Key Takeaways from the 2020 J.P. Morgan Healthcare Conference - 

Optimistic Attitudes During Ambiguous Times

January 28, 2020

Never before has the market maintained such an upward trajectory for this long. Correspondingly, the rational concerns of an impending recession have as well. But the next recession may not be as harmful as one’s past.
 

Due to the massive influx of capital into the market, private companies, on average, have enough cash on hand to continue operations for nearly two and half years. If a recession does occur, we as an industry are in a much stronger position to whether the storm than in times past, chiefly due to our strong balance sheets, but additionally due to the pipeline of quality products and impressive science behind them.
 

However, this massive influx of capital, owing in part to the rise of foreign investors, big tech money, and family offices, increasingly occurring in earlier rounds than in years past, has driven company valuations to potentially untenable levels. 
 

Considering the current strength of balance sheets and products and with tempered ramifications, a recession could certify the market, remove the junk, and in turn, increase the quality of the pipeline for new deals and valuations.
 

This has been the common mood among health-care dealmakers concerning our market coming out of the 38th Annual J.P. Morgan Healthcare Conference last week and the MassBio’s Conference Recap & 2020 Outlook last night. As such, we find ourselves excited about 2020 and with even more conviction about the key trends and changes that will hit the health-care space this year. 

Key takeaways captured, from the investment perspective

  1. All signs coming out of JPM indicate that 2020 will remain a sellers’ market. The ongoing challenge remains acquiring quality assets in a disciplined manner. Managers will continue to need to use creative strategies to create platform combinations and growth necessary to overcome high entry points.

  2. A number of platform exits are expected during 2020. Anticipate deal flow to continue at a healthy pace and multiples to remain high.

  3. There is increased interest in platforms that are ancillary to the healthcare services space – revenue cycle management, practice management tools and outsourcing solutions, and other payor and provider software solutions all are on the radars of VC/PE firms.

  4. By all predictions, transactions in the home health space will continue to trend up in 2020 as home health providers move to the patient-driven groupings model (PGDM) for reimbursement.

  5. Interest in the contract research organization (CRO) and clinical research management drug discovery and pharmacy distribution space remains robust, with new distribution and partnership models continuing to evolve and create new investment and strategic opportunities.

Stories that stuck out

  • Digital Health - Excitement, Yet Hesitation: Digital Health is one of the hottest spaces in healthcare. An interest in digital health is on the rise as consumers increasingly look to their phones and apps for healthcare solutions. However, one of the biggest problems regarding the space is there isn’t a clear definition of just what it is. CNBC reported that during a panel at the conference, American Medical Association CEO James Madara spoke on the confusion. He noted that some wellness apps and tools routinely defined as “digital health” are in fact operating on the fringes of the medical sector. He dug in by saying these should be curated so that doctors can decide whether they can recommend them to their patients.

  • Big Tech Brings AI to the Forefront: Tech titans such as Alphabet Inc, NVIDIA Corporation and salesforce.com, Inc. participated in the conference to discuss how new technologies such as artificial intelligence and cloud computing can be used to improve health care.

  • Oncology, Rare Diseases Offer Lucrative Opportunity but Neuroscience is a Sector to Watch in 2020: Biopharma companies both big and small said oncology and rare diseases are areas presenting promising opportunities. But neuroscience is being touted as a focus area. "We think neuroscience has the potential to be in the '20s what oncology has been in the last decade," Roche Pharmaceuticals CEO Bill Anderson reportedly said. 

  • Pharma Dig In on Drug Pricing: With 2020 being a U.S. presidential election year, it is a no surprise that drug companies are worried that the high cost of prescription drugs is a campaign issue. Pharma companies defended their stance by detailing the high R&D costs involved in moving a drug from the lab to the shelves. Private-equity sponsors across the board have expressed some concern around the coming election, with many expecting deal volume to fall off after the third quarter, sentiments widely echoed by those in the health-care space. Overall, however, many said that much will depend on whether a more liberal Democratic candidate such as Elizabeth Warren or Bernie Sanders wins the White House, which would increase the likelihood that a Medicare for All, nationalized health-care system would be introduced. Even if that happens, however—an outcome many said they don’t believe is likely—it would take time for lawmakers to pass any legislation, let alone implement it.

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