Johnson & Johnson and Merck Agree to Collaborate on Vaccine Manufacturing
The Johnson & Johnson vaccine was approved for emergency use by the FDA on February 27th. Through a partnership created by President Biden, Johnson & Johnson, Merck, and the U.S. Department of Health and Human Services will work together to repurpose Merck manufacturing facilities to increase manufacturing capacity. Merck received an initial upfront investment of $105 million to retool the vaccine production facility, and space will double vaccine production from current levels. Increases in vaccinations are likely to help hospitals decrease the burden from COVID-19 and allow them to focus on higher revenue generating services.1
Mergers and Acquisitions of Health Systems Predicted to Increase in 2021
Throughout 2020, M&A activity specific to hospitals and health systems decreased slightly to 79 transactions from 92 transactions in 2019, yielding a decrease of 16%. The pandemic has exacerbated operational deficiencies and inefficiencies, and many hospitals and health systems are still facing the issues of decreased patient volumes and increased labor expenses. January 2021 operating margin and operating EBITDA margin were down 46.1% and 34.1%, respectively, compared to January 2020. As vaccine rollouts continue, management teams will shift their focus back to long-term strategic initiatives, including partnerships and mergers and acquisitions. Organizations with strong balance sheets will look to increase M&A volumes by taking advantage of divestitures and smaller health systems. 2 3
LifePoint in Talks to Acquire Ardent Health Services
Lifepoint Health Inc., owned by Apollo Global Management (NYSE: APO), is in talks to purchase Ardent Health Services in a deal valued at over $2 billion. This deal would bring the value of the combined entities to over $10 billion. Lifepoint focused on hospitals in rural areas, and the addition of Ardent is a transition into hospitals in the growing urban and suburban areas. Rising spending on healthcare combined with an aging population has increased private equity investment into the industry, a trend that is likely to continue in the near future. 4
Financial Incentives Expedite Changes in Treatments for Opioid Addiction
Pennsylvania established an incentives program to increase care for patients with opioid use disorder by creating a four-pathway model for treatment. A study by the Perelman School of Medicine at the University of Pennsylvania found that these incentives helped rapidly change practices supporting treatment for patients suffering from the disorder. Looking forward, cost-effective care and establishing out-patient addiction treatment programs could yield high ROI while helping individuals suffering from opioid use disorder.5
Philips to Acquire BioTelemetry
Royal Philips (NYSE: PHG) announced that it would acquire a remote patient monitoring company, BioTelemetry (NASDAQ: BEAT), for $2.8 billion. BioTelemetry provides remote cardiac and blood glucose monitoring, laboratory services for clinical trials, and equipment manufacturing. The company’s core offering is wearable heart monitors, and the company monitors 1.2 million patients a year. BioTelemetry develops software that allows for electronic HIPAA-compliant patient records to be generated and sent to the provider's EHR system. The acquisition is the latest in Philips’s strategy of becoming a leading provider of patient care management solutions for hospitals and the home.5
Amazon to Expand Amazon Care to other Companies in all 50 States
Telehealth services have gained significant traction during the pandemic. Amazon Care currently offers telehealth and in-person/in-home care only to employees in Washington State. The company recently announced that they plan to expand this offering to all employees and other companies beginning in the summer of 2021. The goal is to offer easy access to care for employees, reducing healthcare costs for employers. With Amazon’s entrance into the marketplace, smaller players will have to differentiate their services to stay competitive. Diagnostic testing for telehealth appointments appears to be a promising avenue for differentiation.6
23andMe to go Public Through SPAC
In February, 23andMe, Inc. announced it would go public through V.G. Acquisition Corp. in a deal valued at $3.5 billion. V.G. Acquisition Corp is a special-purpose acquisition company, SPAC. SPACs were a key exit strategy for private equity-backed healthcare companies in 2020, which is predicted to continue through 2021.7
Xavier Becerra Confirmed as Secretary of Health and Human Services
On March 18th, the Senate voted to confirm Xavier Becerra as the Secretary of Health and Human Services. Mr. Becerra stated that he would work to safeguard insurance coverage for individuals with pre-existing conditions, reduce healthcare costs, and sustain the ACA markets. Increased health insurance coverage might prove beneficial to health systems as it lowers the number of individuals unable to pay for medical services. To lower healthcare costs, Mr. Becerra has stated he would go after industry consolidation, one of the largest factors causing rising healthcare costs.8
COVID-19 Predicted to Change Network Adequacy Standards
In an article published in March, researchers argued that state and federal regulators would have to adjust network adequacy standards as more individuals will enroll in public insurance policies due to COVID-19. To accommodate this increase, regulators will need to increase their network size, update their monitoring and plan network data, and adapt care delivery to accommodate both in-person and telehealth.9
Largest Transactions Closed
- Business Divisions of DuPont de Nemours, Inc.
- International Flavors & Fragrances Inc.
- Viela Bio, Inc.
- Horizon Therapeutics USA, Inc.
- BioTelemetry, Inc.
- Philips Holding USA Inc.
- Thrive Earlier Detection Corp.
- Exact Sciences Corporation
- AeroCare Holdings, Inc.
- AdaptHealth Corp.
- Oncology Business of Agios Pharmaceuticals, Inc.
- Servier Pharmaceuticals LLC
- New Hanover Regional Medical Center, Inc.
- Novant Health, Inc.
- American Renal Associates Holdings, Inc.
- Innovative Renal Care, LLC
- Eidos Therapeutics, Inc.
- BridgeBio Pharma, Inc.
- Prevail Therapeutics Inc.
- Eli Lilly and Company
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes