2014 has concluded and it was very kind to the portfolios of Health and Life Science executives. During 2014 the Dow Jones U.S. Healthcare broad industry index returned 25% (second only to Utilities +26%). Healthcare also ranked first in three year annualized returns (+27%). The Dow Jones U.S. Healthcare index includes: Providers, Equipment, Supplies, Biotech and Pharma (1). Here is a recap of our featured stories and how those companies performed in 2014. I also provide four early predictions for 2015.
– 2014 Featured Blog Stories in Review –
February 2014, Gilead Sciences Inc. (GILD) – I actually wrote two featured articles about Gilead and their game changing product – Sovaldi. The first feature discussed the incredible upside revenue predictions, the second was a follow up with expected headwinds they would face during the year, namely Sovaldi’s U.S. cost per treatment (~$80,000-90,000). The pressure on costs came from all directions: U.S. Law makers, foreign governments, physician groups, patient class action lawsuits, health insurance payers and finally from a direct competitor AbbVie, who signed an exclusive deal with one of the largest PBMs–Express Scripts to exclusively use their Hep C product Viekira Pak. (19-Jan-2015 Update–Gilead has since struck its’ own pricing partnerships with CVS).
April 2014, Allergan Inc. (AGN) – I explained why Valeant’s initial proposal had no legs (too low an offer, too heavily reliant on Valeant stock, and not enough upfront cash involved). I suggested Valeant needed to focus on managing their own debt levels before taking on more leverage “How does Valeant spell R&D? D-E-B-T”. I also predicted the likely “White Knight” scenario, but admittedly didn’t have the eventual suitor Actavis any where on my radar. Valeant has retreated for now to focus on “cutting debt and increasing their own stock price.”
May 2014, Exact Sciences Corp. (EXAS) – My most timely call of 2014; EXAS left most companies in the dust from June onwards. Exact Sciences brought a game changing colon cancer screening test to market, a test that is much less invasive and almost as accurate as the current “gold standard” in colorectal cancer screening.
— What will 2015 bring? Four early predictions —
1. Healthcare sector outperforms the S&P 500 (2).
I like our sector again to churn out street beating profits, dividends, and new products. I’m predicting beating the S&P 500 index in 2015.
2. Health Providers finish as one-of-the-top-twenty-percent Dow Jones sub-sectors(3).
Providers continue their momentum, with a strong tailwind from Obamacare more and more patients now have health insurance. Insured patients mean paying patients for providers who have a heavy fixed cost model (buildings, equipment, payroll). Every additional paying patient drives higher net profits.
3. Biotech finishes as one-of-the-top-twenty-percent Dow Jones sub-sectors (3).
Currently already riding a three-year-annualized-return of 47% (second only to… would you have guessed… Airlines? +66%) biotech is going to continue its’ charge. My play in this space is simple-cheap money allows more innovators more swings. Or stated another way, low interest rates and a surge in overall wealth allows money to be invested in this traditionally risky space. More money allows more companies to take products to market.
4. Gilead Sciences beats the S&P 500.
I believe the recent correction (see above) is more pullb