Thematic Offshore Flash – USA health care



Podcast is now starting all attendees are in listen-only mode good morning gentlemen and ladies and anyone else can somebody please just indicate if you can hear if the sound is coming through okay please okay from 50 or so online it seems at least 20 of you can hear so we'll regard that is very encouraging right health care America the United States let's have a little bit of a high-level look at this and see if we can use that to help the way we managing our own money which is what all of us the standard Bank Online share trading and trying to do a little bit of admin which would I need to read out loud but you've seen it okay so the big US health firms what do they do and I think this is the first interesting question because I do substantially different things to what the local the JSC health type businesses do so I think that's the first thing to understand is the the big companies they attain to to to be dominated by pharmaceuticals and Johnson and Johnson this was the senior the elder statesman they also has a huge devices that means surgical devices implants and things like that and also a huge consumer arm so but still that's you know there's a lot of farmer in there and including some veterinary farmer and interesting will say that number three that United Health and which has been a strong out performer of late it's more or less doubled in the last three years and it's shot in there and that's a little bit like our discovery in the sense that offers a benefits and the services kind of more in the financial management and administration kind of approach rather than being a traditional health product or service provider and then anthem also lower down and in Stryker so I've just looked at the top 15 businesses here and get a sense of this scale just now and so it's just a little bit of an introduction which is first things first that's the enormous you know America opened for business approach has led to these giant firms and pharmaceuticals is really the anchor for the big dogs in that sector and now they're just a snapshot looking at the sector and this is where the the critics of the sector go hop up and down and say there's something wrong because there does seem to be a huge anomaly here so what the graph shows the x-axis the horizontal axis shows spinned per capita on health care and you can see the the USA data points sitting at nearly ten thousand dollars is kind of double and what most of the rest the world's been so they spend more money per person in that country on health care and yet the vertical axis is life expectancy so they don't seem to get to get their people in aggregate to live any longer there's obviously some strange mixes here because a lot of if you just have a look at some of those Senate hearings and you know Nancy Pelosi is not exactly a teenage so they've got a lot of substantially well well-preserved long living people but they've also got a huge one might call it almost a Superman and the class of people who not being reached by the health care system so the sort of polarity between the very well-off and the very not will of in America is quite striking and that would obviously drag down the life expectancy and interest interesting either as well as rich people is spinning it on on Botox procedures you know muscle mescal implants to try and stay younger for longer or watch I'm not quite sure and but it does that stick out as maybe a a national system that's definitely worthy of some criticism and it's it's big because that many three hundred and twenty million people spending nine or ten thousand US dollars per year per breathing human you know from infants to elderly and anyway so there it is not with a criticism interesting also how much regulation there is and if any of you have been to the US likely but yeah do tend to have quite a little rules and hoops to jump through and so on and we will touch on that again but I just think it's quite important to understand that regulation can be frustrating for a visitor it can be frustrating for a startup but it can be fantastic for the companies that are already embedded in the system and have already got their licenses and their permits and their permissions and their lobbyists in Washington and everything else so regulation really interesting to apply your mind to whether you're pro or anti regulation if certain of your holdings you know or within the regulations and it becomes a barrier to entry it makes it harder for the free market to compete with your investment so maybe you should lack regulation on the other hand if you're backing buccaneering freebooting startups who wanting to try and enter a market then you're probably going to be critical of regulation so it's a it's quite an interest interesting thing just to think about now the big points which are just cool here be the so-called Obamacare story so the Affordable Care Act and it's got a lot of short names but the the story here is basically to try and to try and open this app and try and rather than leaving the elites to be there anyone see properly covered and then contact open it up and again through force regulation text incentives and klubecks and everything else aren't they try and get more people to be to be properly included and that much might drag the per capita number down but the arguments of the people in favorites would be they say if if health care can then properly reach more and more and more people in the nation as a whole would be healthier so it's a little bit what that's about and obviously a huge political story there for the likes of either pro ng Donald Trump people if you look into it you're going to find a whole bunch of data about the cost breakdown on the national level and and all these sources obviously differ partly depending on who's carrying out the steady but there are some general messages that come through which I think we can look at and think about this – will they tell us anything African investors so this in terms of that that sort of the drive towards simplification and and universality of healthcare the the critics would say as per their top diagram that the current system is just way too complex and there's too many flows and klubecks and reimbursements and deductibles and incentives and tax breaks and so on and so forth and the arguments would be surely if the white house was as pure as the driven snow which I'm sure it is then if everything just got channeled on a single basis straight through governments and it wins offending and everybody had public health insurance and everybody would be better off and this is not that different interestingly to the arguments we have in South Africa about the national health insurance in Britain about the national health system and so on so forth there are strong advocates for it generally the advocates for it are often advocates of government dominance in in many other ways – and they're people who can't stand it so you just think it's completely wrong and and I suppose the the truth is to me is that the the real world ends up having a bit of birth where you have the government interfering with the private sector the private sector interfering with public health care and here and there being opportunistic and running running rings around so it's a question of who you should be given more of the ability to apply carrots and sticks to get people to do what you want and and yeah it's it's an ongoing debate in America between the between the Republicans and the Democrats couple of comments also on the sector now Pharmaceuticals is a it's an industry we don't really have here yes we have Espen and Ed Koch another but the development of drugs is not really something we do here because we don't have the scale it's very very financially intensive maths would reveal this is probably an industry Stetzer should be taken with a little bit of salt and two and a half billion odd dollars to get a drug through to market with all the trials and tests and and admin and bureaucracy and so on and interesting also how if you did not have patents protection they seem in America to pronounce what I call patents patents and so if you don't have patent protection you wouldn't spend that sort of money because you would never ever get your money back so this is part of the intellectual property regime in America which allows this sort of thing huge regulation huge lobbying and then the Food and Drug Administration and the guys who must end up authorizing or recording authorized drugs and so they bring out it used to be it used to be physically a book which was orange their so-called orange book is now a website you can go to it if you're interested and you'll see all the different forms and versions and everything else of the the fda-approved drugs you know they're ten different versions of advil is when must be proven and so on and so forth so you can go and look at all those things and and obviously the orange book is one of those regulatory regulatory hoops you've got to jump through one of those barriers to entry if you already have funding was your the mix of public and private huge spend and whichever way you look at it you end up concluding that the admin and particularly the legal costs are enormous I see mr. Hart chipping in saying it's so expensive to have surgery everything well one of the reasons is because you know if it doesn't go right you're going to sue the guy so the doctors not stupid so he says well if you might sue me I better buy some insurance and then charge you for the insurance that I've booked so you know one can end up in a sort of nasty vicious circle there the costs go up and up and up and the more the more legal insurance and administrative costs you add on to the whole pie somebody's going to end up paying for it and you know what it's normally the patients will the consumer they just interesting points are is sort of so-called western myths and if I can use that term is it actually the way to go what about alternative medicines what about where as a means of saying the people listen you know rather than taking pills morning noon and night rather live slightly differently get a bit of diet get a bit of exercise regime and maybe do some yoga and Pilates and walking and things like and these don't need to be jump any type of exercise these can be much more natural lifestyle approaches and the baby boomers are starting to convert now into into age at pensioners that normally refers to people born after World War two it really is the generation that's written this huge wave of American prosperity what happens when when that plays out and these curious new quirky youngsters sort start making their choices and those play through into the economy and are there enough hospitals and enough doctors and things like that so all these questions emerge and now the interesting thing that you're starting to see now in the states is the so called exchange growth now what this is all about is really where you have some health insurance you know maybe your parents got you onto a package maybe your employer does or something like that but now what the the free marketeers of the united states are doing is they're saying yes but you might not have exactly the right cover or you might have moved town or you might have moved state or whatever so so what they're doing now is trying to if you like get out the way of this growth in health care exchanges so there's a bunch more activity there and and as you can see the early growth was in the public exchanges and the more recent growth has been in private exchange so forty was at 40 something million people and involved in in in signing up for these exchanges and exploring their options and having a look and saying well you know I might have covered with you know in our language or ceasarea medical fund but there's a deal going and they're recruiting at PPS I'm gonna actually convert my heart cover through to the PPS special offer and I'm going to take some some discovery called classic for micronics and so on so this is weird sort of secondary market now developing in in cover in benefits and services and one of the one of the beneficiaries of that interesting is being that number three on the list that I mentioned earlier United Healthcare whose share price in the last three years has doubled against the rolls-royce and Johnson & Johnson which has been you know tracking along quite nicely as a big blue chip at 14 odd percent a year than forty percent in three years you know added health care the leading health insurance service provider over there has doubled okay so so just quite an interesting thing so some disruption and some turbulence happening there and well with just being aware of that when you're considering your position maybe as either as a patient and we're sending your kids across to go and have the surgical procedures over there because you're too scared to go to the morning so I couldn't go through the scared and and also as an investor look after something like this a couple more points here just and there's it's just quite interesting the the American information universe is weird it's in some ways completely lacking in transparency and in other words there's a whole bunch of these sort of postal infographic type of information sets and which try to make certain points so if we look at those two on the Left how much money on different types of care so there you do outpatients isn't that a beautiful way of saying outpatients you're ambulatory people who walk in and inpatients people inside hospitals so those are about naked naked about a third of the pie and in prescription drugs 288 billion nursing dental and emergency so so quite interesting just to get a sense of that spread and the the biggest condition in terms of medication at the moment is diabetes and and the growth over the last what is it 20 odd years about 6% so so curious when you think about things like the other year is that running guy the professor in capes and I can never remember his name but the you know this whole sort of eating eating differently and avoiding carbs and so on a lot of a lot of that stuff is to do with with people having various exposures to this little diabetes type of conditions their responses to sugars and carbs and pasta and bread and so on and and if you can create an industry like this which is which is then leading people to go and start seeking medication for that I wonder if if diabetes is actually if it's occurring more now than it was or if it's simply attracting more attention and more medication than it was 20 or 30 years ago it's really interesting to think about that from a whole bunch of of perspectives but there you get a sense of of what the top ten treatment areas are and in the middle sector also quite interesting 8 out of 10 Americans are on a chronic but you know one of those never-ending recurring sources of annuity expenditure for the patient and and of income for the health industry so quite interesting and half of these have more than one so you might have chronic for your diabetes and feel depression and whatever whatever whatever and we'll set quite interesting how American people are not necessarily going to the doctor more than in other places okay so any going to the doctor every three months if you look at that okay four times a year as against every two months more than two months in 34 other high-income countries but a huge difference look at the bottom there and you're twice as likely to be right now that's weird so you get to see the doctor the doctors been around the block he's probably got his own life his own children and his social position to observe humanity he's well-read hopefully hopefully did did quite nicely whether he studied in Cuba at Johns Hopkins and I need the first thing he does relative to to certain other countries is he sticks you into a diagnostic technological device and that's really good for the people who provide that as diagnostic taking technological devices and is it playing out well well maybe it is for the guys above the curve in terms of American patient wellness and where is it reaching as far as it should into the whole American population doesn't seem to be and doesn't seem to work and they also a lot of criticism of waste just to the absolute outright waste and necessary services 200 billion excess administrative costs 200 billion in efficient delivery etcetera etcetera and and obviously a bunch of fraud and so on so so a lot of criticism a of how how people get on with what they're doing and B how much waste there is particularly the Edmund and as far as legal would probably some people be consider going into this and in unnecessary services enormous amount so that's you know if the title pie is maybe two or three trillion what's that maybe five ten fifteen percent of that is you know giving people and necessary MRIs and necessary surgical procedures and mystery prescriptions and treatments and that's quite scary because who gains out of that well the health care sector that so if you're an investor maybe you'd like that you know this is a bit like people ordering ordering too many drinks at the pool at Sun City might be bad for them but if you're a sensitive shareholder that might be a good thing so lots of stuff to think about here and in terms of deciding whether or not here you're interested in participating in the US healthcare sector okay Kepler ratios here um and what I've tried to do here is I've taken that top 50 and I've added company number 27 for reasons which will soon be obvious I'll just just plugged in some of these numbers just to get a sense of scale and relative valuation so the top what is that five odd companies are the ones which which we can't really get access to here so these are the big IP pharmaceuticals companies and the integrated ones and the ones with the whole bunch of medical devices because we don't really have big listed companies doing that here doing okay so and those are enormous and there's a flavor for there a p/e their dividend yield and the the enormous size of their profits you know 15 odd billion net profits for Johnson & Johnson it's supposedly annual net income okay then if we come down Arang and get more into the companies which are focusing on pharmaceuticals there's a whole bunch of those from Pfizer through the Eli Lilly and then here the starts getting interesting for South African for Jesse minded people because haha you've got Espen and we've got Adcock okay so just have a look at the scale this the smallest bristol-myers Squibb seventy six billion dollars market cap Espen three billion all right was quite a lot more so not long ago and Ed Koch not not quite a bit and and then just look at the size of the net profits look at the multiples so yeah Espen doesn't look expensive anymore which it once did and but you got a bunch of huge us from a silicon's companies also in maybe low double-digit peter peas so you know look at ed Cocker at sixteen two percent two and a quarter percent dividend yield is there any reason for you to feel comfortable about earning ed as a effectively a local farmer business when you were access to a universal axis of big dawgs quite interesting discovery I've dropped in there as a little bit of an offset to to these these these only two in the top 15 United and anthem total totally identical companies different footprints discovery showing a lot of interesting initiative going into life insurance banking now and stuff like that and so these united and anthem program probably more focused will tightly aggressively focused but you can also get a little bit of a sense here maybe for why when discovery got a gleam in his eye and decided against law to the american market fifteen twenty years ago I had actually battled because there are some huge big competent aggressive and expertise here they trail trade interesting it relatively similar levels now and but they are just so much more dominant so you know if you had to arrive and say hi my name is Adrian come to sell you guys some and you know medical benefits and services administrative services which is ultimately what they do and these girls gonna say yep okay you know take a number and sit at the back and we've got companies here which are 18 and 50 what is it 40 times the size um so quite interesting just to get a flavor for that and then for a lot of us as South Africans you think you are but do you know our health care is dominated by the rupert's with me the clinic and by Jackie Shields Nick Aaron and the older frocks which is in our life health care yeah they have hospital companies ever they the biggest one I could find HD I tracked in way outside my top 15 I'm a twenty six or seven by market kept in the sector and and you get a sense here also just how big it is forty five billion and thirteen multiple quite a load dividend there and but quite strongly profitable so you know four billion in profits so different scale different shape and and get access if you're interested into buying more into farmer into research and into devices but there's not as much as much Hospital investing available at the top of the sake of our scale okay and then if your which I think you should definitely be reflective of if you're considering investing you can go on a single stock basis we've had a quick look at those but what you can also do is go for some of the ETF's and the capital of broad categories here so if you go for the broad healthcare ones then you tend to get these sort of weightings where you've got a good chunk of the traditional Jen chieh and then those big drug companies but you also got United in there and more of the mix as per the sector or if you want to you can go for more the bio Texas who developmental ones the sporting bits on on the next the next research breakthrough that that might be important or you can go more for a device's health ETF and so you know that that would be a along that along the lines of this IHI type of product and the biotech one is it quite a few options there and yes the the exchange-traded fund industry is quite competitive so you do tend to get attractive looking expense ratios once you're over there um but you've got to watch out for that because depending on your platform how you reaching in from South Africa you might find you actually facing a effective annual cost including the whole link of service providers you know from it so from from from Durban across to to America and where that little yield and you know if if you're getting only a you know 1/6 or 1 percent yield and a biotech ETF that might yield might not be enough for you to stay a boat so you might find them that you actual Holdings are having to shrink across time because there's not enough cash yield to pay for your entire structure costs of you of how you taken that exposure so just be a little bit aware of what you're doing so to wrap it up see we're nearly at half past and then hopefully we're gonna get some questions I see I see a few trickling in here mr. Hart looks it's quite keen on this this is fantastic and so very very different safety to what we have here you know whole bunch of a temple scale and liquidity big stocks if you if you like the simplicity of just buying into Eli Lilly o J&J or whatever and safety regulation does look messy and in flex but that's quite interesting because it does tend to favor the incumbents and the incumbents in America we're spending quite a lot of money on lobbying and on staying abreast of new developments so I'm not altogether sure that that should make me negative on the big stocks there and quite interesting to see just how popular if you look at those low yields and the American investing community does seem to like those high payoff bits on on biotech and don't seem able to resist it you know imagine if they can find an amazing new treatment for you know whatever it is skin cancer or heart disease or something else um and also quite interesting just how much this this whole new flux in ease this exchange universe of insurance and benefit trading and how they that's led to again to United Healthcare racing up the tables so a couple of interesting things to think about here when to me and maybe the most important one is with offsets available access from our own universe why is it that so many of us and African corporations seem to feel this this obsession to have to go and and ply their trade outside of South Africa you know they get good here they get competent they get skilled they become cash generative and then rather than giving that cash back to the owners which is you and me they always seem inclined to go charging off and you know this is a there's a conceptual question look at Woolworth's pecan pie in Australia and look at consolidated infrastructure going up into Africa look at discovery itself going into America 20 years ago maybe before it was fully ready to and you know are we as owners of the South African of the JSE companies are we actually expressing enough common sense in terms of helping the directors in the ball be better guided as to where they should go and what they should be so that's quite an interesting question for us all I think okay and concentrate now and your questions I hope and I must just obviously give you that general disclaimer from SPG securities your host this morning okay and see what you got on the question board here and and otherwise thanks very much for for participating and I hope it's you know as you were okay so yeah David thanks yeah quite right six thousand dollars to whip out in the appendix and what that would probably have a total integrated questionnaire about ten thousand Rand I would guess depending on your hospital and they were also pointing out which i think is a really helpful observation how the lack of transparency around costs and yeah this is a really interesting one is once I've got you signed up and signed in and then it does get really difficult to know exactly what did the costs are for what type of treatment if you have a titanium rod rather than a plastic implant you know what's the difference etcetera etcetera and classic illustration that I think of an industry where they've taken control of the cash flows and then you become both the patient and and the payer and so just the observation that diabetes growth is driven by a lifestyle by obesity yeah but that's exactly the point I'm making is to say if we if we take people and and manage them towards a certain kind of lifestyle where there's a certain cost to them benefit to us and how do we feel about that and advanced diagnostics um quite interesting there also and again from an insurance perspective you've got to you've got to be seen to have done what a reasonable doctor might have done in your position you you can't simply say ah well you know I saw a chap like that you looked a bit like you when they when I was fishing on the Orange River near a pinzón if I'm gonna take a stab and tell you what what I think is wrong with you and you're going to end up being treated better you insurance and by the legal fraternity you're gonna come snapping at your heels issue what if you can demonstrate that you've done everything that is reasonable and if the reasonable thing to do is to charge a whole lot of money to get the latest equipment would have seen someone I referral to the latest test and so and then that's what you're going to do because you can't afford to jeopardize your practice or your holiday home or your kids or find education with you've done a Felicity Huffman and got them into an expensive school will they just around the corner and say yeah a lot of strange aspects they're relating to the American litigious way of life yeah and then interesting question here from from Keene you you've had trouble finding a us focused exchange like securities online what it's like SPG securities online and yeah Keene is there's a whole bunch of them I think if you if you go in and have a look you if you're interested I mean online share trading in America is that substantially more developed thing than here what you do you have to be a little bit careful of these different rules between different states so you better understand and the regulations and the flows and the rules and obligations so you got to think about where you want to invest and you want to think about particularly where you want to get the money back to or from so if you if you pursuing us investing because you've got you know dependence in the state of Minnesota something like that that's that's gonna give you a different set of answers to what it is if you're looking to invest from here in through Manhattan in order to get the money back here one day so the whole bunch of different questions there which I think are probably not really at the US healthcare specific and and maybe maybe that's a separate exercise which maybe weren't separate discussion okay are there any other questions are there any other slides you guys would like to get back to and think about again um otherwise it's let's move on and let's think about the really the fascinating scale and different shape of the US healthcare universe and particularly it's it's always trying to avoid falling into the trap of thinking that the investable universe starts and ends in in our beloved JC it is it is important that we understand the JSE well because it's our closest one but it's definitely not the only thing we need to be thinking about when we're trying to safeguard our financial future thanks very much everybody thanks for sitting in on the webinar I hope it's been with you well cheers everybody

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