Author Topic: DVA DaVita HealthCare Partners  (Read 93425 times)

Liberty

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Re: DVA DaVita HealthCare Partners
« Reply #10 on: March 01, 2014, 09:25:35 AM »
I just think that raising the issue of lab kidneys is overly cautious as it is a very very low probability event within the next decade (just looking at lead times for new medicines as an indicator, and seeing that we are not even close to producing a lab kidney). I think that foreseeing the development of the lab kidney is overly cautious and not in proportion with the favorable tailwinds the demographic development for increased need of dialysis care gives for the investment case.

I don't think I was expressing myself clearly, because that's what I meant. I just thought it was an interesting thought that came to mind when thinking about dialysis, but that doesn't mean that you should give it meaningful weight for for an investment today, at least until you start seeing more signs that it's approaching.

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On another note, with your argument we could argue for complete disruption of the cable industry (wireless).

For the kind of time frames I was thinking about, absolutely. And I'll certainly reconsider any cable investments if I see signs of that becoming more viable than it is now. The difference here I think is that dialysis will never give someone the quality of life that brand new kidneys will, while inside a home or office (which is where people spend most of their time), cable + wifi can give you the same thing that wireless would but with a more predictable signal source (radio waves will always bounce off thick walls or off hills...).

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Even if lab grown kidney replacement was an option, the next problem would be the economics (cost).  This would further drive out the implementation into the future. 

At first, certainly. But that's the same for every technology, and I think that over the long term biotech will follow similar trends (it might be slower, but we're going in that direction -- again, look a genomics).

Just think of how expensive the CPU in a modern desktop computer would seem to people just a few years ago. Billions of transistors and multiple fully functional cores on the same die for a couple hundred bucks? And they use less power than old CPUs?

If we think from first principles, like Elon Musk, the raw materials of a kidney are not expensive, right? You could grow one with few sacks of potatoes and a jar of multivitamins (I'm exaggerating to make the point). The very hard part is the IP around it; how to get the extracellular matrix to form properly, and then grow the right types of cells in the right places, all that inside an environment that mimics conditions inside a body (a kind of incubator). We already know that our bodies can do it, so we'll probably harness some of those mechanisms at first, rather than reinvent the wheel and try to do it all ourselves from scratch (in biotech, there's a lot of stuff we can know how to do without having to understand how every minute detail works -- ie. the engineering approach). Heck, we might even grow human kidneys inside of pigs and then harvest them or whatever.

All that will be very hard and expensive to develop. But once it is developed, at some point it'll become routine and cheap, just like making multi-billion transistor CPUs the size of postage stamps or boxes with lasers that can read billions of microscopic bumps at high rotational speeds in a dusty living room (DVD players) or whatever.

I know I'm kinda dreaming here. Sorry, didn't mean to take the investment thesis in a direction that is probably not useful. I just wanted to share because I thought it was interesting and thought maybe others would think the same. Back to our regular programming now :)
« Last Edit: March 01, 2014, 11:16:28 AM by Liberty »
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SwedishValue

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Re: DVA DaVita HealthCare Partners
« Reply #11 on: March 01, 2014, 09:33:00 AM »
Your posts are insightful so I do appreciate if you continue to share your thoughts generously.

I would like to reiterate that I would very much appreciate if there is anyone out there that can give me good reason to believe that the american dialysis population will not double during the next 10 years. Because if it does double or more, I would consider the share very cheap.

lschmidt

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Re: DVA DaVita HealthCare Partners
« Reply #12 on: March 01, 2014, 11:08:18 AM »
Forgive me for chiming in here - my first post.

Let's think about this another way (at least the more likely possibility in my estimation). The average lifetime of a hemodialysis patient is 3 years according to the current medical literature. This number has been static for years. Short-intermediate term advances in dialysis techniques may increase this number, perhaps considerably. Think about the total number of dialysis procedures if the patient population AND the survival rate increase simultaneously. It is, therefore, not clear if technological advance would be a boon or a threat to DaVita's business.

SwedishValue

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Re: DVA DaVita HealthCare Partners
« Reply #13 on: March 01, 2014, 11:21:50 AM »
The one-year mortality rate for patients of DVA is around 13%, I know the numbers in Sweden is around or slightly below 20%. The one-year mortality rate has dropped significantly during the last decade.

maxthetrade

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Re: DVA DaVita HealthCare Partners
« Reply #14 on: March 01, 2014, 11:31:30 AM »
A while back I have read an article about 3D printed kidneys, I can't find the article anymore but a quick Google search tunrned up this one: http://gizmodo.com/scientists-can-now-3d-print-transplantable-living-kidn-1120783047

I don't think this is an immediate threat but certainly something to keep an eye on.

 

rogermunibond

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Re: DVA DaVita HealthCare Partners
« Reply #15 on: March 01, 2014, 01:36:40 PM »
IMO the bigger threat is advances in unmatched kidney transplantation/lowering cost for the procedure plus better donor enrollment and transplant matching algorithms. My MIL went through an unmatched kidney transplant from her daughter and has had much better prognosis than had she been on dialysis.

I'm not sure if Medicare covers unmatched transplant but if the cost can come down further it might.

Further down the line an implantable artificial kidney would be another threat to dialysis.

https://www.ucsf.edu/news/2013/03/13699/artificial-kidney-holds-promise-vast-majority-dialysis
« Last Edit: March 01, 2014, 01:41:06 PM by rogermunibond »

ni-co

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Re: DVA DaVita HealthCare Partners
« Reply #16 on: March 01, 2014, 01:54:14 PM »
I don't think I was expressing myself clearly, because that's what I meant. I just thought it was an interesting thought that came to mind when thinking about dialysis, but that doesn't mean that you should give it meaningful weight for for an investment today, at least until you start seeing more signs that it's approaching.

Thanks, Liberty, I got that point right from your first post and I think you are right to point this out. Indeed, medical progress is a risk I forgot to mention. DVA is, after all, also kind of a technology company. This is one of the few investments where I'd be glad if it would be disrupted by better methods.

To the timing issue: Because of the discounting effect within a theoretical DCF calculation, risks that are 10+ years out wouldn't matter all that much. Mind that the average lifespan of a S&P 500 company is only about 18 years.

The average lifetime of a hemodialysis patient is 3 years according to the current medical literature. This number has been static for years. Short-intermediate term advances in dialysis techniques may increase this number, perhaps considerably. Think about the total number of dialysis procedures if the patient population AND the survival rate increase simultaneously. It is, therefore, not clear if technological advance would be a boon or a threat to DaVita's business.

This is also a very good point. Even if (bio) technology would be ready within the next few years, a significant transition period would also be likely. After all, it's not even clear that patients wouldn't also need a few years of dialysis, even in the event that they could get some kind of kidney substitution anytime soon.
« Last Edit: March 01, 2014, 02:03:04 PM by ni-co »

loganc

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Re: DVA DaVita HealthCare Partners
« Reply #17 on: March 01, 2014, 08:47:46 PM »
While the dialysis business has dominated this thread, I believe that one needs to be able to handicap the future performance of the HCP business have a lot of conviction about this company.   I am curious as to how people are thinking about HCP given the relative lack of data around that business.

SwedishValue

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Re: DVA DaVita HealthCare Partners
« Reply #18 on: March 02, 2014, 01:46:56 PM »
I have no superior insight within the HCP business, but i have a few takeaways from the information that DVA has provided. I am not a native English speaker but I will try to express myself clearly.

First, management argues that there is no reason there cannot be a preferred nationwide "health care partner". I believe this as well, just like you can have a preferred nationwide restaurant chain it should be possible through diligent work and very high focus on patient care to create a preferred health care partner. Although a low probability event and/or a long time frame, the potential upside here is huge.

Secondly, management has conveyed that the cash on cash returns they are getting from the HCP acquisition currently is around 7% (if my memory serves me right). Although this is within the lower span of what management expected when they made the acquisition (in which they also issued shares), this is certainly lower than the borrowing costs of DVA. HCP is in no way a business with prospects of long-term deterioration, so this yield should go up over time. This can also be a place for further growth by acquisition, which should be good news considering the long-term results the DVA management team has had allocating capital.

If you want to be conservative for valuation purposes, I believe you can just subtract the cash flow attributed to the HCP business side while also subtracting the purchasing price of HCP.

Hope this is worth something.

buylowersellhigh

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Re: DVA DaVita HealthCare Partners
« Reply #19 on: March 03, 2014, 12:05:16 PM »
Any insights from CNBC interview today on DVA from Ted W.?