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How the health industry will position for growth in 2021

January 22, 2021

The COVID-19 pandemic and resulting economic downturn affected every business sector, and healthcare was no exception. The number of mergers and acquisitions in healthcare dropped as the crisis unfolded but began to rebound in the second half of 2020. The Health Research Institute spoke with PwC partners Nick Donkar, US health services deals sector leader, and Sky Milch, PwC US pharmaceutical & life sciences deals leader, about HRI's Top health industry issues of 2021 report and what 2021 might hold for deals.

PwC Health Research Institute (HRI)

Our survey found that 96% of health executives think the pandemic will drive deal activity across the industry. How much and in what ways has the COVID-19 pandemic impacted the deals landscape as we head into 2021?

Sky Milch

In the pharmaceutical and life sciences sector, we expect the uptick in deals that started at the end of the third quarter to continue in 2021. On the pharmaceutical side, there’s potential for one or two large, transformational deals in the $30 billion to $40 billion range. In the biotech industry, we anticipate a flurry of deals in the $5 billion to $15 billion range.

I don’t think the COVID vaccine landscape will drive any mergers or acquisitions, but there may be additional partnerships. The disruption during the pandemic could prompt pharma companies to look at vertical acquisitions or partnerships to protect their supply chains.

Nick Donkar

Last year health services organizations learned to operate and do deals in a COVID environment. We expect deal volumes to continue to be strong in 2021 across a majority of subsectors within health services, although some will be more active than others. Larger corporate players with large balance sheets will see more opportunity to consolidate and pick up market share based on the strength of their overall historical operations and financial positions.

HRI: The pandemic experience pushed healthcare organizations to increase collaboration. For example, 73% of healthcare executives we surveyed said they were starting to collaborate or had plans to collaborate with other care providers and payers as a result of the pandemic. Do you anticipate cross-sector deals in health services?

Nick Donkar: With utilization down, payers have more cash, and they’re trying to figure out ways to deploy that capital. It could be acquisitions of physician practices, primary care or otherwise, or technology to enable further improvements in patient care, patient satisfaction and overall care delivery. Health services deals aren’t just payer and provider; it’s technology layered on top of that. We’re seeing technology deals with a healthcare accent. Whether it involves payers or providers, it’s about technology that enables data mining and analytics. It’s also about artificial intelligence, anything automated, anything virtual. The notion is providing care in a manner that lowers the cost but delivers greater quality and patient satisfaction. It’s an overall theme that we will continue to see as everyone is focused on cost mitigation.

HRI: President Joe Biden has said that his administration will more closely scrutinize healthcare deals across sectors. Do you expect that to have an impact in 2021?

Nick Donkar: We have enough uncertainty in the marketplace right now, including the pending Supreme Court case regarding the Affordable Care Act, COVID-19 response and other healthcare policy initiatives from the Trump administration. Healthcare payers and providers are constantly examining their growth strategies and will be reviewing any new administration deal scrutiny to ensure compliance accordingly.

Sky Milch: In the pharma and life sciences sector, there are some questions around how much the new administration will focus on pricing, but I don’t think that’s going to have a major impact in 2021. People across the industry are really looking at 2021 as an opportunity to go back to focusing on specific therapeutic areas and continuing to develop the right partnerships.

HRI: Beyond mergers and acquisitions, do you expect to see more novel partnerships that are less formal?

Sky Milch: We expect to see continued focus on partnerships and alliances in the biotech and pharma sectors. In addition, companies are looking at evolving clinical trials and understanding how they can do them better virtually. They’re continuing the trend on digital therapies and wearables, and tracking that data to utilize it in a virtual environment. There are certainly opportunities for diagnostic companies and contract development and manufacturing organizations to help push forward new and different ways of working during the pandemic and even the post-COVID world.

Nick Donkar: We expect to see traditional acquisitions and alliances, but also an increase in unique transactions, minority investments, loose affiliations, clinical partnerships and such. This is additionally relevant when technology and virtual care assets are included within the parameter. We’ll continue to see joint ventures in certain subspecialties, while also expect varied partnerships will continue in the near term in health services across all areas.

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Sarah Haflett

Director and Research Leader, PwC Health Research Institute, PwC US

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