Was looking at some healthcare stocks and it isn't making sense to me.
Pharma companies:
Gilead: 32.1% FCF margin
Bristol Myers: 26.7%
Regeneron: 26.3%
Pfizer: 15.5%
Health insurers:
UnitedHealth: 5.2%
Humana: 2%
CVS: 1.9%
Elevance: 1.6%
UnitedHealth is a $500B company barely generating any free cash relative to their revenue. Meanwhile the pharma companies are converting 20-30% of every dollar into actual cash.I get that insurers have different business models but the gap is bigger than id expect. Are insurers just fundamentally less profitable than we think or am I missing something about how their cash flow work?
The biggest health insurance company in the country generates less cash per dollar than a mid tier pharma company.
Why do health insurers generate so little cash compared to pharma?
byu/Whole_Day9866 ininvesting
Posted by Whole_Day9866
5 Comments
Been getting the data here for reference https://www.aureusgrades.com/
I’m an amateur so no clue about this – but my gut says it’s apples to oranges and you’re comparing two completely different models / business cycles that just sound related by practice, but actually aren’t at all
completely different business model.
health insurer have tight regulation on loss ratio, and can’t be too profitable before regulator starts asking question.
pharmas don’t have as much regulation on the pricing side, for now, and they can (and have to) generate excess return to fund the long research cycle, and failure
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It’s a completely different business model. Pharma tries to develop a few products that generate relatively little revenue (since the population that will need any specific medicine will usually be limited) and monetize them with high profit margins. Insurance tries to collect a vast amount of premium revenue and manage risk to target a thin but hopefully consistent profit on the revenue. They aren’t aligned just because they’re both grouped as health care: in fact, pharma and insurance companies often coexist in a highly adversarial way, since more profit for one means less profit for the other.