A chat with our healthcare analyst

Brandon Snow's picture

This week we are experimenting with a new format. We’ve created our first video blog, in which I interview our healthcare analyst Ian Turnbull. Please let us know what you think about the video blog format in the comments below.


A summary of the chat can be found below:

Brandon: Broadly speaking, what do you think is going on out there in the healthcare sector?

  • Efficiencies are happening and bad business practices are being washed out of the industry.
  • An increased focus on companies that are creating value and punishing those who aren’t.
  • Participants who were “over-earners” were doing so by a lack of accountability.

Brandon: How complicated is the U.S. healthcare market?

  • The U.S. healthcare market is very complex and layered with payment schemes and rebate systems.
  • This makes the sector unnecessarily complex and hard to understand.

Brandon: How many players touch a drug in the U.S. before the end-client gets it from the factory?

  • Manufacturer, distributor, pharmacy, insurer and pharmaceutical benefit managers can all be involved.
  • There is a lack of accountability in the supply chain and many players in the chain have been earning high excess returns.
  • Net prices, after rebates to pharmaceutical companies, are far lower than what the pharma company originally charged.
  • Opaque oligopolistic distribution structures may be starting to wash out.

Brandon: The market is starting to reflect some of the concerns we’ve had for a while. Can you talk about Amgen, which beat the street? What did you learn and how did it change your view of the business?

  • I always thought they were a good business that needed some improving… now they’ve got a new CFO.
    • Streamlined operations, focusing R&D on areas they will get paid for and cost structure is more efficient.
  • Pricing will not be the same as it used to be and they are adapting.
  • Companies can no longer simply increase price without the fear of consequences.
  • Well diversified and focused on bio-similars.

Brandon: How has Amgen’s valuation changed over the last year?

  • From a 16/17x to 10/11x.
  • Today’s valuation is depressed.
  • My downside valuation is getting closer to where the stock is priced today and there are a lot of significant free options.

Brandon: Talk about your recent trip to Europe with Stephen Groff (click here for Steve’s blog about the trip) and what differences you are seeing from where the value was in the healthcare space over the last five years.

  • Met with the CFO of Roche, one of the preeminent players in pharma and based in Basel, Switzerland.
  • Roche has had a lot of breakthroughs in oncology.  Furthermore, they are a company focused on large initiatives to extend lives and improve the quality of life.
  • Roche’s strategy of putting clients first, while being very efficient and investing in R&D will pay off in the long term.

Brandon: Any final thoughts on the sector Ian?

  • Inefficiencies and “weird practices” in the industry are beginning to be weeded out.
  • Companies like Valeant are no longer going to work.
  • The focus is back on value in the sector, whereas for the past number of years the focus had been on companies like Valeant who were not innovating or investing in R&D.


This commentary is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein.

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