Healthcare & Life Sciences Industry Overview

Our Latest Insights | Return to Innovation, Part 2: Contract Research Organizations

Pharmaceutical companies are increasingly using outsourcing to be more efficient and effective in drug development, help reduce time-to-market and boost the ongoing commercial success of their products. This shift is accelerating M&A across many segments of outsourced pharmaceutical services.

Contract research organizations (CROs) are of particular interest to strategic buyers and investors. In this article, Paul Hepper, a managing director in the Harris Williams Healthcare & Life Sciences Group, discusses investor opportunities within the CRO segment of outsourced pharmaceutical services.

Read the article.

M&A Environment1

There have been a little over 400 M&A transactions in the healthcare & life sciences (HCLS) industry since the beginning of 2019, worth roughly $146.9 billion, compared to $241.7 billion for all of 2018. 116 of these deals were executed by private equity groups.

Notable transactions include the acquisition of Acelity Holdings by 3M Co., Takeda Pharmaceutical’s Xiidra Business by Novartis AG, Peloton Therapeutics, Inc. by Merck & Co., Hopebridge, LLC by Arsenal Capital Partners, and Ranir LLC by Perrigo Co.

Public Company Performance1

Stock prices declined for many HCLS companies during the past three months. In fact, the Harris Williams HCLS Composite Index decreased 8.8%, while the S&P declined 1.2%. Notable sector increases include Information Services (increased 17.1%), Clinical Laboratories (increased 10.3%), and dental products (increased 3.0%).

Over the past 12 months industry-wide stock prices have experienced slight declines, with the HCLS Composite Index showing a mild decrease of 11.9%. At the category level, products and devices grew by 9.0% on average over the past 12 months, followed by payor, provider and pharmacy support services at 1.4%, and provider-based services stock prices at 0.9%. Specific stock price growth leaders over the past year include long-term care (31.2%), home care, hospice and home infusion (26.0%), information services (16.0%), and contract research organizations (12.8%).

Industry News

M&A activity in the healthcare sector remains strong, highlighted by recent deals such as WindRose Health Investors’ sale of Ovation Fertility to Morgan Stanley Capital Partners, Nordic Capital’s majority investment in ArisGlobal LLC and Ares Management and OMERS Private Equity’s sale of National Veterinary Partners to JAB Holdings. While the market continues to flourish with activity, CVS announces its long-term plan to bounce back from a decline in revenue following its acquisition of Aetna Inc.

As the costs of health insurance coverage continue to rise, lower cost alternatives gain traction with consumers looking to save. Healthcare sharing ministries, religious organizations where members help pay each others’ medical bills, have seen their membership grow to more than a million people, but a recent uptick in complaints from its members highlight their potential shortfalls. Governments warn that these alternatives are not to be mistaken for insurance, are unregulated, and have no obligation to pay members’ medical bills.

 

M&A Overview1

Announced Healthcare & Life Sciences M&A

screen_shot_2019-06-19_at_5.00.08_pm.png

Note: Transactions based on publicly available information

Healthcare & Life Sciences M&A Trends

screen_shot_2019-06-19_at_5.01.17_pm.png

Announced Private Equity M&A Activity

screen_shot_2019-06-19_at_5.01.53_pm.png

Debt Markets Overview

Key Credit Statistics2

screen_shot_2019-06-19_at_5.02.48_pm.png

Select Healthcare & Life Sciences Debt Offerings3

(by deal amount)

screen_shot_2019-06-19_at_5.03.38_pm.png

Public Markets Overview1

Key Trading Statistics

screen_shot_2019-06-19_at_5.04.38_pm.png

Public Company Sector Performance

(12-month % change in stock price)

screen_shot_2019-06-19_at_5.05.39_pm.png

Equity Markets Overview

Healthcare & Life Sciences Industry Stock Performance1

screen_shot_2019-06-19_at_5.06.29_pm.png

Top Equity Offerings4

(by proceeds)

screen_shot_2019-06-19_at_5.07.18_pm.png

M&A Transactions

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

picture1_320.png

picture1_321.png

picture1_322.png

What We’ve Been Reading

Business | CVS, Under Pressure After Aetna Deal, Sets Long-Term Profit Goals

After warning earlier this year that 2019 profits would decline following the acquisition of Aetna Inc., CVS is under pressure from investors to return profit growth in the coming years. CVS is projecting adjusted earnings per share of $7.00 in 2020 and for that to grow by a mid-single digit percentage in 2021. Executive Larry Merlo assures that the overwhelming amount of consumer data that they have access to will contribute to their ability to be the impetus of change in the health care system. Increased government scrutiny on pharmacy benefit managers, slowing revenue from prescription drug sales and some democratic candidates support for universal government health coverage have been contributing factors to CVS share price decline. CVS hopes that its strategy of expanding health hub stores, which provide a broader range of services mainly aimed at those with chronic illness, will support its growth projections by lowering costs for chronic-disease sufferers. CVS still expects the merger with Aetna to create upwards of $300 million in cost savings and around $800 million in synergies in 2020.

Read the article.

M&A | U.S. Health-Care Software Firm ArisGlobal Sells Majority Stake to Nordic Capital

In the second deal in a week involving a healthcare software developer, Nordic Capital has agreed to acquire a majority stake in ArisGlobal LLC in a deal that values the life-sciences software company at $700 million, including debt. ArisGlobal develops software to be used by pharmaceutical firms to increase efficiency in core functions to measure drug safety, conduct clinical trials and ensure regulatory compliance. The buyout signals the market betting on the pharmaceutical and biopharmaceutical industries adopting the use of software to reduce the burdensome costs of drug development. Since Nordic Capital’s inception in 1989, the buyout firm has invested $6 billion in healthcare companies and continues to expand its bet on the U.S. healthcare sector with this recent investment.

Read the article.

Health Policy | As Sharing Health-Care Costs Takes Off, States Warn: It Isn’t Insurance

Healthcare sharing ministries, religious organizations where members help pay each others’ medical bills, have grown in popularity over the years as the cost to join is typically far lower than maintaining full health insurance. The healthcare cost sharing arrangement among people with similar religious beliefs has grown from an insurance alternative to multi-million dollar operation, driving more consumer complaints and state scrutiny. Unlike traditional plans, most healthcare sharing ministries don’t cover pre-existing conditions, preventative services, abortion, most birth control, or mental-health services and often have limits on how much they will pay for a treatment. This along with the fact that they are exempt from health-insurance requirements from the ACA, help to lower their costs. Insurance regulators in Nebraska, much like several other states, have taken action, warning that healthcare sharing ministries aren’t insures, aren’t regulated and can’t be forced to pay members’ medical bills.

Read the article.

Public Comparables

Payor, Provider, & Pharmacy Support Services1

screen_shot_2019-06-19_at_5.11.32_pm.png

screen_shot_2019-06-19_at_5.11.55_pm.png

screen_shot_2019-06-19_at_5.12.17_pm.png

Products & Devices1

screen_shot_2019-06-19_at_5.12.57_pm.png

screen_shot_2019-06-19_at_5.13.19_pm.png

Provider-Based Services1

screen_shot_2019-06-19_at_5.13.56_pm.png

screen_shot_2019-06-19_at_5.14.23_pm.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.