott is optimally positioned to
outperform its competitors.
![Page 5: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/5.jpg)
Agenda
1. Industry Overview
2. Company Overview
3. Product Analysis
4. Risks
5. Valuation
![Page 6: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/6.jpg)
Industry Overview
![Page 7: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/7.jpg)
How Big Pharma Works
High
R&D
15.8%
Low
COGS
18.0%
High
SG&A
32.6%Percent
of
Revenue
(4 yr Avg)
![Page 8: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/8.jpg)
Porter’s Five Forces
Profit Margin
23.9%
![Page 9: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/9.jpg)
Era of Transition
• Big patent cliff in 2010-12– Big Pharma on average: approx $5.1 billion of revenue will be exposed
to competition
• M&A and consolidation across the industry– Pfizer-Wyeth, Merck-Schering Plough, Roche-Genentech
• Vulnerable weakness across industry =
Blockbuster drug model still viable?
![Page 10: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/10.jpg)
Threats to Growth
• Government– Healthcare reform
– Negatives: increasing price rebates,
drug reimportation
– Positive: new research funding,
increased coverage
• Recession– Not so recession proof
• Generic drug competition
![Page 11: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/11.jpg)
No wonder…
![Page 12: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/12.jpg)
Is Medicaid Reform Really a Problem?
Segment Analysis For Top Drug Companies
Company % U.S.
Revenues*
Est. %
Govt. Biz
% At Risk
Exposure
Abbott Labs 48% ~8% ~4%
Bristol-Myers 59% ~14% ~9%
Johnson &
Johnson 51% ~9% ~5%
Merck & Co. 56% ~10% ~6%
Eli Lilly & Co. 54% ~18% ~10%
Pfizer, Inc. 42% ~6% ~3%
Wyeth, Inc. 47% ~5% ~2%
*Revenues include all operations, not just Pharmaceuticals
Abbott’s Status:• Low exposure to Medicaid• High % of sales outside US
![Page 13: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/13.jpg)
Opportunities for Growth
• "Health care is the growth industry of the 21st century.“– Wall Street Journal
• Growth in health-care spending is likely to rebound when the recession ends, a function of the enormous advances in medical technology and Americans' strong appetite for health care.
• President Barack Obama named the sector one of his three pillars of the future U.S. economy, alongside energy and education.
• Health expenditures as a share of gross domestic product have more than tripled in the past 50 years to about 16% today, and the government's Centers for Medicare and Medicaid Services say that figure is likely to hit 20% within a decade.
![Page 14: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/14.jpg)
Reasons to be Excited
• Coming out of recession
• International market
• Baby boomers aging
– 19% of the US pop. by 2030
– Longer life expectancy = buy more drugs for a
longer time
– Rising incidence of chronic disease
![Page 15: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/15.jpg)
The population of disabled elderly in the United States is growing rapidly. The number of Americans who will suffer functional disability due to arthritis, stroke, diabetes, coronary artery disease, cancer, or cognitive
impairment is expected to increase at least 300% by
2049.1
-US dept. of Health and Human Services
![Page 16: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/16.jpg)
The Company
![Page 17: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/17.jpg)
Among Health Care Industry
• 9th in Total Annual Sales ($29.53 billion)
• 8th in Market Cap ($65.93 billion)
• One of the most diversified companies in the
Health Care industry
![Page 18: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/18.jpg)
Business Segments
• Pharmaceuticals
• Vascular
• Diagnostic
• Nutritional
• Diabetes and Other
![Page 19: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/19.jpg)
Diversification
![Page 20: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/20.jpg)
Diversification
• Durable goods
– T5000 Biosensor System
• Used for research, disease surveillance, forensics
• Government agencies like FBI, CDC, university big customers
– Freestyle Lite used for glucose monitoring
• 170 million with diabetes in US alone
• 40 million in India expected to grow
• Biologics – far harder for generics to mimic and manufacture
• Nutritional Products
![Page 21: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/21.jpg)
Biotechnology
• Biotechnology will fuel growth
• Biologics is still one of the bright
• Lucrative new therapies
• Above-average sales and earnings
growth
![Page 22: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/22.jpg)
Asian Power!
• Singapore plant opening
• Products:
infant formula
follow-on formula
growing-up milk
![Page 23: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/23.jpg)
China’s Increasing Medical
Expenditure
![Page 24: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/24.jpg)
How Effective is Your R&D?
Company Abbot J&J PFE Teva Merk Eli Lilly Novartis GSK
Net Income $4880 $12949 $8104 $635 $1768 $958 $2249 $1286
R&D $2699 $7577 $7945 $2188 $1169 $951 $1767 $802
NI/ R&D 1.81 1.71 1.02 0.29 1.51 1.01 1.27 1.60
In $ millions
![Page 25: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/25.jpg)
Key Numbers
Abbot Industry Avg.
Net Sales (2008) $29.6 million $31.9 million
1-Year Sales Growth 13.9% 5.5%
1-Year Net Income Growth 35.3% 9.1%
Profit Margin 16.5% 18.4%
![Page 26: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/26.jpg)
Ratios
Company Mkt. Cap P/E ROE
Abbott
Laboratories
69.1 B 14.30 26.86%
Johnson & Johnson 142.1 B 11.25 30.17%
Pfizer 90 B 11.11 13.10%
Industry Average -- 14.10 21.50%
![Page 27: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/27.jpg)
Product Analysis
![Page 28: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/28.jpg)
Humira
• Abbott’s Gem Product for Rheumatoid Arthritis
• An estimated 46 million Americans affected
• Continually finding new uses for Humira which has
boosted earnings even more
– Crohn’s Disease: 1.4 million Americans affected
– Psoriatic Arthritis
• Combination of strong RA plus new uses will increase
market penetration for years
![Page 29: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/29.jpg)
Humira Sales 04’ - 08’
2007
$3.0b
11.8%
2008
$4.5b
15.3%
2006
$2.0b
9.1%2005
$1.4b
6.3%
2004
$0.85b
4.3%
![Page 30: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/30.jpg)
Xience V
• Drug-eluting heart stent released in mid-2008
• Already a leader with approximately 30% of the
market share: $1.2b revenues in 2008
• Recent research report stated that Xience
performs better over three years than its leading
competitor, Boston Scientific’s Taxus
• Top-selling stent (rapid market penetration)
because of superior quality
![Page 31: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/31.jpg)
Xience V
• $2,000 a piece
• No cost wars
• 1-3 yr contract
• Low cardiac death rate of 0.5% over three
years; Taxus had 3-8x higher death rate
• Xience: major adverse cardiac events 6.4%,
14.9& Taxus (over three years)
![Page 32: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/32.jpg)
Heart Disease in America
• 72 million Americans live every day with some
form of heart disease
• 63% (approx 191 million) of Americans are
overweight with a Body Mass Index (BMI) in
excess of 25.0
• According to Global Industry Analysts, the
market for coronary stents is slated to exceed
$7.2 B by 2012
![Page 33: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/33.jpg)
Pipeline
• Strong late-stage Pipeline
– 9 major regulatory approvals in 2008 and
expecting several this year
• Acquisition of Kos Pharmaceuticals adds
significant growth opportunity to Vascular
Care
• Acquisition of Advanced Medical Optics
![Page 34: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/34.jpg)
Risk
![Page 35: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/35.jpg)
Risks
• Industry-Wide
– Obama healthcare reform
– Generic drug competition
– Patent cliffs
– Difficulty nature of drug innovation
• Company-Specific
– Humira sales
– Patent expiration of Depakote
![Page 36: Christopher Kim Pratik Kothary Clifford Leung Avinash Nagarajapages.stern.nyu.edu/~iag/presentations/2008-2009/ABT.pdf · Pratik Kothary Clifford Leung Avinash Nagaraja. Company Snapshot](https://reader036.vdocuments.mx/reader036/viewer/2022071102/5fdbdd86f019c10ee1461ee3/html5/thumbnails/36.jpg)
Valuation