Healthcare & Life Sciences Industry Overview

Our Latest Insights | Healthcare IT: Five Segments Attracting Buyers

Software solutions designed to improve clinical and administrative processes have been widely adopted by healthcare services providers. Yet there’s still plenty of innovation happening around these technologies, with several specific sectors standing out as interesting investment opportunities

In this article, Harris Williams professionals Sam Hendler, Dan Linsalata, and Nick Owens share their insights on the current landscape of healthcare technology solutions and vendors, as well as the opportunities this market presents for strategic buyers and private equity investors.

 Read the article.

M&A Environment1

There have been a little over 263 M&A transactions in the healthcare & life sciences (HCLS) industry since the beginning of 2019, worth roughly $124.9 billion, compared to $241.7 billion for all of 2018. 73 of these deals were executed by private equity groups.

Notable transactions include the acquisition of WellCare Health Plans, Inc. by Centene Corp., the acquisition of Brammer Bio LLC by Thermo Fisher Schintific, Inc., and the acquisition of Verano Holdings LLC. by Harvest Health & Recreation, Inc.

Public Company Performance1

Stock prices increased for many HCLS companies during the past three months. In fact, the Harris Williams HCLS Composite Index increased 5.5%, while the S&P rose 14.0%. Notable sector increases include acute care hospitals (increased 30.0%), contract research organizations (increased 28.1%), life science tools (increased 21.9%), dental products (increased 21.7%), and durable medical equipment (increased 21.4%).

Over the past 12 months industry-wide stock prices have remained relatively flat, with the HCLS Composite Index showing a mild decrease of 1.7%. At the category level, provider-based services stock prices grew by 15.8% on average over the past 12 months, followed by products and devices at 15.1% and payor, provider and pharmacy support services at 11.0%. Specific stock price growth leaders over the past year include long-term care (60.9%), home care, hospice and home infusion (58.7%), contract research organizations (34.5%), and medical devices and products (27.1%).

Industry News

Urgent need for new revenue streams will shape providers’ strategies as 90% of hospital and health system executives surveyed indicated this was an urgent priority. Health system operating margins hit 10-year lows in 2018 as costs outpaced revenue, pushing hospitals in search for sustainable financial footing to explore alternative revenue-generating and cost-cutting measures. Deloitte and Google Cloud announce plans to collaborate on a suite of advanced solutions as health systems, payers, and hospitals searching for differentiation, cost reduction, and improved user experience are increasingly using advanced analytics tools to extract insights from data. Deloitte and Google Cloud hope that the solutions would help accelerate the pace of biomedical research, improve healthcare access, optimize operations, and modernize the management of health data.

Senate Republicans and Democrats unveil healthcare plans which aim to increase coverage and decrease healthcare spending. The Republicans’ tailored plan would prohibit insurers from charging higher premiums to patients with pre-existing conditions and bars them from excluding coverage of treatments for those individuals, one of the most popular elements of the ACA. Senator Bernie Sanders of Vermont, introduced a bill at the same time that would extend government-run health insurance to every American, dubbed Medicare for All.

M&A Overview1

Announced Healthcare & Life Sciences M&A

screen_shot_2019-04-17_at_11.50.43_am.png

Note: Transactions based on publicly available information

Healthcare & Life Sciences M&A Trends

screen_shot_2019-04-17_at_11.53.14_am.png

Announced Private Equity M&A Activity

screen_shot_2019-04-17_at_11.54.04_am.png

Debt Markets Overview

Key Credit Statistics2

screen_shot_2019-04-17_at_11.55.10_am.png

Select Healthcare & Life Sciences Debt Offerings3

(by deal amount)

picture1_267.png

Public Markets Overview1

Key Trading Statistics

picture1_268.png

Public Company Sector Performance

(12-month % change in stock price)

picture1_269.png

Equity Markets Overview

Healthcare & Life Sciences Industry Stock Performance1

screen_shot_2019-04-23_at_3.52.14_pm.png

Top Equity Offerings4

(by proceeds)

picture1_271.png

M&A Transactions

Announced U.S. Healthcare & Life Sciences M&A1

picture1_272.png

picture1_274.png

What We’ve Been Reading

Finance | Urgent Need for New Revenue Streams Will Shape Providers’ Strategies

Building alternative revenue streams will play a bigger role in healthcare providers’ strategies, a new study suggests. The study looked at 1,400 novel revenue streams, defined as any revenue that is not based on traditional reimbursable medical services, government support or non-operating investments, across 74 academic medical centers in large health systems. It broke the alternative revenue streams into three categories: bringing care model innovations to market; transforming cost centers into profit centers; and increasing royalties from drugs, devices and diagnostics. The portfolio of alternative revenue streams should also distribute risk, return, and timing which requires well-equipped personnel who can juggle consumer marketing, automated data analysis, and venture capital management while keeping healthcare’s broader mission in perspective. Health system operating margins hit 10-year lows in 2018 as costs outpaced revenue and while it is uncertain whether that pressure will subside in 2019, hospitals will likely have to implore both cost-cutting and revenue-generating measures as they seek sustainable financial footing.

Read the article.

Policy | Senate Republicans and Democrats Unveil Health-Care Plans

A group of Senate Republicans unveiled a narrowly tailored proposal which would preserve some of the most popular elements of the Affordable Care Act. The plan prohibits insurers from charging higher premiums to patients with pre-existing conditions and bars them from excluding coverage of treatments for those individuals. Republicans hope the plan will blunt the Democrats’ perceived political advantage on healthcare before the 2020 election. At the same time, Sen. Bernie Sanders of Vermont, introduced a bill that would extend government-run health insurance to every American, dubbed Medicare for All. Sanders claims the plan would lower overall spending on health care in the US while studies suggest the program could cost the government more than $30 trillion over 10 years, shifting the way Americans pay for healthcare to higher taxation rather than insurance premiums.

Read the article.

Technology | Google Cloud, Deloitte Partner on Healthcare Solutions

Deloitte and Google Cloud announced plans to collaborate on a suite of advanced solutions for the life science and healthcare industries. The joint release stated that the solutions would help accelerate the pace of biomedical research, improve healthcare access, optimize operations, and modernize the management of health data. In a time when health systems, payers, and hospitals are all struggling with the challenges of digital transformation, including better use of data analytics to drive value-based care, the partnership could prove most effective. Healthcare organizations are increasingly using advanced analytics tools such a machine learning and AI to extract insights from data that drive differentiation, cost reduction, and improved user experience. Data management and advanced data insights are expected to be major healthcare tech development trends this year as the amount and types of healthcare data grow and become increasingly complex to manage.

Read the article.

Public Comparables

Payor, Provider, & Pharmacy Support Services1

picture1_275.png

picture1_276.png

picture1_277.png

Products & Devices1

picture1_278.png

picture1_279.png

Provider-Based Services1

picture1_280.png

picture1_281.png

1. FactSet

2. S&P

3. PNC Debt Capital Markets

4. Company Filings

 

The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.

Harris Williams LLC is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: hwgermany@harriswilliams.com). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. awaited). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.