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Investment Research Presentation
Month Day, 20XX
1
Medical Devices & Equipment
Finance & Investment Club
Healthcare-2 Sector
Senior Analysts: Christy Hermanto & Zayda Romero
Junior Analysts: Izzan Bachir, Valentina Jiang,
Brandon Lepine, Tuan Nguyen
Fall 2016
2
Industry Overview
Increased demand due to various independent factors: aging population, unmet healthcare
needs, positive employment figures, emerging markets – expected to grow annually 10-13%
Rapid technological change and increase in research & development
Not as volatile and sensitive to investor uncertainty in this election year and economic slow-
growth phase as other sectors like Pharmaceuticals and Biotechnology
Displays resilience against economic changes due to indispensable nature of its products
Rationale:
Sources: S&P Global Net Advantage, EY, CharlesSchwab, Fidelity, Advamed
Industry Life Cycle: Growing
IVA to grow at 2.1% CAGR
Low Revenue Volatility
Move to value-based
healthcare
Favorable Legislation: Repeal
of Medical Device Excise Tax –
will save the industry $20bn
Healthcare
Pharmaceuticals,
Biotechnology, Life
Sciences
Healthcare
Equipment &
Services
Healthcare
Devices &
Equipment
Healthcare
Providers &
Services
Healthcare
Technology
3
Industry Analysis
Key Facts
By 2022: Revenue: $529.8 billion
5.2% CAGR 2015-2022
R&D Expenditure: $34 billion
About 6% of total health expenditure
US: 39% of the global market
Strong financials seen through M&A activity:
• Gives firms ability to build and preserve
a lot of cash
• Creates economies of scale
alleviates pricing pressures & boosts
R&D productivity
• Accounts for need to diversify and
revitalize product lines and penetrate
new markets
371 392.2 413.6 436.3 459.4
482.7 506.2 529.8
0
100
200
300
400
500
600
2015 2016 2017 2018 2019 2020 2021 2022
Medical Devices Projected Sales 2015-2022 ($bn)
Sources: Evaluate MedTech, AdvaMed
$- $50,000,000.00 $100,000,000.00 $150,000,000.00
2013
2014
2015
Financing VC vs M&A ($bn)
Venture Financing M&A
4
Agenda
Industry Definition
Product Segmentation
Revenue Generation
Risks
Comparable Companies Analysis
Value Weighted Index
Summary Recommendation
5
Industry Definition – Medical Devices & Equipment
A highly diversified industry that includes companies that create products and instruments used
to prevent, diagnose or treat an illness or disease
Includes surgical and medical instruments, drug delivery systems, cardiovascular & orthopedic
devices, and diagnostic equipment, prosthetic and surgical appliances, dental equipment, x-ray
apparatus, electro-medical and electro-therapy apparatus, ophthalmic equipment.
Johnson & Johnson
NYSE: JNJ
Market Cap: 320.24B
General Electric Co.
NYSE: GE
Market Cap: 278.82B
Medtronic Inc.
NYSE: MDT
Market Cap: 113.42B
Siemens AG
NYSE: SIE
Market Cap: 96.15B
Baxter International Inc.
NYSE: BAX
Market Cap: 26.14B
Fresenius Medical Care
NYSE: FME
Market Cap: 35.92B
Boston Scientific Corp.
NYSE: BSX
Market Cap: 29.33B
Allergan Inc.
NYSE: AGN
Market Cap: 82.19B
Sources: World Health Organization, IBISWorld, Fidelity News & Insights
6
Product Segmentation
Product Segments to Highlight: • In Vitro Diagnostics (IVD): 13.1% will be the largest
segment with sales of $70.8 billion by 2022 & a
market share of 13.4%
• Endoscopy: 4.4% fastest growing segment with a
CAGR of 6.8%
01020304050607080
Sal
es
Current & Projected Sales
Sales ($bn) Sales ($bn)
0.00%
2.00%
4.00%
6.00%
8.00%
% Sales Growth CAGR 2015-2022
Sources: IBISWorld, Evaluate MedTech, S&P Net Advantage
7
Revenue Generation
Research & Development
Prototype
Process Development
Regulatory Approval
Engineering
Components Manufacturing
Software Development
Electronics & Electric
Components
Precision Metal-works
Plastics Extrusion &
Molding
Textiles
Assembly
Assembly
Packaging
Sterilization
Distribution
Final Products
Capital Medical
Equipment
Therapeutic Devices
Surgical and Medical
Devices
Disposables
Marketing & Sales
Market Segments
Cardiovascular
Orthopedics
Infusion Systems
Post Sales Services
Training
Consulting
Maintenance Repair
Sources: Market Realist
R&D where most
mid-cap innovative
companies focus
their revenue on Suppliers Buyers
Mature companies
focus on cutting costs
throughout the value
chain Marketing &
Sales much more
important
8
Trend #1: Aging Population in the US • Aging population along with higher life
expectancies long term sustained increase in
demand for medical devices
• The elderly are more likely to require medical
attention due to increased vulnerability to diseases
• From 2000 to 2010, the population of those aged
60 and over grew by 13.6%, growing at a faster
pace than other demographics.
• By 2022, this demographic will be 55.6 million.
• Largest growth expected from 2020 to 2030:
projected increase of 18.0 million.
0.80
0.85
0.90
0.95
1.00
1.05
1.10
35 40 45 50 55 60
Num
ber
of P
hysi
cian
Vis
its (
in b
illio
ns)
Population Aged 65 and Older (in millions)
Aging Population vs Physician Visits
R-squared:
0.68
0
10
20
30
40
50
60
70
2016 2017 2018 2019 2020 2021 2022 2023
Pop
ulat
ion
(in m
illio
ns)
Population of Adults 65+
Sources: Frost & Sullivan, IBISWorld, Mintel, US Census Bureau
34,000
38,000
42,000
46,000
50,000
35 40 45 50 55Indu
stry
Rev
enue
(in
mill
ions
)
Aging Population (in millions)
Industry Revenue vs Aging Population
R-squared:
0.87
9
Trend #2: Rising R&D Expenditure
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Total R&D Expenditure CAGR 2010 - 2023 Innovation and rapid technological change
spurred by R&D – either through in-house
R&D or through acquiring another
company’s technology (M&A)
2015: non-commercial leaders boosted R&D
spending by more than 0.5 billion dollars
(17%) to US$2.6 bn.
Pure-play commercial leaders in US spend
about 12% of their revenue on R&D
Non-commercial leaders in US spend about
20% of their revenue on R&D
R&D related innovations not just isolated to
the Healthcare sector
Potential for this industry to use
technology created by other sectors' R&D
->3D printing & robotics could be used to
create new medical devices and cut costs
through automation and faster assembly
>75,000 medical device patents have been
filed with the US Patent and Trademark
Office over the past 30 years
17,596 filed last year
0
5000
10000
15000
20000
25000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Number of Medical Device Patents Issued
Total Patents US Foreign
Sources: US Patent & Trademark Office, IBISWorld, EY Pulse of the Year, Bloomberg Technology
10
Trend #3: Favorable Employment Figures Driving Physician Visits
Rising employment higher healthcare
utilization rates including physician visits
and hospital admissions thanks to increased
healthcare coverage increased demand
Physician visits are a traditional driver of
medical equipment sales
The effects of employment numbers are
expected to be magnified further due to the
recent election president-elect plans to
increase employment through various
spending projects
The unemployment rate is currently at 4.9%
When unemployment rises by 1%,
preventive health services decreases 1.58%
Decrease in unemployment: less Medicaid &
uninsured admissions and more admissions
with profitable commercial, employer-
sponsored health insurance
By 2022, the number of people employed
will increase from 150.8 million in 2016 to
155.5 million, a 3.13% increase 4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11/1
/11
7/1/
12
3/1/
13
11/1
/13
7/1/
14
3/1/
15
11/1
/15
7/1/
16
Unemployment Rate 2011-2016
Sources: Mergent Online, Fidelity, IBISWorld, Bureau of Labor Statistics, Health Services
Research Journal, Market Realist, Congressional Budget Office
30,000.00
34,000.00
38,000.00
42,000.00
46,000.00
50,000.00
130 135 140 145 150Indu
stry
Rev
enue
(in
mill
ions
)
Number of Employees (in millions)
Employment Figures vs Industry Revenue 2007-2021
R-square:
0.84
58.0%
58.4%
58.8%
59.2%
59.6%
60.0%
1/1/
127/
1/12
1/1/
137/
1/13
1/1/
147/
1/14
1/1/
157/
1/15
1/1/
167/
1/16
Employment-Population Ratio
11
Industry Risks
Investor Uncertainty Because of the current political atmosphere, investor uncertainty surrounds
the Affordable Care Act which has been responsible for much of the rise in
demand for the industry in the past few years.
Reduced Access to
Global Markets
Potential restrictions on free trade would hurt profit since 24.9% of
revenues come from international markets.
The future increase in inflation and interest rates would strengthen the
dollar vs other currencies making it harder for companies to export their
products.
Adaptability to
Industry-Wide
Changes
Firms must be able to adapt to constant technological advancements
and new business models in order to maintain a competitive advantage as
well as meet stringent FDA requirements regarding the safety and quality
of their products.
Key Takeaway: Even though companies must adapt to constant
transformation of traditional technologies, this spurs innovation by encouraging
investment in R&D which ultimately leads to long-term sustainable growth. The
uncertainties surrounding the political situation will dissipate with time and be
outweighed by the benefits of decreased regulation.
Sources: IBISWorld, Deloitte & Touch Industry Report, S&P, EY Pulse of the Year
12
Comparable Companies Analysis
Ticker Market
Cap
% of 52
Week
High
Closing
Price
Enterprise
Value
P/E
Ratio
EV/
EBIT
EV/
EBITDA
EV/
Revenue
EBIT
Margin
EBITDA
Margin
Net
Income
Margin
LTM
ROA
LTM ROE
NEOG 2,376.8 99.2% 62.87 2,247.6 64.2 40x 32.3x 6.8x 17.0% 21.1% 11.2% 8.0% 9.5%
ABAX 1,170.2 89.3% 51.93 1,057.6 33.7 23x 20x 4.7x 20.4% 23.4% 15.5% 10.3% 14.3%
MYGN 1,194.5 38.0% 16.93 1,245.1 13.1 8.9x 7.4x 1.7x 18.6% 22.5% 12.5% 8.5% 13.2%
VIVO 726.0 78.9% 16.95 740.4 22.3 13.8x 12.4x 3.8x 27.3% 30.5% 16.4% 19.5% 19.3%
High 2,376.8
99.2% 62.9 2,247.6 64.2 40x 32.3x 6.8x 27.3% 30.5% 16.4% 19.5% 19.3%
Low 726.0 38.0% 16.9 740.4 13.1 8.9x 7.4x 1.7x 17.0% 21.1% 11.2% 8.0% 9.5%
Median 1,182.4 84.1% 34.4 1,151.4 28.0 18.4x 16.2x 4.3x 19.5% 23.0% 14.0% 9.4% 13.8%
Mean 1,366.9 76.3% 37.2 1,322.7 33.3 21.4x 18.0x 4.3x 20.8% 24.4% 13.9% 11.6% 14.1%
13
Value Weighted Index
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%1-
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6
Mid-Cap Companies Performance vs S&P 500
SPX Percentage Change in Market Cap Mid-Cap Medical Device Companies Percentage Change in Market Cap
14
Value Weighted Index
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%11
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3/1/
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5/1/
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2012
9/1/
2012
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1/1/
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3/1/
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5/1/
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7/1/
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9/1/
2013
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3
1/1/
2014
3/1/
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5/1/
2014
7/1/
2014
9/1/
2014
11/1
/201
4
1/1/
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3/1/
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2015
7/1/
2015
9/1/
2015
11/1
/201
5
1/1/
2016
3/1/
2016
5/1/
2016
7/1/
2016
9/1/
2016
Mid cap healthcare companies vs SPSIBI Index
SPSIBI index Mid cap companies
15
Industry Recommendation
Long term increased demand due to: Aging population
Rising number of unmet health issues like
Obesity, Diabetes, etc.
Emerging Markets
Favorable employment figures
Displays resilience to macroeconomic
factors coupled with overall trends toward
deregulation Long-standing threat of regulation regarding
drug prices eradicated with the election
Innovations driving organic growth
Chosen Company: Myriad Genetics
Financial Characteristics:
Market Cap: 1,194.5 mm
Revenue: 747.8 mm
Revenue Growth: 1.4%
Net Income: 93.8 mm
Gross Profit Margin: 78.5%
P/E Ratio: 13.09
ROA: 8.5%
ROE: 13.2%
Industry Rating:
Positive
16
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