实验测试产业：黎明前的黑暗

1、GlobalResearch16 January2019Initiation of CoverageLab Testing IndustryUBSEvidenceLabinside:ItisAlwaysDarkest Right Before Dawn - AResetInitiating Coverage of the US Lab Testing IndustryWe are initiating on the Lab Testing Industry with a Buy rating on Laboratory Corp. of America (LH) and a Neutral r

2、ating on Quest Diagnostics (DGX). Based onproprietary UBSEvidenceLab-drivenanalysisoftheshareshiftswithintheUNH/AETcontractsand theopportunitiesforbothLHandDGXtogainmarketsharefromhigher-costproviders suggeststopandbottomlineperformanceforbothwillbegintoimproveexiting2019, andthenbegintoshow3-4%annu

3、altoplineand8-12%EPSgrowthgoingforward.Growth rates for the national labs poised to improve after 2019WethinkthatDGXandLHhavetheabilitytoseeincreaseddiagnosticrevenuegrowth exiting 2019, with a return to a 1%-2%+ organic growth and 3%-4% total revenue growthincludingcontributionsfromanexpecteduptick

4、inM&A.Thisisanacceleration from the last two years of flattish growth and the 10-year average growth rate of just under 2%. We are assuming a greater level of network share gains and modestly higher M&A contribution as pricing pressures prompt regional labs and hospitals to partner or sell with the

5、low-cost national players.UNH/AET share shifts not NT needle-mover, but LT opportunity significantWe think the impact to the bottom-line from managed care network-related share shifts between the labs is likely to be modest. That said, we believe DGX should gain$100M in net revenues in total. More i

6、mportantly, we see a realistic $1.6B revenue opportunity long-term for the labs should other managed care providers follow the UNH/AET lead and push commercial members to preferred in-network national labs.Leveraging UBS Evidence LabWeuseddatafromUBSEvidenceLabsurveysof75HospitalCEOsandCFOs(Hospital

7、 StrategicPriorities),and144pharmaandbiotechexecutiveswhocontrolallstagesof clinicaltrialsupplybudgets(PharmaceuticalClinicalDecisionMakers)tohelpshapeour opinionsandestimates.Inaddition,theUBSEvidenceLabLocalMarketsEconomics team created a geospatial analysis of the overlay of lab PSC locations and

8、 payer commercial members footprints to help analyse which lab was going to end up with the most share of the UNH/AET contracts. Finally, we are tracking Credit Card spend dataofthemajorConsumerGeneticscompanies()as they have driven recent lab testing volumes.We Favor LH over DGX Right NowBothDGXand

9、LHmodeloutcheaptous,butwepreferLHnowaswethinkConsensus is overestimating the potential profit loss from UNH and underestimating Covances revenue growth potential (we are 220bps above the Street). We feel the stocks 1.5x discount to DGX on NTM P/E and its 3.5x discount to the S&P are not justified. O

10、ur$169 price suggests LH will trade at 14.0 x NTM EPS 12 months out. For DGX, we believethereissomeriskto2019EConsensus(our2019EEBIT/EPSsit2%below).HealthcareAmericasEquitiesKevinCaliendoHealthcareAmericasEquities HYPERLINK mailto:kevin.caliendo +1-212-7133630Adam Noble AssociateAnalyst HYPERLINK ma

11、ilto:adam.noble +1-212-713-9495Brett AssociateAnalyst HYPERLINK mailto:brett.gasaway +1-212-7134820Dan Brennan,CFA HYPERLINK mailto:daniel.brennan +1-212-7132317Timothy Evans HYPERLINK mailto:tim.evans1 +1-212-7137983 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by

12、UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 44. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report

13、. Investors should consider this report as only a single factor in making their investment decision.Contents HYPERLINK l _TOC_250016 Ratings/EstimateOverviewLabTestingCoverage3 HYPERLINK l _TOC_250015 LaboratoryCorporationofAmerica(LH)BUY3 HYPERLINK l _TOC_250014 QuestDiagnostics,Inc.(DGX)NEUTRAL4UB

14、S ResearchTHESISMAP5 HYPERLINK l _TOC_250013 LABTESTINGTHESISINPICTURES7 HYPERLINK l _TOC_250012 NEAR ANDMID-TERMSIGNPOSTS8 HYPERLINK l _TOC_250011 Q: How will the UNH/AET contract changes impact the Industry near and long-term?9 HYPERLINK l _TOC_250010 Howmuchofthe$8Bincombinedlabtestingbusinessfro

15、mUNHandAET willendupgoingtoDGXandLH?10 HYPERLINK l _TOC_250009 FurtherpenetrationofUNHandAETbythenationalplayers15 HYPERLINK l _TOC_250008 WillUNHandAETbecometrendsettersforthemanagedcareindustry?19 HYPERLINK l _TOC_250007 Q:IstheimpactfromPAMAontheclinicallabindustrygreaterthanjustthe lostincome?21

16、 HYPERLINK l _TOC_250006 ABriefPAMARefresher22 HYPERLINK l _TOC_250005 IsthererisktoindustrypricinggoingforwardasaresultofthePAMAcuts?24What Does Our Evidence Lab Survey Say About the Hospital Market Opportunity for DGXandLH?27 HYPERLINK l _TOC_250004 Q: How fast is the lab Industry growing and can

17、LH and DGX grow faster than the marketgoingforward?35 HYPERLINK l _TOC_250003 HistoricalIndustryGrowthRatesandDrivers36 HYPERLINK l _TOC_250002 WheredoweseeLabTestingIndustryVolumesmovingforward?38 HYPERLINK l _TOC_250001 The Net Result: What do we think DGX and LH can grow over the next severalyear

18、s?39 HYPERLINK l _TOC_250000 Isbaddebtgoingtobeanissueforthelabsmovingforward?40KevinCaliendo HYPERLINK mailto:kevin.caliendo +1-212-7133630Adam AssociateAnalyst HYPERLINK mailto:adam.noble +1-212-713-9495Brett AssociateAnalyst HYPERLINK mailto:brett.gasaway +1-212-7134820Dan Brennan,CFA HYPERLINK m

19、ailto:daniel.brennan +1-212-7132317Timothy Evans HYPERLINK mailto:tim.evans1 +1-212-7137983Ratings/Estimate Overview Lab Testing CoverageLaboratory Corporation of America (LH) BUYPositive risk-reward NT, Covance and LT Diagnostic Growth Underappreciated Wethinka2H19EDiagnosticEBITstabilizationshould

20、providesupporttoandare- ratingofLHsmultiple,andsee2-7%upsidetoConsensusEPSLTdrivenbyhigh- single-digit Covance revenue growth (220bps above Consensus) and capital allocation (we model a 550bp EPS benefit from buybacks through 2022E). We thinkrecentunderperformance(LHshareshavefallen-27%sincethebegin

21、ningof 3Q18 vs. the S&P/XLV -5%/+4%) creates a positive risk-reward set-up into the 2019guidancecall,asLHisalreadypricinginahigh-singledigitdeclinein2019E Diagnostic EBIT and flattish Diagnostic profit growth movingforward.UBS Evidence Lab supports limited UNH EBIT headwind; MCO opportunities LT Tho

22、ugh we model 2019E Diagnostic Revenue/EBIT to decline -1.4%/-7.3% YoY, our DiagnosticEBITsitsmodestlyaboveConsensus.ThisisdrivenbyouranalysisofUBS EvidenceLabgeospatialdataofUNH/AETCommerciallivesandlabPSCs(proxyforlab market share opportunity), which indicates only a modest ($3mn) net EBIT headwind

23、 for LH (net of pricing) from UNH/AET contract changes. We expect MCO and PAMA pressurestocreateatailwindofshareshifttoLHthatsuggests2%organicdiagnostic growth starting in 2020.Covance Poised to Ride CRO Industry Tailwinds and Clinical StrengthOuranalysisoftheUBSEvidenceLabPharmaOutsourcingsurveypoi

24、ntstoCovance gainingthemostClinicalmarketshareintheindustryoverthenext2years,suggesting LHs recent CRO book-to-bill momentum is not simply a recovery from post-merger softness. We believe Covance has the ability to deliver backlog/revenue growth of 9.3%/8.1%onaveragebetween2019E-2022Edrivenbystrongi

25、ndustryfundamentals, leverageofitsdataassets,andimprovementinclientperceptionandservicequality.Valuation: We Expect a Re-Rating Supported by DCF and Sum-of-the-PartsWearriveatour$169pricetargetbasedonaP/Emultipleof14.0 xappliedtoourNTM adjustedEPSestimates12monthsout.OurappliedP/Emultipleimpliesare-

26、ratingback to its -13% historical discount to the S&P (vs. -27% currently), which we think is supportedbyourDCFandReverseDCFAnalyses(asthecurrentstockpriceimpliesonly a 7.1x Terminal Multiple), as well as a sum-of-the-parts analysis applying a +30% higher multiple to its Covance segment.Quest Diagno

27、stics, Inc. (DGX) NEUTRALNear-term risk to Consensus, but path to sustainable HSD EPS growth existsWearemodelling2019EEBIT/EPS2%belowconsensusasourproprietarystate-by- state analysis of the net market share opportunity from UNH/AET suggests less switching to DGX than is expected. Longer-term we see

28、1%/2% upside to consensus revenue/EPS estimates from broader market share gain opportunities (MCO cost- shifting and M&A), cost efficiency realization and capitaldeployment.UBS Evidence Lab indicates mixed bag for UNH and Hospital EBIT contributions While we think DGX will take market share from LH

29、and other 3rd party labs through its increased market access and savings potential for more restricted networks, our analysis of UBS Evidence Lab geospatial data of UNH/AET Commercial lives andlab PSCsindicatestheNTrevenue/EBITopportunityfromUNHmightbemoremodestthan current expectations. Furthermore

30、, though survey data suggests PAMA (Protecting Access to Medicare Act) will be a catalyst for hospital strategic activity around their labs, it also suggests nearly as much enhanced hospital competition as hospital outsourcing opportunities.Building blocks for FY19E EBIT Growth, but already reflecte

31、d in Street numbers We think the building blocks are there for DGX to deliver low-single-digit EBIT growth and only a -10bps decline in operating margin. We model 2019E EBIT growth of$19mndrivenprimarilybyvolume-tailwinds($33mn),Invigoratesavings($157mn),and M&A ($14mn) more than offsetting $210mn i

32、n pricing-related headwinds. Greater NT profitupsidefrommarketaccesswouldmakeusmorepositiveinthename.Valuation: 2019E downside/skew keeps our relative multiple below historical We arrive at our $90 price target based on a P/E multiple of 12.9x applied to our adjusted EPS estimates (ex-amortization)

33、12 months out. Our applied P/E multiple represents a discount to its historical -9% discount to the S&P, which we think is supportedbyour2019operationalestimatesbelowConsensus,operationalestimates onlyslightlyaboveConsensusinouteryears,negativeskewwearriveatinourscenario analysis,andDCFandReverseDCF

34、Analyses(asthecurrentstockpriceimpliesan8.0 x Terminal Multiple).US Lab Testing IndustryUBS ResearchTHESISMAPUBS Research THESISMAPPIVOTALQUESTIONSQ: How will the UNH/AET contract changes impact the Industry near andlong-term?We think the net share shift between the labs from network contract change

35、s is likely to fall short of expectations (we estimate DGX will over time gain a net $100M in revenues and LH will lose a net$72M between UNH and AET). That said, we expect over time for both companies to pick up their share of the 20% ($600M) of out-of-network lab costs UNH/AET are capable and ince

36、ntivized to move to their low-cost providers. If other payers follow the leaders, it could create a $1.6B revenue opportunity for LH and DGX. HYPERLINK l _bookmark0 moreQ: Is the impact from PAMA on the clinical lab industry greater than just the lost income?WebelievethePAMA(ProtectingAccesstoMedica

37、reAct)reimbursementpressureswillbeacatalyst forstrategicactionbyhospitalsaroundtheirlabstrategiesmovingforward.UBSEvidenceLabHospital CEO/CFOsurveydatashowedthatlowerprofitsfromPAMAwillbeacatalystfor23%ofourhospitals tooutsourceorpartnertheirownlabbusiness(thusgeneratingincrementalrevenueopportuniti

38、esfor DGX and LH). However, nearly as many hospitals are planning to increase competitive outsourcing operations (thereby competing with DGX and LH for physician lab test volumes). We expect LH to participatetoalesserextentinhospitalM&AthanDGXmovingforwardasitsfaster-growingCovance segment competes

39、for capital allocation dollars. HYPERLINK l _bookmark1 moreQ:HowfastisthelabIndustrygrowingandcanLHandDGXgrowfasterthanthemarketgo ingforward?We think that DGX and LH have the ability to see increased revenue growth post 2019, with normalization to 1%-2% Diagnostic organic revenue growth and 3%-4% t

40、otal Revenue Growth including contribution from M&A. This is a modest acceleration from the labs 10-year avg. growth of under 2% and contemplates greater network share gains and modestly higher M&A contribution. HYPERLINK l _bookmark2 moreWHATSPRICEDIN?Valuation reflects negative sentiment: We think

41、 recent underperformance (LH/DGX shares have fallen-27%/-24%sincethebeginningof3Q18vs.theS&P/XLV(-5%/+4%)providesafavorablerisk- reward and entry point for the sector, as top and bottom line growth should start improving exiting 2019. Within the group, we think Consensus is overestimating the potent

42、ial profit loss for LH from UNHintheNTandfeelitsdiscounttoDGXanditshistoricaldiscounttotheS&Pisnotjustifiedgiven stronggrowthprospectsforCovance(wemodelCovancetop-linegrowth220bpsaboveConsensus).UBSVIEWLT share shift opportunity significant, growth rates poised to improve after 2019: Though we think

43、theimpacttothebottom-linefromnetwork-relatedshareshiftsbetweenthetwonationallabsis likelytobemodest,weseeoverallmarketshareshiftingmeaningfully(howmuch)towardLHandDGX overthenextseveralyears.Thistrendwillbedrivenbymanagedcaresdesiretodrivecostsdownand push members into low-cost provider preferred ne

44、tworks, and pricing and reimbursement pressures that we expect will prompt smaller regional labs and hospitals to sell out or partner with the national labs.Webelievebeginningin2020thelabswillbeabletogrowdiagnosticrevenuesorganically2% and total revenues 3-4% including M&A.EVIDENCELeveragingUBSEvide

45、nceLab.WeuseddatafromUBSEvidenceLabsurveysof75HospitalCEOs andCFOs(HospitalStrategicPriorities),and144pharmaandbiotechexecutiveswhocontrolallstages ofclinicaltrialsupplybudgets(PharmaceuticalClinicalDecisionMakers)tohelpshapeouropinionsand estimates. In addition, the UBS Evidence Lab Local Markets E

46、conomics team created a geospatial analysisoftheoverlayoflabPSClocationsandpayercommercialmemberfootprintstohelpanalyse whichlabwasgoingtoendupwiththemostshareoftheUNH/AETcontracts.Finally,wearetracking CreditCardspenddataofthemajorConsumerGeneticscompanies() as they have driven recent lab testing v

47、olumes.LAB TESTING THESIS IN PICTURESFigure 1: Lab PSC State Market Share Cross-Referenced with UNH Lab Spend By State0.0%20.0%40.0%60.0%80.0%100.0%PSC Market Share By StateStrong0.0%20.0%40.0%60.0%80.0%100.0%PSC Market Share By StateStrongLHModestLHModestDGXStrongDGXCTOKMIKYARGATNOHNCAZ$300.0$200.0

48、$100.0$0.0FLCANJNVTX$600.0$500.0$400.0UNH Opportunity MapNY$800.0$700.0UNHLabSpendByState($mn)Source: UBS Evidence Lab.Figure 2: UNH/AET 2019E In-Network Market Share Impact2018E Lab Market ShareUNHAETTotalUNH/AET Market Share Shift4.4%5.4%LH UNH/AET Ex-PricingUNH/AET Ex-PricingTotal LH/DGX RevenueE

49、x-Pricing $1,020Pricing Impact to LH2.0%Pricing Impact to -13.0%LH UNH/AET UNH/AET Total LH/DGX Revenue Ex-Pricing $1,007$1,438LH 2019E UNH/AET Revenue Impact($212)$140($72)Overall Diagnostics Revenue Impact-3.0%2.0%-1.0%DGX 2019E UNH/AET Revenue Impact$229($127)$102Overall Diagnostics Revenue Impac

50、t3.2%-1.8%1.4%Source: UBS Evidence Lab, UBS estimates, Company Data.Factoring in pricing, we model a$102mn revenue gain for DGX and $72mn loss for LH from UNH/AET network changes.However, based on the drop- through of pricing to the bottom- line and fairly modest overall share shift assumption, we d

51、o not expect either lab to see a material change to EBIT in 2019E from the network changes.Figure 3: MCO 2018E Market Share Shift Scenario AnalysisMCO 2018E Market Share Shift Scenario AnalysisDownsideUpside $5,226$5,226$5,226 PhysicianOffice$2,240$2,240$2,240 Outreach$6,826$6,826$6,826Market Share

52、Shiftto15.0%20.0%25.0%Market Share ShiftEx-Pricing$2,144$2,858$3,573Lab PricingPremium15.0%15.0%15.0%Physician OfficePricingPremium25.0%25.0%25.0%OutreachPricingPremium75.0%75.0%75.0%Market Share ShiftIncl-Pricing$1,174$1,566$1,957%ofDGX/LHDiagnosticsRevenue8.2%11.0%13.7%Savingsto Payers$1,293$1,616

53、Source: UBS estimates, Company Data.Under our Base Case, we see a$1.6bn revenue opportunity for DGX/LH from Managed Care preferred network lab contractingLAB TESTING THESIS IN PICTURESFigure 4: Hospital Lab Intentions due to PAMA and other Reimbursement Pressures70%60%59%50%None of the above40%30%20

54、%4%19%Outsource your entire lab practiceIncrease the use of a10%19%reference labIncrease your lab0%outreach programIncrease 3rdIncreaseNone of thePartyOutreach (-)aboveOutsourcing(+)Source: UBS Evidence LabShare gains from greater hospital outsourcing as a result of PAMA are expected to be offset by

55、 increased hospital outreachFigure 5: Total and NT Lab Testing TAM for DGX/LH (current)PhysicianPhysicianMarketHospitalOutreach/ReferenceLabRegionalLabsOverallTAMNear-Term TAM0$9.2bn40,00030,00020,00010,000$43.4bn50,000$9.5bn, slightly more than 20% of the total outpatient TAM.Source: UBS estimates,

56、 Company Data.2 YearsAgo2 YearsAgoToday2 YearsFrom NowShareChangeCovance20.2%21.7%23.1%1.4%IQV18.5%15.1%16.4%1.3%Other6.9%6.4%7.7%1.3%11.1%10.2%10.7%0.6%2.5%1.6%2.1%0.5%MEDP3.9%2.1%2.5%0.3%PAREXEL9.3%9.8%9.4%-0.4%SYNH3.6%5.4%4.5%-0.8%PRAH10.5%13.8%12.4%-1.4%PPD13.6%13.8%11.0%-2.8%Covance is expected

57、 to be the top Clinical share gainer (by Dollar- weighted Clinical market share shifts) within our Pharma Clinical Decision-Maker respondent firms (n=82)Source: UBS Evidence LabNEAR AND MID-TERM SIGNPOSTSIn order to see whether our thesis is playing out, heres what well be tracking over the next six

58、 months and beyond:DATARELEASE/EVENTDATEWHAT WE EXPECTFEB 2019 4Q Results and 2019Guidance UpdatesDownside to DGX EPS / In-line for LHBothlabswillreportearningsinFebruary.Thoughwesee a positive 4Q risk-reward for both following a clearing of the deck by management in late 2018, focus will be the ini

59、tial2019guides.Weexpectmodestdownsidevs.DGX Consensus 2019E EPS on a lower implied EBITmargin, and LH to bracket Consensus with better-than-expected Covanceoffsettingagreater-than-expecteddeterioration in Diagnostics fundamentals. We also look for an early read on UNH pricing and switchrates.APRIL 2

60、019 1QResultsUpdate of UNH sharegainsBythetimethelabsreport1Qearningstheyshouldhave afairlygoodhandleonthetotalamountofUNHandAET share shifts following in-network contract changes. We model a net revenue gain of $126mn for DGX and net revenue loss of $84mn for LH (not inclusive of contract pricing c