Healthcare & Life Sciences Industry Overview

M&A Environment

There have been roughly ~630 M&A transactions in the healthcare & life sciences (HCLS) industry since the beginning of 2018, worth roughly $185.7 billion, compared to $232.0 billion for all of 2017. Of these deals, ~190 were executed by private equity groups.

Notable transactions include the acquisition of K2M Group by Stryker, Allergan by Almirall SA , and Cartiva by the Wright Medical Group.

Public Company Performance

Stock prices grew slightly for many HCLS companies during the past three months, higher than the value of the S&P 500 over the same period.  In fact, the Harris Williams HCLS Composite Index grew 9.0%, while the S&P grew only 7.3%. Notable exceptions to this trend include specialty pharmacy (decreased 12.2%), disease management (decreased 1.9%), dental products (decreased 1.0%), and behavioral health / management (decreased 0.6%).

Over the past 12 months industry-wide growth looks much stronger, with the HCLS Composite Index achieving a 18.9% increase. At the category level, provider-based services stock prices grew by 41.3% over the past 12 months, followed by payor, provider and pharmacy support services at 25.5% and products and devices at 13.6%. Specific stock price growth leaders over the past year include home care, hospice, and home infusion (83.1%), surgicenters / rehabilitation (67.4%), long-term care (56.9%), and acute-care hospitals (40.8%).

Industry News

According to CMS, the average monthly Medicare Advantage monthly premium will be $28 next year, the lowest it has been in the last three years. This represents a decrease of 6% since 2018. Kohlberg Kravis Roberts is finalizing its acquisition of Envision Healthcare. Envision, a physicians services provider, is under pressure to retain its in-network status with UnitedHealth in 2019. Envision Healthcare makes about 25% of its commercial revenue through UnitedHealth, and keeping this contract is critical to its goal of moving further in-network. Providers are increasingly turning to digital tools to meet increased demand for healthcare. Despite this, adoption has been slow due to fragmentation and a lack of infrastructure in the industry.

M&A Overview1

Announced Healthcare & Life Sciences M&A

screen_shot_2018-10-08_at_11.50.04_am.png

Healthcare & Life Sciences M&A Trends

screen_shot_2018-10-08_at_11.50.53_am.png

Announced Private Equity M&A Activity

screen_shot_2018-10-08_at_11.51.31_am.png

Debt Markets Overview

Key Credit Statistics3

screen_shot_2018-10-08_at_11.54.42_am.png

screen_shot_2018-10-08_at_11.57.17_am.png

Select Healthcare & Life Sciences Debt Offerings4

(by deal amount)

screen_shot_2018-10-08_at_12.04.07_pm.png

 

Public Markets Overview1

Key Trading Statistics

screen_shot_2018-10-08_at_1.00.46_pm.png

Public Company Sector Performance

(12-month % change in stock price)

screen_shot_2018-10-08_at_1.01.37_pm.png

Equity Markets Overview

Healthcare & Life Sciences Industry Stock Performance1

screen_shot_2018-10-08_at_1.02.39_pm.png

Top Equity Offerings2

(by proceeds)

screen_shot_2018-10-08_at_1.03.16_pm.png

M&A Transactions

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

picture1_39.png

picture1_40.png

What We’ve Been Reading

Insurance | Medicare Advantage Premiums Hit Three-Year Low

"According to CMS, the average monthly Medicare Advantage monthly premium will be $28 next year, the lowest is has been in the last three years. This represents a decrease of 6% over 2018, and 83% of enrollees who keep the same plan will see their rates decrease or stay the same in 2019. Experts attribute the decrease in premiums to the increasing number of coverage options. Over 91% of Medicare enrollees will have access to 10 or more Medicare Advantage plans next year, thanks to 600 additional plans starting next year."

Read the article.

Providers| Losing UnitedHealth Contract Could Cut Into Envision's Revenue

"Envision Healthcare, a physicians services provider, is under pressure to retain its in-network status with UnitedHealth in 2019 as it finalizes its acquisition by Kohlberg Kravis Roberts. Envision Healthcare makes about 25% ($1 billion) of its annual commercial revenue from UnitedHealth. UnitedHealth recently warned hospitals that Envision would be out-of-network starting January 1, yet Envision expects to remain in-network. Envision is trying to increase the percent of its revenue coming from in-network providers from 91% currently to 95% by year end and keeping UnitedHealth is crucial to this strategy."

Read the article.

Tech | Providers Are Going Digital to Meet Increased Demand

"Providers are increasingly turning to digital tools to meet increased demand for healthcare as the U.S. population ages. According to venture fund Rock Health, there were 345 digital health investment deals in 2017. Despite this, very few people communicate with healthcare providers digitally. Most people also do not use digitally-connected monitoring devices. According to EY, the slow adoption is due to fragmentation in the industry as well as a lack of infrastructure to support the digital tools."

Read the article.

Public Comparables

Payor, Provider, & Pharmacy Support Services1

screen_shot_2018-10-08_at_1.08.57_pm.png

screen_shot_2018-10-08_at_1.09.19_pm.png

screen_shot_2018-10-08_at_1.14.56_pm.png

Products & Devices1

screen_shot_2018-10-08_at_1.15.34_pm.png

screen_shot_2018-10-08_at_1.15.58_pm.png

Provider-Based Services1

screen_shot_2018-10-08_at_1.16.48_pm.png

screen_shot_2018-10-08_at_1.17.12_pm.png

1. FactSet

2. Company Filings

3. S&P

4. PNC Debt Capital Markets

 

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.

Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which 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 is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.