Despite headwinds that threatened to throw off healthcare deals, mergers and acquisitions were active in 2019. Even big deals weren’t off the table, despite the uncertainty created by a federal judge’s 2018 decision that the Affordable Care Act was unconstitutional. In fact, some of the biggest deals of early 2019 were in the healthcare space.
Pharmaceutical giant Bristol-Myers Squibb Co.’s acquisition of biotech firm Celgene Corp., announced in January, was one of the largest healthcare deals of the year, according to Business Insider. The deal hit a snag when it was delayed in June amid anti-trust concerns; to allay federal regulators’ worries, Bristol-Myers Squibb offered to divest a psoriasis drug from Celgene. The $74 billion acquisition would give Bristol three of the top seven largest pharmaceutical products in the world by 2024, although some of them are losing their patents, said Andrew Rymer, a health industry partner in investment bank Centerview Partners, speaking in a DirectorCorps video.
Not everyone is keen on the deal. Bristol-Meyers lost almost 13% of its value in the first half of 2019, breaking through a five-year low on the stock, as investors questioned the wisdom of the deal, according to The Motley Fool.
Pharmaceutical deals are tough in this environment. It’s hard to find a blockbuster drug anymore, and younger companies are pretty expensive to buy, said Rymer.
The other big deal of early 2019 also tapped into the pharmacy industry. The global conglomerate Danaher Corp. announced plans in February to buy GE’s Biopharma business for $21.4 billion in cash, or an estimated 1.7 times EBITDA. That would give Danaher a chance to grow its fastest growing division, life sciences, which currently makes up a third of the company’s total revenue. GE on the other hand, has been in bad shape for a while now, raising questions about why Danaher didn’t negotiate a better price, according to a report from Seeking Alpha.
Another deal impacted by the gyrations in healthcare policy is Centene Corp.’s $17.3 billion purchase of the insurer WellCare Health Plans. Analysts say the deal may help Centene become less vulnerable to potential changes in the Affordable Care Act, given that ACA plans make up 40% of Centene’s earnings, according to Reuters. Plus, the downturn in the market during the fourth quarter of 2018 and uncertainty about the Affordable Care Act’s future helped Centene negotiate a lower price for WellCare. But it still agreed to pay a 35% premium to WellCare’s closing price on March 26, the day the companies signed a deal, according to the publication Modern Healthcare. In late May, the U.S. Department of Justice asked executives for more information about the transaction, which is common but effectively delayed the deal by at least 30 days. The deal is now expected to close in the first half of 2020.
Big deals still are getting done in healthcare, despite uncertainty in healthcare policy. If anything, this is probably an opportune time to push a deal between two big competitors, said Rymer. The presidential campaign trail, especially among Democrats, is filled with talk about restrictions on big companies. That brings quite a bit of uncertainty to M&A after 2020.