April '24 Healthcare Market Update

Overview

This year, the focus in the healthcare industry shifts to a patient-centric approach, recognizing the pivotal role of patients in shaping healthcare dynamics. Additionally, a significant increase in M&A activity is anticipated compared to last year’s M&A market which dropped 15%, the lowest level in a decade.

Looking forward into 2024’s M&A market, investments will focus on themes such as enhancing care delivery for value-based* outcomes, refining clinical and administrative structures to prioritize patient needs while collaborating with employers to optimize healthcare benefits to lower costs.

Healthcare in the News

The US Justice Department has Launched an Investigation into McKinsey over Opioid-Related Consulting

The Justice Department launched an investigation into McKinsey for potential healthcare fraud and obstruction related to its consulting work for opioid manufacturers. The probe, ongoing for several years, involves officials from offices in Washington, Massachusetts, and Virginia. McKinsey is accused of potentially conspiring to commit healthcare fraud by advising companies whose actions may have led to fraudulent claims to government programs like Medicare. Additionally, prosecutors are examining whether McKinsey obstructed justice, following the firm's disclosure of firing two partners for deleting documents related to their opioid work.

The investigation carries high stakes, with potential for criminal charges against the company or its executives and significant financial penalties. McKinsey has reached settlements totaling nearly $1 billion with various entities over opioid-related lawsuits but has not admitted liability. The firm ceased advising on opioid-related businesses in 2019.

Purdue Pharma, one of McKinsey's former clients, pleaded guilty to criminal charges in 2020 and filed for bankruptcy in 2019. Its $10 billion settlement to resolve opioid-related lawsuits is pending Supreme Court review.

Prosecutors are still in the process of reviewing documents and engaging in discussions with McKinsey's lawyers, indicating that charging decisions are yet to be made.

Per Wall Street Journal, Reuters

Healthcare Giant, UnitedHealth Group beats Q1 Earnings Despite Cyber Attack

UnitedHealth Group's shares surged over 5% following a better-than-expected Q1 earnings report, signaling a recovery after a period of sector-wide stock declines. Competitors like Elevance also saw increases in their stock prices after UnitedHealth's positive results.

Despite the disruption caused by a cyberattack on its Change Healthcare unit in late February, UnitedHealth's adjusted earnings for the quarter surpassed analysts' expectations. The company reassured investors about medical costs, stating that expenses were in line with expectations, and reiterated its full year adjusted earnings projection.

The company reported a net loss for the quarter, partly due to charges related to the sale of its Brazil operation and the cyberattack impact. However, adjusted earnings per share exceeded analyst forecasts, while revenue climbed 8.6% to $99.80 billion.

UnitedHealth is working to restore Change functionality and regain customer trust, expressing confidence in a stronger future for the unit.

Per Wall Street Journal

Q1 Earnings

Humana, a leading health insurance company based in the United States, delivered better-than-expected first-quarter 2024 earnings, fueled by higher premiums, improvement in the Insurance segment and growing strength in Medicare Advantage. However, the positives were partially offset by higher operating expenses and lower overall medical memberships.

• EPS fell slightly from $6.12 Exp. to $6.11 actual

• Revenue surpassed estimates of $28.47bn versus $29.61bn actual (or 4% above expectations)

After Humana's Q1 earnings release, investor sentiment appears to be negative. Despite reporting higher-than-expected revenue, the company saw a significant decline in adjusted net income, which fell by 23% year-over-year. Additionally, Humana's profitability guidance for the full year 2024 fell short of analysts' expectations. These factors likely contributed to the decline in Humana's stock price following the earnings report, with shares closing 4.66% on the day. The disappointing earnings results and guidance may have led investors to reassess their outlook on the company's performance and prospects.

Per Humana Investor Relations

Q1 2024: Analyst Forecasts and Insights

The healthcare sector is experiencing early signs of growth in the first quarter of 2024, driven by increased patient volumes, utilization, and demand for cost-effective healthcare solutions. Despite higher expenses due to increased utilization, several healthcare stocks are anticipated to outperform. Analysts project a 7.6% decline in earnings but anticipate a 6.3% increase in revenues for the first quarter.

Factors at Play

•  Increased Patient Volumes:

  • Rising patient visit volumes are boosting utilization for healthcare stocks, supported by higher revenue per admission.

• Membership Declines:

  • Certain Health Maintenance Organizations (HMO) may experience declines in memberships, particularly in Medicaid and Medicare, due to patients redetermining their options.

• Technological Innovations:

  • Investments in technological advancements are impacting margins in the short term but enabling optimization of services and reducing costs in the long run.

Per NASDAQ

M&A and Capital Activity

• KKR is acquiring Swedish pharmaceutical company Immedica Pharma, becoming an equal owner with healthcare investor Impilo.

  • KKR and Impilo will work together with Immedica’s management team to support Immedica’s continued growth, including the launch of the recently approved ultra-orphan drug Loargys, additional pipeline assets, and continued in-licensing and M&A.

  • Implio’s Financial Advisor was Morgan Stanley

  • KKR’s Financial Advisor was Bank of America

• Main Capital Partners sold Enovation, a Dutch digital care platform, to French infrastructure company Legrand.

  • Enovation is the Dutch leader in healthcare software in the market for connected health and assisted living. Specializing in Business-to-Business, Enovation's offerings include software for remote monitoring of elderly and dependent persons using connected objects, sharing health information and data, and coordinating care between facilities, providers, and professionals.

  • This acquisition rounds out Legrand's existing offerings in assisted living, which have been grouped together under the "Legrand Care" brand since 2021. By acquiring Enovation, Legrand Care strengthens its European leadership in technology and software solutions in the assisted living and health market.

  • Financial Advisors were not released.

• Bristol Myers Squibb strengthens its neuroscience portfolio with an all-cash acquisition of Karuna Therapeutics, at $330/share ($14bn valuation).

  • Karuna Therapeutics, a biopharmaceutical company dedicated to developing innovative therapies for people living with psychiatric and neurological conditions through groundbreaking scientific research and transformative medicines.

  • Bristol-Myers Squibb is a publicly traded specialty biopharmaceutical company that is engaged in discovery, development, licensing and manufacturing, marketing, distribution and sale of medicines and related medical products to patients with serious diseases.

  • Karuna’s financial advisor was Goldman Sachs

  • Bristol Myers Squibb’s financial advisors are Gordon Dyal and Citi