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Healthcare Showdown: Staffing vs. Drug Wholesaling

PM Caleb Lines M.A. Applied Economics UNM 2013. Healthcare Showdown: Staffing vs. Drug Wholesaling. A case for 50% reduction of our Healthcare Staffing ETF and a proportionate investment into Drug Wholesaling . PM Caleb Lines M.A. Applied Economics UNM 2013. Industry Driving Trends.

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Healthcare Showdown: Staffing vs. Drug Wholesaling

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  1. PM Caleb Lines M.A. Applied Economics UNM 2013 Healthcare Showdown:Staffing vs. Drug Wholesaling A case for 50% reduction of our Healthcare Staffing ETF and a proportionate investment into Drug Wholesaling

  2. PM Caleb Lines M.A. Applied Economics UNM 2013 Industry Driving Trends • Occupational shortages in healthcare professionals • Affordable Care Act

  3. PM Caleb Lines M.A. Applied Economics UNM 2013 Quick Comparison Healthcare Staffing ETF Drug Wholesaling ETF (Proposed) Cardinal Health (CAH) 16% Beta: 0.55 AmerisourceBergen (ABC) 32% Beta: 0.8 McKesson (MCK) 30% Beta: 1.09 • AMN Healthcare (AHS) • 3.7% • Beta: 2.09 • On Assignment (ASGN) • 51% • Beta: 2.94 • Cross Country Healthcare (CCRN) • 27% • Beta: 1.59 • IPC The Hospitalist Company (IPCM) • 17% • Beta: 1.52 • Team Health Holdings (TMH) • 38% • Beta: 1.35 All returns are active returns (ttm) based on S&P 500 benchmark. XLV: 10% active return (ttm)

  4. PM Caleb Lines M.A. Applied Economics UNM 2013 Healthcare Staffing • Commission based job placement • Retainer based executive search • Management services • Low market concentration downstream • Upstream supply: graduation of medical professionals and velocity of job relocations.

  5. PM Caleb Lines M.A. Applied Economics UNM 2013 Healthcare Staffing Profits • AHS: 100% Staffing (nurses, physicians; temporary and permanent) • ASGN: 100% Staffing (Research, IT, Nurse, Physician) • CCRN*: 92% Staffing (nurses and physicians) 8% Human Capital Management • IPCM: 100% Staffing (Hospitalists) • TMH: 85% Staffing 15% Management Services *CCRN reported revenues by segment by not profits

  6. PM Caleb Lines M.A. Applied Economics UNM 2013 Drug Wholesaling • Large contracts with low margins • Highly concentrated industry • Downstream market concentrated due to GPOs and chain dispensaries (Walgreens, Walmart, Rite Aid, etc.) • Upstream market diversified among many pharmaceuticals.

  7. Drug Wholesaling Profits • ABC: 81% Pharmaceutical Distribution 19% Health management (IT)and World Courier • CAH: 79% Pharmaceutical Distribution 21% Medical supplies • MCK: 80% Pharmaceutical Distribution 20% Health management (IT)

  8. PM Caleb Lines M.A. Applied Economics UNM 2013 Risks and Realities Healthcare Staffing ETF Drug Wholesaling ETF (proposed) Market coverage 90% Contract risk diversified Patent expirations Requires expanded generics access. Reduces revenue Prescription drug demand Estimation possible using insurance data Increased insurance coverage ties ACA to wholesale industry Regulation Political instability increases uncertainty of ACA impact Federal upper limit: 150% reimbursement of AMP • Market coverage • 18% • Cannot diversify contract risk • Demand for shortage occupations • Difficult to measure. • Difficult to assess impact of ACA • Regulation • Political instability increases uncertainty of ACA impact

  9. PM Caleb Lines M.A. Applied Economics UNM 2013 Recommendation • Sell 50% of Healthcare Staffing Synthetic ETF • Invest proceeds into new Drug Wholesaling Synthetic ETF

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