J.P. Morgan’s Healthcare Conference, now in its 42nd year, sets the tone for the healthcare industry each January. After a tough 2023 for many healthcare subsectors, the mood in San Francisco for this year’s event was one of calm confidence and guarded optimism.
With 2024 poised to be an eventful year, public and private healthcare companies can benefit from the conference’s key learnings as they consider communications strategies for 2024. The following outlines several takeaways by sector.
Economic, Regulatory and Electoral Headwinds Await
While this year’s Deal Monday was eventful (see below), many headwinds remain for future transactions, including high labor costs, staffing challenges, inflation, and, as of now, high interest rates. These factors will only be exacerbated by the upcoming US presidential election and a heightened focus on the industry by regulators.
The Biden administration plans to launch a “cross-government public inquiry into corporate greed in healthcare,” formalizing their scrutiny of private equity (PE) in healthcare, and may invoke “march-in rights” to retract patents of some drugs that rely on federally funded research. And with the Centers for Medicare and Medicaid Services publishing maximum renegotiated fair drug prices under Medicare Part D in September 2024, the administration is likely to make significant price cuts ahead of the presidential election. With the Federal Trade Commission challenging M&A, roll-ups and licensing deals, decisionmakers may stick to “safe” transactions.
For communicators, this backdrop reinforces the need for healthcare companies and the PE and venture capital (VC) firms that invest in them to consider local, state and federal legislators as potential audiences when explaining the rationale for their deal. Equally, healthcare companies should educate and inform their employees, clients and external partners, when appropriate, on the potential legislation and regulation that may impact business operations.
Deal Monday Reveals Guarded Optimism
While global healthcare M&A value grew 8 percent on an annual basis to $365 billion in 2023, it trailed the previous five-year average spending of $432 billion. Nevertheless, Deal Monday demonstrated that there is still ample opportunity for healthcare dealmaking (both transactions and funding rounds) in 2024, particularly in biotech and pharma. A few highlights:
- Boston Scientific announced its plans to buy Axonics for $3.7 billion in cash, gaining access to devices used to improve bladder function and poising the company for more growth with elective surgeries.
- J&J announced a $2 billion bid to purchase tumor-antibody biotech Ambrx Biopharma, a 105% premium at $28 cash per share.
- GSK announced it would acquire asthma drug maker Aiolos Bio in a deal worth up to $1.4 billion.
- Merck announced it would buy cancer drug developer Harpoon Therapeutics for about $680 million, reinforcing its oncology portfolio with a portfolio of T cell engagers ahead of its blockbuster immunotherapy, Keytruda, losing its patent in 2028.
- Isomorphic Labs, Alphabet’s artificial intelligence (AI)-driven drug discovery unit, announced partnerships with both Eli Lilly and Novartis to use its next generation AlphaFold model to discover small molecule therapeutics.
On the PE and VC front, with investors sitting on dry powder (more than $2.59 trillion in unspent cash) and valuations stabilizing, healthcare deals – particularly in the healthcare IT, payer and physician practice sectors – are expected to be steady in 2024. But as noted above, PE and VC investors will have to contend with heightened antitrust enforcement, federal scrutiny, tight margins, and other externalities that may leave them on the sidelines. For their issuer counterparts, that may mean limited crossover rounds and a longer road to IPOs. Even so, strong performers continue to be rewarded with financing and buyout interest.
While transactions and funding rounds come with their own unique communications considerations, healthcare deals are currently receiving increased attention from media, regulators and the general public alike. Executives and other public spokespeople should expect and prepare for more tough questions than in the past.
Innovation and M&A Driving Improved Sentiment in Biopharma
Biopharma deal values increased in 2023 – with a flurry to close out the year – amid expectations that interest rates will decline, drug pricing regulation through the Inflation Reduction Act beginning to take shape and the forthcoming expiration of patents for blockbuster drugs from big pharma.
Large pharma now holds approximately $1.3 trillion in liquid assets – the second-highest available at the start of a year in the last ten years – and may signal accelerated M&A activity in 2024. While near-term sales generation is a key focus for acquirers looking at late-stage and commercial assets, opportunities also exist for smaller biopharmas seeking licensing collaborations. Major companies are increasingly offering substantial upfront payments for partnerships and are inclined to invest earlier on in therapies backed by preliminary safety or efficacy data.
Innovation remains squarely in focus and a large driver behind M&A activity, with antibody-drug conjugates, radiopharmaceuticals, and central nervous system assets among the hottest acquisition targets. Artificial intelligence (AI), of course, drove the conversation (more below) in drug discovery, particularly for small molecules. Some leading drugmakers also emphasized a stronger desire to integrate the people and methodologies of their deal partners. Not to be overshadowed, 2023’s GLP-1 craze showed no signs of slowing down, with Eli Lilly and Novo Nordisk looking to extend their first-mover advantage and already planning for the inevitable patent cliff. Meanwhile, Amgen, Sanofi, Pfizer, Roche and others are setting their sights on taking share of this potential $100 billion weight loss market.
Pharma and biotech companies, particularly those that announce transactions, should be mindful of technical terminology that members of the general public may not understand. Communications should lead with the conclusion or key takeaway, followed by data, using straightforward language to describe scientific and medical processes. This is particularly true for media engagement and at conferences that have a mixed audience of stakeholders.
Health & Hospital Systems Double Down on Non-Acute Asset Expansion
Despite significant losses in 2023, total revenue is largely improving for nonprofit health systems year over year and is expected to continue in 2024. With stabilizing balance sheets and reductions in temporary contract labor, health and hospitals systems reported making significant investments in facility and expansion projects, particularly in specialty care and lower cost non-acute settings. Their goal is to drive growth as the baby boomer generation continues to retire, expediting the need for care and compounding the shortage of providers that offer that care.
Sanford Heath reported investing in ancillary services such as durable medical equipment, retail pharmacy, occupational medicine and home health in rural areas, while CommonSpirit Health shared its continued focus on non-acute assets, ambulatory care and continuum of care by growing its outpatient network in core markets. Sutter Health announced plans to double ambulatory investments from 16% to 32% of capital spending. Mass General Bringham revealed an impressive 15,000 day drop in avoidable hospital stays across 3,000 acute patients since 2020 through their partnership with Best Buy, leveraging the tech retailer’s Current Health technology platform and Lively Mobile Plus personal emergency response system.
With higher margins, oncology and musculoskeletal disease are two priority areas for many health systems. There is particular attention on oncology navigators as a high unmet need to ensure patients get the right care at the right time with the right specialist. Systems also reported interest in AI to improve efficiencies, such as Mass General Bringham using it to identify patients with social determinants of health risk factors and improve physician scheduling, opening up about 250,000 scheduling blocks a year.
Health and hospital systems investing in areas outside of their traditional business model should develop communications that clearly outline how these investments reinforce their value proposition and fit into their broader service offerings.
Big Data and AI are Here to Stay
Making a splash at its standing room only presentation, NVIDIA announced plans to build Freyja, a supercomputer for drug target and disease-specific biomarker discovery for Amgen. As NVIDIA vice president of healthcare Kimberly Powell, said, AI and pharma partnerships will only continue and serve as “an inflection point for the industry.”
While many shared traditional AI use cases like improved clinical decision making and streamlined administrative processes – from partnerships between Palantir Technologies’ and Option Care Health, and Mayo Clinic and Cerebras Systems, to Innovacer’s launch of Sara Scribe, a generative AI clinical documentation assistant – tech can (and should) also be used to address social determinants of health. Uber Health and Socially Determined have begun integrating their platforms to help payers and providers identify and assist vulnerable Medicare Advantage, Medicaid and commercially insured beneficiaries in need of transportation, pharmacy and food-based benefits. Amazon launched a health condition programs portal to make it easier for customers to check benefit coverage eligibility, apply for disease-specific programs and manage chronic conditions like diabetes and hypertension.
Wearable technologies also dominated the halls of the Westin St. Francis. From NVIDIA predicting that the market for wearables – which naturally collect “a deluge” of data – will be amplified by the use of generative AI and large computing power, to Medtronic securing European regulatory approval to combine its latest diabetes pump with a new wearable sensor, there is clearly more to come in this sector in 2024.
Given sensitivities around the use and application of healthcare data, communications around privacy and security is paramount for healthcare companies. Messaging should be straightforward and explain how de-identified patient data is used, protected, and contributes to better clinical and operational outcomes.
Medicare Advantage and ACA Exchanges are Meaningful Markets for Payers
Against the backdrop of risk adjustment, Medicare Advantage (MA) will be a key focus for payers in 2024. CVS Health, Centene and others saw increased MA numbers due to “switchers” versus aged in members, as well as dual eligibles. “Switchers” highlight how membership stability - a critical factor in effective chronic care management - is a delicate balance between patient choice and market economics. While creative thinking in health insurance is warranted – from CMS proposing new rules to refresh compensation for brokers and field marketing organizations that may reduce membership volatility, to whether an annual open enrollment period is actually accretive – increasing medical loss ratios and healthcare expenditures will take up significant payer attention in the months ahead.
But payers have some solace heading into an election year: with enrollment continuing to grow (including Oscar Health anticipating a 31% jump in its marketplace plans), there appears to be growing bipartisan support for Affordable Care Act (ACA) exchanges. Heading into an election year in the US. healthcare companies across sectors should remember that their communications will be received by people on both sides of the political aisle. As the regulatory, legislative and political environment evolves over the coming months, message testing can help identify communications that are clear, concise, and avoid assumptions or misinterpretations.
--The Edelman Smithfield Healthcare Team (hc@edelmansmithfield.com)