Healthcare & Life Sciences Industry Overview

Our Outlook on 2019

As 2019 begins, Managing Directors Cheairs Porter and Turner Bredrup are confident in the interest their industry will continue to attract. In particular, they see investor attention focused on multi-site healthcare services (both retail and physician group focused), pharmaceutical supply chain services, wellness and chronic disease management and healthcare IT. See their full outlook on 2019.

M&A Environment1

There have been a little over 900 M&A transactions in the healthcare & life sciences (HCLS) industry since the beginning of 2018, worth roughly $211.0 billion, compared to $239.8 billion for all of 2017. 237 of these deals were executed by private equity groups.

Notable transactions include the acquisition of Grifols Diagnostic Solutions by Shanghai RAAS Blood Products, the acquisition of DJO Global by Colfax, and the acquisition of Pacific Biosciences of California by Illumina.

Public Company Performance1

Stock prices declined for many HCLS companies during the past three months, but not as steeply as the S&P 500 over the same period. In fact, the Harris Williams HCLS Composite Index declined 2.7%, while the S&P declined 4.9%. Notable exceptions to this trend include disease management (increased 19.8%), specialty pharmacy management (increased 15.0%), long-term care (increased 12.1%), acute-care hospitals (increased 9.3%), and retail pharmacy (increased 7.6%).

Over the past 12 months industry-wide growth looks much stronger, with the HCLS Composite Index achieving a 12.8% increase. At the category level, provider-based services stock prices grew by 36.7% over the past 12 months, followed by payor, provider and pharmacy support services at 20.8% and products and devices at 11.2%. Specific stock price growth leaders over the past year include home care, hospice and home infusion (81.0%), acute-care hospitals (69.4%), long-term care (56.4%), and specialty pharmacy management (55.7%).

Industry News

Obamacare sign-ups fell for a second consecutive year as there is uncertainty surrounding the future of the Affordable Care Act. Congress repealing open enrollment as well as the tight labor market contributed to the lower sign-ups. Bristol-Meyers Squibb announced plans to acquire Celgene for $74 billion. Following the announcement, Bristol’s shares declined 11% as investors were concerned about the amount of debt Bristol would take on. U.S. hospitals collectively overspend approximately $39 billion annually on purchased services, according to a new report from Medpricer. Medpricer provides purchased services cost management solutions for the healthcare industry.

M&A Overview1

Announced Healthcare & Life Sciences M&A

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Announced Private Equity M&A Activity

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Debt Markets Overview

Key Credit Statistics3

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Select Healthcare & Life Sciences Debt Offerings4

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Public Markets Overview1

Key Trading Statistics

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Public Company Sector Performance

(12-month % change in stock price)

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Equity Markets Overview

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M&A Transactions

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

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What We’ve Been Reading

Providers | Hospitals Overspend $39 Billion a Year on Purchased Services

Medpricer, a purchased services cost management solutions provider for the healthcare industry, announced that U.S. hospitals collectively overspend approximately $39 billion per year on purchased services. Purchased services include all clinical and non-clinical outsourced contracts. Purchased services account for approximately 20% of U.S. hospital operating costs, according to the American Hospital Association. Total U.S. hospital operating costs were $991 billion in 2017, meaning purchased services were approximately $200 billion. For these reasons, purchased services and supply chain spend are often the first focus of cost cutting after mergers.

Read the article.

Insurance | Obamacare Sign-ups Fall 4% this Year to 8.5 Million Amid Uncertainty About Future of Health Law

Obamacare sign-ups fell for a second year in a row, as the Trump administration scales back the law and the fate of the Affordable Care Act is in question. Sign-ups fell around 4% from 8.8 million last year to 8.5 million this year. Open enrollment began on November 1st and closed in mid-December in most of the country. This was the first open enrollment season since Congress repealed the individual mandate. The individual mandate imposed a tax penalty on individuals without coverage. The tax penalty was the higher of $695 per adult or 2.5% of household income and was designed to pursued people to buy insurance. The tight labor market and reduced dependence on the federal health program is also playing a role in the lower sign-up figures.

Read the article.

M&A | Bristol-Myers Squibb's $74 Billion Acquisition of Celgene Would Combine Two Troubled Companies

Bristol-Myers Squibb announced plans in early January to buy Celgene for $74 billion in cash and stock. Shares of Celgene increased while shares of Bristol declined. Celgene is a New Jersey based cancer drug company. The acquisition of Celgene adds about $32 billion of debt to Bristol’s balance sheet to fund the deal and Bristol will also assume $20 billion of Celgene’s debt. Bristol’s long-term debt prior to the deal is only $7 billion. The deal is important for Bristol as it seeks to add drugs to its portfolio to keep up with Merck. The combined company of Bristol and Celgene will have nine products with more than $1 billion in annual sales.

Read the article.

Public Comparables

Payor, Provider, & Pharmacy Support Services1

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Products & Devices1

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Provider-Based Services1

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1. FactSet

2. Company Filings

3. S&P

4. PNC Debt Capital Markets

 

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