Michael Arcatomy Guarin l October 21, 2022 l The Manila Times
THE KPMG 2022 Healthcare and Life Sciences Investment Outlook provides insights on nine industry subsectors and incorporates findings from a nationwide survey to illuminate how competition, shifting demand and innovation — as well as the pandemic and an evolving regulatory environment — may impact investment decisions in the year ahead.
Although the pandemic has challenged the health care and life sciences industries in many ways, the disruption has also created some lasting innovations. Managing patient care during the pandemic spurred the uptake of telehealth as a consumer-centric treatment modality and recognition of how value-based care elevated patient outcomes. The response to the virus also accelerated advances in science — mRNA vaccines and monoclonal antibody treatments, for example — that have set new expectations for how quickly new molecules and biologics can go from lab to patient use.
Despite a landmark year for investment in 2021, 70 percent of investors who responded to the survey indicated that they were ready to accelerate their active deal pace in 2022 and more than half of private equity investors were looking to do at least 10 percent more deals this year. With biopharma, health care IT (information technology), medical devices and hospitals leading the way, we expect to see targeted and thoughtful investment in high-value targets across all the subsectors assessed.
Some subsector-specific snapshots follow:
Biopharma: Intense interest in Covid vaccines and therapeutics is also spurring investment activity around specialty drugs, cell and gene therapies, and other biologics. Many of these will involve creative funding mechanisms such as outcomes-based payments over time.
Medical devices: Although medical-device manufacturers have been impacted by elective surgery and care delivery disruptions, the subsector will recover and deal activity will accelerate as Covid moves from pandemic to endemic status.
Health care IT: The increased use of telehealth and the likelihood of rollups in this sector are having a spillover effect and prompting broad investment interest across all areas of health care IT.
Hospital and health systems: Although many hospitals are still struggling with Covid volumes and delayed resumption of elective procedures, investors are willing to pay high multiples for assets they can combine to realize efficiencies.
Pharma and lab services: Structural changes in pharmaceutical outsourcing are attracting private-equity investors, particularly in CROs, CDMOs, commercialization services/technologies, clinical research sites and supply chain services/technologies.
Behavioral health: The dramatic increase in depression, anxiety and substance abuse during the pandemic will likely lead to rollups of behavioral health providers, particularly psychiatry practices, where some Ebitda (earnings before interest, taxes, depreciation and amortization) multiples rise well into the mid-double digits.
Specialty physician practices: Among specialty physician practices, investor uptake is expected to focus primarily on non-acute care, e.g., aesthetics, behavioral health, dental, veterinary health and dermatology, as well as home care.
Home health and hospice: Given the shift toward at-home care during the pandemic, investors are interested in consolidation of smaller home health and hospice businesses.
The lasting impact of the past two turbulent years seems to be a heightened emphasis on M&A to acquire innovation, optimize portfolios, drive efficiency and position companies in HCLS for long-term growth and success.
The central message is positive. Investors are focused, have clear priorities and are increasingly optimistic about the investment landscape in 2022. Winning players will start with a cohesive and overarching growth and portfolio strategy. They will execute with shrewd target scanning and creative diligence as well as careful integration and performance optimization.
Research for the report focused on key trends and opportunities for investors. The research also identified potential headwinds such as the rising cost of capital and labor shortages. The report pointed out sector-specific headwinds from reimbursement policies to talent shortages and rising valuations.
There are many potential challenges in a market that continues to operate in overdrive. Overpaying, rushing at targets for fear of missing out or the inability to identify the value that justifies a winning bid price. All of these are risks. We believe the HCLS sectors will go from strong to stronger in 2022. Making the deals that build the future will be challenging, but the rewards will be great.
*** Michael Arcatomy H. Guarin is the 2022 president of the Financial Executives Institute of the Philippines (Finex), vice chairman of the Finex Research and Development Foundation, and head of the Deal Advisory Group of R.G Manabat & Co. (KPMG in the Philippines).