Why Equity research? Flashcards
What’s the difference between buy side and sell side?
Sell-side
- Research a universe of stocks to give investment ideas and recommendations to
1. Institutional investors
2. finance community through service providers e.g. Capital IQ, Factset, Thomson, Bloomberg who resell the data. Investment banks may then use this in pitch books
Buy side
Research companies to make investments in line with their firms investment strategy. This research isnt published. These analysts work for mutual funds/ hedge funds/ PE/ pension or endowment funds
What do equity research analysts do?
What does a typical day look like
- Research public companies and come up with recommendations on whether to buy, sell or continue holding a certain stock
Typical day
- Start early and get up to date with what’s going on with their coverage companies (e.g. news). They also track global economic and market developments
- Also need to stay on top of breaking news that impacts the stock markets and the companies they cover
- Inform colleagues on sales side with insights/ recommendations on various stocks
- Issue reports on forecasts and earnings estimates for the companies that they cover and keep track of news that may affect the stock they cover (+ update the reports)
- Meet with management of the companies they cover to get the most timely info so they can update their earnings estimates and reports
Why equity research?
- Passion for MedTech and looking for the opportunity to learn about more about these companies in depth
- Interested in financial markets - recently started investing and have a portfolio of 12 stock names (6 in healthcare). I enjoy thinking about what makes these companies profitable and what are their strategies for growth that will make them stand out against competition
Why do you want to be on the sell side rather than buy side?
- Great training / opportunity to learn about a wealth of stocks in this space which is in line with interest
- Want to become an expert = will only happen as learn more and more
- More flexibility to generate investment ideas and develop my investment thesis
Who are the sell side clients?
Asset managers and hedge funds who buy and sell shares
Why do you want to cover healthcare/Pharma?
- Leverage background
- opportunity to research and recommend companies that have a great societal impact
- Very broad which keeps it interesting
What would you say to me about the pharma sector over the next 1,5, 10 years?
Trends
- Ageing population therefore chronic conditions on the rise and more people suffering from them. This will increase demand for healthcare and innovative solutions growing globally
- consolidation in pharma (focusing on fewer therapeutic areas) but diversity within those i.e. building depth
- Immuno-oncology, precision medicine and cell and gene therapy opportunities for innovation
- Key areas cardio, CNS, immunology and rare disease
1 year
- Need to work on creating agile supply chains (shouldn’t be overly reliant on 1 location as at risk of disruption).
- More patient centric supply chains with increased adoption of digital tools e.g. telehealth, wearables (DCT e.g. IQVIA)
5 year
- greater focus on mRNA technology as many COVID vaccines mRNA based
- Automating manufacturing increasing the data thats available + decreasing reliance on manpower
- Further developments in technology e.g. 3D printing
10 year
- Greater focus on prevention through genetic testing and more adoption of precision medicine for more targeted therapies (increased access to patient data)
Covid and pharma companies?
- Increased focus on creating agile supply chains (shouldn’t be overly reliant on 1 location as at risk of disruption).
- More patient centric supply chains with increased adoption of digital tools e.g. telehealth, wearables (DCT e.g. IQVIA)
Pharma and UK, Global, US?
xx
What are the big European Pharma companies?
Roche, Sanofi, GSK, AZ, Novo nordisk, Merck
Which companies are most exciting in Pharma?
Europe
UCB
S - leader in epilepsy treatment
W - limited segments of disease smaller market size
O - Focus on niche areas e.g. epilepsy, psoriatic arthritis, MG
T - high diversification = ? high costs (i believe theme in pharma has been consolidation). economic instability of euro can hurt revenue
Global CRISPR S - Strong brand W - losing market share to smaller entrants O - T -
Which companies are most exciting in Pharma?
Europe
UCB
S - leader in epilepsy treatment
W - limited segments of disease smaller market size
O - Focus on niche areas e.g. epilepsy, psoriatic arthritis, MG
T - high diversification = ? high costs (i believe theme in pharma has been consolidation). economic instability of euro can hurt revenue
Global CRISPR S - Strong brand W - losing market share to smaller entrants O - stable FCF which it can invest T - shortage of skilled workforce
mRNA vaccine vs others
Safer - others live-attenuated
https://www.vumc.org/viiii/infographics/how-does-mrna-vaccine-compare-traditional-vaccine
How would you value a drug
Market potential
- size of patient group which you might read market research reports for
- % of this that you can capture depending on how competitive it is
Price
- estimated price either based on comparables
- Many smaller biotech companies partner with larger firms who pay for the development and they biotech gets a royalty in return
Therefore = market size x market penetration x sales price x royalty rate = peak annual sales revenue
Cost
- Cost of clinical trials (manufacturing, recruiting, admin)
Sales revenue - (costs + expenses) = FCF
Risk
- probability factor can be applied depending on where it is in the clinical trials and likelihood of success
FCF x probability of success = FCF that accounts for risk
Other factors to consider
- Patents last 10 years. Can assume 1st 5 years sales gradually rising until hit peak annual sales revenue
- Then discount the expected 10year FCF to NPV
What’s a therapeutic area you’re interested in?
Women’s health but challenges
- Lack of clear exits so don’t attract money from larger pharma companies
- outcome of many issues (PCOS, EM, menopause) not fatal
- Bayer - long standing developer in womens health. Contraception (Mirena - hormonal intrauterine system, Yasmin - combined pill). Darebio (hormone-free contraception, BV treatment_
- Elvie (breast pump), theramex (therapeutic solutions across contraception, fertility, menopause, osteoporosis)
Aesthetic Medicine
- Allergan is dominant player due to blockbuster Botox. Also has injectables, implants and other products
- increased interest in improving physical appearance, rising disposable incomes, development of less invasive treatments and increased openness
- biopharma sells direct to drs who give the treatments
Psychedlics
- LSD, ketamin and psilocybin easing depression, anxiety, PTSD, OCD, pain disorders but can cause hallucinations. Researching ways of having benefits without this
- Key players: Atai life sciences, compass, mind medicine
