Category: Global stocks

Global Stock refer to share that are traded on multiple exchanges with different currencies. For example, if a publicly-traded company issues shares in dollars on the New York Stock Exchange and in pounds on the London Stock Exchange, it is issuing global registered shares. Global stock to a portfolio offers diversification and may provide higher returns. Global stock markets may experience higher levels of volatility than other domestic markets with bigger swings to both the upside and downside.

Categories
Global stocks

Chubb Is Potentially the Most Attractive Long-Term Core Holding in Insurance

Business Strategy & Outlook

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. The deal looked fairly valued and there were meaningful cost benefits involved, with management eventually exceeding its initial targets. However, from a long-term perspective, the enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view. In 2020, the coronavirus affected the industry’s and Chubb’s results, and the company’s COVID-19 losses were roughly in line with peers’ as a percentage of premiums. 

However, the impact at Chubb and peers was manageable and well within the range of events that the industry has successfully absorbed in the past. The future looks relatively bright. While the pricing environment had not been particularly favorable in recent years, pricing momentum picked up in primary lines in 2019, and this positive trend only accelerated in 2020. More recently, pricing has started to level off, but the industry has enjoyed the highest increases it has seen since 2003. While higher pricing is necessary to some extent to offset lower interest rates and a rise in social inflation, pricing increases appear to be more than sufficient to offset these factors.

Financial Strengths

One can remain comfortable with Chubb’s financial health. Equity/assets was 30% at the end of 2021, and while the company has a large amount of goodwill on its balance sheet, its balance sheet structure is reasonable and roughly in line with peers on a tangible basis. Like all property and casualty insurers, the company’s earnings and capital in any particular year could take a material hit due to catastrophes or securities market movements that affect its investment portfolio. However, the company’s insurance operations are well diversified, and it has a history of superior underwriting profits, so one wouldn’t expect a large catastrophe year to significantly degrade its capital position. The firm also retains a fairly conservative investment portfolio, which is concentrated in government debt, municipal bonds, and highly rated corporate securities.

Bulls Say

  • Chubb is one of the few companies with the global footprint that large corporate insurance customers demand. Its network has created a barrier to entry for potential competitors. 
  • Chubb is a large insurer with leading positions in the most moaty areas of the P&C insurance industry. 
  • Chubb’s international operations benefit from significant growth opportunities.

Company Description

ACE acquired Chubb in the first quarter of 2016 and assumed the Chubb name. The combination makes the new Chubb one of the largest domestic property and casualty insurers, with operations in 54 countries spanning commercial and personal P&C insurance, reinsurance, and life insurance.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

BioMarin formed a 50/50 joint venture to market BioMarin’s first drug, Aldurazyme for mucopolysaccharidosis

Business Strategy & Outlook

BioMarin is amassing a portfolio of genetic-disease therapeutics, making historical comparisons with Genzyme (acquired by Sanofi) difficult to avoid. Commercialization and research and development expenses have kept BioMarin in the red, but in the profit-generating power of its rare-disease treatments, and BioMarin’s turn to profitability looks maintainable. With a deep in-house pipeline and the ability to supplement growth with strategic acquisitions, BioMarin is in a strong position.

BioMarin’s life-saving therapies may serve only a few thousand patients globally, but with six-figure price tags on most products and high barriers to entry, one can see this as a very attractive marketplace. Genzyme (now Sanofi) and BioMarin formed a 50/50 joint venture to market BioMarin’s first drug, Aldurazyme, for the treatment of mucopolysaccharidosis I, or MPS I. BioMarin’s MPS VI drug, Naglazyme, is maturing, but still seeing solid growth due to use in emerging markets like Brazil and higher (more expensive) dosing as young patients mature; the peak sales will surpass $400 million. BioMarin is also well positioned to treat the entire spectrum of patients with phenylketonuria, or PKU, one of the world’s most common metabolic disorders. While generic versions of Kuvan (mild to moderate PKU) launched in the U.S. in 2020, more potent drug Palynziq launched in 2018 in the U.S. to serve adult patients with PKU, including patients with more severe disease. PKU is well diagnosed thanks to state-mandated newborn screening programs, and no alternative drug therapies exist.

Financial Strengths

BioMarin ended 2021 with roughly $1.4 billion in cash, cash equivalents, and investments and $1.1 billion convertible debt. Given its recent turn to profitability, the firm will have plenty of cash on hand to pay down its convertible debt coming due in 2024 ($495 million) and 2027 ($600 million). The current free cash flow estimates suggest that BioMarin will not need external financing to fund its operations going forward.

Bulls Say

  • BioMarin’s approved drugs have been granted orphan-drug status in the U.S. and European Union, providing them with at least 7 and 10 years of market exclusivity, respectively.
  • BioMarin’s drugs target rare chronic conditions that often require treatment from a very young age, and while locating eligible patients on a global level is challenging, the firm has high patient retention rates. 
  • With a growing portfolio in an attractive rare-disease niche—and acceleration of profit growth beginning in 2022—BioMarin could be an acquisition target for pharmaceutical firms with pipelines to fill.

Company Description

BioMarin’s focus is on rare-disease therapies. Genzyme (now part of Sanofi) markets Aldurazyme through its joint venture with BioMarin, and BioMarin markets Naglazyme, Vimizim, and Brineura independently. BioMarin also markets Kuvan and Palynziq to treat the rare metabolic disorder PKU (in addition to long-standing U.S. rights, BioMarin has reacquired international rights for Kuvan and Palynziq from Merck KGaA). Voxzogo (vosoritide) was approved in achondroplasia in 2021. BioMarin’s Roctavian (hemophilia A gene therapy) is poised to potentially launch in the 2022-23 timeframe.

 (Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Change Healthcare’s revenue is generated by payers and providers with a split of roughly 40% and 60%, respectively

Business Strategy & Outlook

Change Healthcare offers variations of over a dozen financial and administrative services to support healthcare payers and providers improve administrative efficiency related to submitting and reimbursing medical and dental claims. The company’s revenue is generated by payers and providers with a split of roughly 40% and 60%, respectively. These processing services are focused on administrative accuracy with relatively low fee rates. As a result, there are no material customer concentration issues and no one customer represents more than 4% of revenue. As these various outsourced services address niche needs, there are no direct comparable peers. These services generally fit into three segments; Network Solutions, Software Analytics, and Technology-enabled Services. 

Most of the company’s services were likely born from its Network Solutions segment as it is a medical and dental claim clearinghouse that services both payers and providers. This highly commoditized service drives scale and reach within healthcare claims processing and enables the company to identify incremental tools and evolving needs across its broad customer base. The company’s clinical and healthcare network manages roughly one third of U.S. healthcare claims from 2,200 government and commercial payers, 900,000 physicians, 118,000 dentists, 33,000 pharmacies, 5,500 hospitals, and 600 laboratories. Having connectivity to all these payers and providers will be critical in creating value with incremental software tools bundled from the other two segments. There is some crossover of the provider and payer services within the two segments, Software & Analytics and Technology-Enabled Services. The Software & Analytics segment supports plans covering 100 million lives, provides payment accuracy solutions to 19 of the top 20 U.S. payers, 4,600 hospitals, and nine of the top 10 Medicare advantage plans. The Technology-Enabled Services segment is focused on providing outsourced revenue cycle support and covers $34 billion in annual charges and $9.2 billion in annual collections across 207 million annual cases/procedures.

Financial Strengths

As a spinoff from a larger entity, Change Healthcare was burdened with a significant debt balance of $5.8 billion, or 6 times fiscal 2020 adjusted EBITDA. The company was largely leveraged to fund the integration and investment in its more targeted strategy. The company has a strong revenue base of $3 billion and gross margins and operating margins in excess of 60% and 15%, respectively. Even with the necessary strategic investments, the company would try to pay down some of its debt with free cash flow, which is forecast to be in excess of $250 million annually. The subscription nature of the company’s business will provide stability in revenue and cash flows to expand its leading position in the niche medical claims market. The management may make small tuck-in acquisitions through available cash and cash flows. Even in this scenario, there’ll be an increasing liquidity, as the firm’s reserve of cash should continue to increase.

Bulls Say

  • Its medical claims data and IT focus should enable the company to become a meaningful contributor with the increased focused toward value-added reimbursement and interoperability policies.
  • The company’s focus on developing new tools and analytics should further entrench it into mission critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
  • Change Healthcare’s broad claims network provides broad connectivity and significant amounts of data to captive customer audiences.

Company Description

Change Healthcare is a spin-off of various healthcare processing and consulting services acquired by McKesson over numerous years. Recently, these processing assets were contributed to a joint venture and in June 2019 public shares were issued with McKesson retaining the majority interest. As of the end of the March 2020 quarter, McKesson distributed all its interest in the public processor. Core services consist of insurance (healthcare) claim clearinghouse for healthcare payers in addition to administrative and consulting services to assist healthcare providers improve reimbursement coding, billing, and collections.

 (Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Despite Recent Litigation Headwinds on Zantac, GSK Remains Well Positioned for Earnings Growth

Business Strategy & Outlook

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company’s innovative new product lineup and expansive list of patents protected drugs create a wide economic moat. The magnitude of GSK’s reach is evidenced by a product portfolio that spans several therapeutic classes. The diverse platform insulates the company from problems with any single product. Additionally, the company has developed next-generation drugs in respiratory and HIV areas that should help mitigate both branded and generic competition. 

The GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade. On the pipeline front, GSK has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on oncology and the immune system, with genetic data to help develop the next generation of drugs. The benefits of these strategies are showing up in GSK’s early-stage drugs. This focus will improve approval rates and pricing power. In contrast to respiratory drugs, treatments for cancer indications carry much strong pricing power with payers. From a geographic standpoint, GSK is strategically branching out from developed markets into emerging markets. Its vaccine segment positions the firm well in these price-sensitive markets. While this strategy is likely to create some challenges, like the potential legal violations that arose in early 2013 in China, the fast-growing emerging markets will help support long-term growth and diversify cash flows beyond developed markets. GSK’s decision to divest its consumer business will likely unlock value over the long run. GSK divested its consumer group (called Haleon) in July 2022. Given the strong valuations of consumer healthcare companies, this unit will yield a stronger valuation than what is implied within the GSK structure before the divestment.

Financial Strengths

GSK remains on fairly stable financial footing, with debt/EBITDA at 2.8 as of the end of 2021 and with Haleon taking on close to GBP 10 billion of GSK’s debt, the remaining GSK balance sheet is improved. With the improving balance sheet and steady projections of cash flows, the GSK will increasingly make more acquisitions to augment its internal research and development pipeline. Additionally, with the divestment of the consumer division in July 2022, the new dividend of GSK to be secure and likely grow at a pace similar to earnings over the next five years.

Bulls Say

  • GSK’s next-generation respiratory drugs and HIV drugs look poised for strong growth over the next five years. 
  • GSK faces relatively minor near-term patent losses, setting up steady long-term growth.
  • The firm’s well-positioned Shingrix vaccine should support strong long-term growth based on excellent efficacy and limited competition.

Company Description

In the pharmaceutical industry, GSK ranks as one of the largest firms by total sales. The company wields its might across several therapeutic classes, including respiratory, cancer, and antiviral, as well as vaccines. GSK uses joint ventures to gain additional scale in certain markets like HIV.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Lilly’s Robust Pipeline and Currently Marketed Portfolio Set Up Industry Leading Growth

Business Strategy & Outlook

Eli Lilly’s innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly’s growth prospects are improving as the company is launching several new blockbusters and patent losses are fading. Lilly’s internal pipeline is well positioned to mitigate the patent losses during the next decade. The company tends to spend low to mid-20% of its sales on financing the development efforts of new drugs, much higher than the high-teens industry average. The robust pipeline is a result of Lilly’s strong commitment to research. The diabetes drugs Trulicity and Jardiance and immunology drug Taltz along with cancer drug Verzenio hold the highest sales potential of Lilly’s currently launched drugs. Further, pipeline drugs lebrikizumab (atopic dermatitis), mirikizumab (immunology), tirzepatide (diabetes) and donanemab (Alzheimer’s) hold major blockbuster potential. Lilly’s strong entrenchment in insulin production should also help the company deal with patent losses. 

Unlike traditional drugs, Lilly’s insulin drugs are very hard to copy by generics and create barriers to entry for non insulin producers because of the large up-front investments needed to create scale efficiencies. Further, Lilly’s longer acting biosimilar insulin should help the company secure its market share. Additionally, a new weekly insulin in late-stage development offers another avenue of growth in this mature market. The company is taking a hard look at its bottom line. Through a combination of cost savings and expected top-line growth, Lilly aims to expand operating margins over the next several years, which is achievable. Lilly expects to increase its gross margin through productivity initiatives and greater capacity utilization. Overall, the strong traction of recently launched high-margin drugs in immunology and oncology as supporting the overall profitability gains.

Financial Strengths

With strong cash flows derived from a stable and diversified product portfolio, Eli Lilly remains on solid financial footing. The company’s debt/EBITDA level will fall from close to 2.1 times in 2021 to close to 1.5 times by 2023. Also, the debt/capital ratio will fall from close to 65% in 2021 to 58% in 2023 as cash flows accrue over the years. With its strong growth prospects, one doesn’t expect Lilly will need to make any major acquisitions to drive growth. Nevertheless, tuck-in acquisitions will augment growth for the company over the next decade.

Bulls Say

  • Lilly is developing a new Alzheimer’s drug (donanemab) that could become a major blockbuster, especially because the FDA appears to have a lower threshold for accelerated approval for this disease.
  • Lilly’s cancer drug Verzenio reported strong data in early-stage breast cancer, opening up the potential to be the first CDK 4/6 drug to launch in this multi-billion-dollar market.
  • Lilly is increasing its focus on developing drugs for unmet medical indications in neurology and oncology. The strategy should improve the success rate at the FDA and drive strong pricing power.

Company Description

Eli Lilly is a drug firm with a focus on neuroscience, endocrinology, cancer, and immunology. Lilly’s key products include Verzenio for cancer; Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

Merck’s Current Portfolio Looks Well Positioned for Growth in the Near Term

Business Strategy & Outlook

Merck’s combination of a wide line-up of high-margin drugs and a pipeline of new drugs should ensure strong returns on invested capital over the long term. Further, following the divestment of the Organon business in June 2021, the remaining portfolio at Merck holds a higher percentage of drugs with strong patent protection. On the pipeline front, after several years of only moderate research and development productivity, Merck’s drug development strategy is yielding important new drugs. Merck’s new products have mitigated the generic competition, offsetting the recent major patent losses. In particular, Keytruda for cancer represents a key blockbuster with multi-billion-dollar potential: It holds a first mover advantage in one of the largest cancer indications of non-small cell lung cancer with excellent clinical data. Also, the new cancer drug combinations will further propel Merck’s overall drug sales. However, the intense competition in the cancer market with several competitive drugs likely to report important clinical data over the next couple years in earlier stage cancer settings. Other headwinds include generic competition, notably to diabetes drug Januvia, likely to intensify in 2023. After several years of mixed results, Merck’s R&D productivity is improving as the company shifts more toward areas of unmet medical need. Owing to side effects or lack of compelling efficacy, Merck experienced major setbacks with cardiovascular disease drugs anacetrapib, Tredaptive, Rolofylline, and TRA along with Telcagepant for migraines. Safety questions ended the development of osteoporosis drug odanacatib. Despite these setbacks, Merck has some solid successes, including a successful launch for its PD-1 drug Keytruda in oncology. Following this success, Merck is shifting its focus toward areas of unmet medical need in specialty-care areas, and Keytruda is leading this new direction. Keytruda’s leadership in non-small cell lung cancer will be a key driver of growth for the company over the next several years.

Financial Strengths

Merck remains on solid financial footing. The company closed 2021 with debt/capital of 46%, and strong cash flows expected over the next several years should further strengthen the balance sheet. Also, with the spinoff of Organon, Merck received a one-time payment from Organon of $9 billion. Merck redeployed this capital through the acquisition of Acceleron to help fortify its late-stage pipeline. Merck has signalled a strong willingness to make acquisitions, and historically it has tended to make several bolt-on acquisitions each year. Given that Merck hasn’t made any major acquisitions since the Schering-Plough deal in 2009, it will make a larger acquisition over the next two to three years. Beyond acquisitions, the steady future dividends, supported by a payout ratio of close to 50% relative to adjusted earnings per share.

Bulls Say

  • Keytruda looks best positioned in the immuno-oncology landscape, buoyed by a first-mover advantage in the important indication of first-line non-small cell lung cancer.
  • The growth in Merck’s high margin cancer drugs should help expand the company’s overall operating margin.
  • Merck supports a strong dividend yield that looks secure based on a wide diversified portfolio of drugs.

Company Description

Merck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiometabolic disease, cancer, and infections. Within cancer, the firm’s immuno-oncology platform is growing as a major contributor to overall sales. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases as well as HPV and shingles. Additionally, Merck sells animal health-related drugs. From a geographical perspective, just under half of the firm’s sales are generated in the United States.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base

Global network and financial technology concept.

Business Strategy & Outlook

ALS is a global provider of analytical testing and inspection services; it also has a small Australian-focused distribution business. While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is trumped by the majors, Bureau Veritas, SGS, and Intertek in non-destructive testing and inspection. Services include laboratory testing for the mineral, coal, environmental, food, and pharmaceutical segments. Excellent reputation, technical capabilities, a global network, and established relationships with global clients are key advantages over often fragmented competitors. While laboratory equipment is readily available, it is the service and ability to meet customer requirements in a cost-effective way that helps ALS retain clients and expand the existing business. Earnings volatility stems from significant exposure to cyclical commodity markets, particularly exploration. ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base: 37% Asia-Pacific, 36% Americas, 24% EMENA, and the balance Africa. This global network reduces region reliance and gives it the capability to leverage experience across borders and serve an international client base.

During the mining boom, the minerals division was the growth engine. EBIT almost doubled within two years, and minerals still accounts for just under half of group EBIT. It provides services across the exploration, expansion, and production stages. These include sample preparation, quantity and quality analysis, grading and process plant control/optimisation, and reshipment inspection across a vast range of minerals and commodities such as gold, silver, platinum, iron ore, nickel, bauxite, and uranium. Earnings are heavily tied to exploration-type projects. ALS charges market-leading prices for superior service, reputation, and timeliness. ALS life sciences undertakes environmental, pharmaceutical, and food testing. The flow-on impacts of population growth, and developing world urbanisation driving public and private infrastructure expansion, are expected to increase demand in these areas.

Financial Strengths

ALS is in reasonable financial health. At the end of fiscal 2015, acquisitions and capital expenditure had pushed net debt to AUD 776 million and gearing to 37%. A subsequent AUD 325 million capital raising meant gearing fell to near 28% and net debt/EBITDA from 2.6 times to a manageable 2.0 times.

Incremental acquisitions in the life sciences segment have again been accompanied by increasing group net debt. Despite strong net operating cash flow in fiscal 2022, net debt increased nearly 50% on the previous corresponding period to AUD 902 million, reflecting AUD 410 million in capital and acquisition expenditure and AUD 131 million on dividends. Gearing rose to 44% from 36% and net debt/EBITDA to 1.8 from 1.6. While not low, this remains a comfortable level of gearing, particularly given the reliability of life sciences revenue and the fact that this segment has grown to 53% of group total revenue. Gearing remains within the limits of ALS’ sub-45% target ratio. Excluding acquisitions, projected sub-1.0 net debt/EBITDA by fiscal 2027, though ALS’ acquisitiveness makes a sub-1.0 target unlikely.

Management has continued to seek additional bolt-on acquisitions, particularly in the life sciences area, but given cyclical earnings and a weaker environment for mineral and coal testing, the focus remains on balance sheet conservatism. Many companies servicing the mining sector were crippled during the global financial crisis, when a dangerous combination of high debt levels and volatile earnings required large capital raisings to keep them afloat. ALS avoided this by increasing earnings diversity, keeping debt levels manageable, and turning to shareholders when it needed to fund acquisitions. The capital base has increased significantly since fiscal 2005, funding acquisitions of The Reservoir Group in the U.S., Enviro-Test Lab Group in Canada, Ecochem in the Czech Republic, and Pearl street, Ecowise, and Ammtec in Australia.

Bulls Say

  • ALS has diversified the earnings base to mitigate exposure to highly cyclical commodity markets. Expansion into food and pharma testing, as well as inspection and certification markets, should provide growth despite a significant slowdown in minerals testing.
  • Large clients are unlikely to move away on price alone, with quality and skills essential requirements.
  • Exposure to mineral and coal testing could once again provide earnings growth if the global economy’s appetite for commodities increases.

Company Description

Founded in the 1880s and listed on the ASX in 1952, ALS operates three divisions: commodities, life sciences, and industrial. ALS commodities traditionally generated the majority of underlying earnings, providing geochemistry, metallurgy, inspection and mine site services for the global mining industry. Expansion into environmental, pharmaceutical and food testing areas and commodity price weakness have lessened earnings exposure to commodities.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Bank of Queensland has branches owned by branch managers and corporate branches

Business Strategy & Outlook

Bank of Queensland is one of Australia’s top-10 largest banks, but is considerably smaller than the four major Australian banks. Preceding the global financial crisis, the bank grew aggressively via acquisitions and the rollout of its distinctive owner-manager branch franchise model. However, expanding the branch network and diversifying from traditional residential lending came at a cost, with additional equity required to fund growth, significantly increased bad debts, and multiple banking systems, which resulted in deteriorating cost/income and returns on equity. The successful integration of ME Bank is expected to materially lift earnings per share in the medium term. Other influences on earnings growth are modest credit growth, provisions for loan losses, and pressure on funding costs and intense lending competition constraining interest margins. Operating expenses are increasing on investment in the banking system and increased regulatory and compliance spending.

The strategic plan outlined by CEO George Frazis in 2020 centers on a digital transformation of the bank’s core banking systems, which should lead to better customer outcomes and operational efficiencies. The aim is to ensure the bank is more competitive, particularly in the home loan market, but this investment is not giving the bank any competitive edge. At best, it can narrow the gap to peers, but with the big investment budgets of the majors, those innovations are likely to be hard to keep up with. BOQ, Virgin Money, ME Bank, BOQ Business, BOQ Specialist, and BOQ Finance—are key differentiators or a source of competitive advantage. Bank of Queensland has branches owned by branch managers and corporate branches. The model has the potential for the bank to outperform its peers on customer service, with owner branch managers building relationships with local customers, and niche business lending specialists with an understanding of borrower needs and industry. Despite its strengths, a narrower business mix, smaller customer base, and higher funding costs see the bank struggle to generate margins comparable to those of the majors.

Financial Strengths

The capital structure and balance sheet provide comfort the bank can manage a large increase in loan losses. Common equity Tier 1 capital was 9.7% as at Feb. 28, 2022, or close to 9.8% post a securitisation in March 2022. This is well above APRA’s 8.5% minimum capital benchmark for standardized banks, and above the bank’s own 9.5% target. The bank is to pay out around 60% to 65% of earnings given the credit growth outlook, elevated investment in the banking platform, and integration of ME Bank. A 70% pay-out ratio from fiscal 2024 is expected. With the elevated savings rate in 2020 and 2021, the bank has been able to increase its share of funding from customer deposits. In March 2020 the RBA announced the Term Funding Facility, or TFF, which provided three-year funding at 0.25%. From Nov. 4, 2020, new drawdowns would pay 0.1%. The initial funding available via the TFF was set at 3% of the bank’s outstanding loan balance, with an additional 2% of balances announced in November.

Bulls Say

  • Management extract greater cost and revenue synergies from the acquisition of ME Bank.
  • Substantial capital raisings bolstered the balance sheet, ensuring that the bank satisfies capital rules and can still fund investments in technology and expand loan balances.
  • Productivity improvements not only lead to improved operating margins, but a more streamlined loan approval process lifts mortgage growth rates.

Company Description

Bank of Queensland, or BOQ, is an Australia-based bank offering home loans, personal finance, and commercial loans. BOQ operates both owner-managed and corporate branches, and is the owner of Virgin Money Australia and Me Bank. Its BOQ business includes the BOQ branded commercial lending activity, BOQ Finance and BOQ Specialist businesses. The division provides tailored business banking solutions including commercial lending, equipment finance and leasing, cash flow finance, foreign exchange, interest rate hedging, transaction banking, and deposit solutions for commercial customers.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

APM needs to maintain is navigating and executing bid processes within the government sector

Business Strategy & Outlook

APM Human Services International’s strategy revolves around maintaining its superior service levels to renew existing contracts and gain market share at key government retenders. Over a government contract, which is typically longer than five years, slight market share gains and losses can arise if certain employment service areas, or ESAs, experience faster growth or from relocation due to contract underperformances. However, inorganic growth has been a key strategy for APM to expand more effectively and service new ESAs outside of government retenders. Industry players may expand their footprint of physical offices into new ESAs but would still need a license to operate in a new region. Greater scale allows APM to better leverage its personnel, locations, and brand awareness, and allows it to apply learnings and replicate service offerings more easily across its global operations. A core competency APM needs to maintain is navigating and executing bid processes within the government sector. This involves responding to governments’ requests for proposals, or RFPs, where APM would estimate cost structures and submit proposals with respect to both price and client outcomes. A common focus of governments is a strong track record of contract performance, capability, and the ability to deliver positive outcomes, but price is also a consideration.

Employment services contributed more than 75% of fiscal 2022 revenue but a key strategy of APM is to grow into the National Disability Insurance Scheme, or NDIS, sector. APM’s current exposure to the fast-growing NDIS sector is limited, with less than 5% of group revenue being sourced from NDIS. The market is currently very fragmented with limited national providers, but APM aims to consolidate the market and provide efficiency. Self-managed NDIS participants would need little assistance from APM but the share of participants choosing to work with plan managers, to assist with budgeting for example, has increased to over 50% in June 2022 from 30% in June 2019.

Financial Strengths

APM is in a comfortable financial position. As of June 2022, APM had AUD 431 million in net debt with net debt/EBITDA at 1.7 pre-AASB 16, that is, including all rental expenses. APM’s net debt/EBITDA is to remain under 1.0 over the explicit 10-year forecast period while also funding a 50% dividend payout ratio and flexibility to pursue organic or acquisitive growth opportunities. APM’s free cash flow generation is also strong. Free cash flow prior to acquisitions and dividends averaging 113% of net income over the next 10 years.

Bulls Say

  • APM has industry leading star ratings across its key Australian contracts which underpins its market share.
  • Earnings are defensive due to lengthy government contracts that are typically over five years.
  • APM is actively targeting the fast-growing NDIS sector and aims to bring efficiencies to the highly fragmented market.

Company Description

APM Human Services International Pty is engaged in providing services to job seekers and employers on behalf of the Australian Government. It is also involved in helping individuals in the prevention and proactive management of injuries. The company operates in Australia, Apac, Europe/UK and North America.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Amgen’s own large biosimilar portfolio and low manufacturing costs make it a viable biosimilar player, as well

Business Strategy & Outlook

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include additional innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen’s newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales. Amgen’s first generation of biologics is coming under pressure, but newer drugs are keeping overall sales steady. Tougher labels and reimbursement had been affecting anemia drugs Epogen and Aranesp since safety concerns emerged in 2007, and the 2019 launch of Pfizer’s biosimilar, Retacrit, is weighing on sales. 

Neutropenia drug Neupogen has had biosimilar competition for years, but longer-acting drug Neulasta began seeing declines in the key U.S. market in 2019 due to biosimilar launches. More effective branded competitors are poised to continue to erode Enbrel’s share, and while Enbrel patents run to 2028, biosimilar Humira (expected in 2023 in the United States) could pull down sales of the TNF class. To address these headwinds, Amgen has invested heavily in more-efficient manufacturing and has undertaken a massive cost-cutting program to defend margins and reinvest in research and development and promotion in new areas, like cardiology. Amgen also purchased oral immunology drug Otezla, which fits well with the Enbrel franchise. Amgen’s own large biosimilar portfolio and low manufacturing costs make it a viable biosimilar player, as well.

Financial Strengths

At the end of 2021, Amgen held $8 billion in cash and $33 billion in debt. The company is to generate roughly $9 billion in free cash flow annually over the next several years; this will be sufficient to handle debt coming due as well as continued strong prioritization of the share-repurchase and dividend programs, which is modeled at roughly $4 billion each on an annual basis.

Bulls Say

  • Amgen’s pipeline had been stale since the launch of Prolia/Xgeva, but cholesterol drug Repatha and migraine drug Aimovig revived the enthusiasm for the firm’s research engine, and Lumakras and Tezspire also look differentiated.
  • The acquisition of Decode gave Amgen the ability to identify potential new drug targets, validated by human genetics, and the firm continues to build on this database
  • Amgen’s improved manufacturing efficiency not only will benefit gross margins but also could give the firm a cost advantage in the biosimilar market.

Company Description

Amgen is a leader in biotechnology-based human therapeutics, with historical expertise in renal disease and cancer supportive-care products. Flagship drugs include red blood cell boosters Epogen and Aranesp, immune system boosters Neupogen and Neulasta, and Enbrel and Otezla for inflammatory diseases. Amgen introduced its first cancer therapeutic, Vectibix, in 2006 and markets bone-strengthening drug Prolia/Xgeva (approved 2010) and Evenity (2019). The acquisition of Onyx bolstered the firm’s therapeutic oncology portfolio with Kyprolis. Recent launches include Repatha (cholesterol-lowering), Aimovig (migraine), Lumakras (lung cancer), and Tezspire (asthma). Amgen’s biosimilar portfolio includes Mvasi (biosimilar Avastin), Kanjinti (biosimilar Herceptin), and Amgevita (biosimilar Humira).

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.