A shift in how governments and private insurers pay for services and the rise of information technology in developing diagnostics and treatments augur well for life sciences and healthcare companies and the private equity firms that invest in them, deal specialists said in a webcast.
Also helping is a growing recognition by governments around the world of the value of private companies in developing treatments quickly — seen most vividly in vaccines developed by Pfizer and Moderna — which should keep cooperation between public and private interests strong.
The resilience of private life sciences and healthcare companies was tested early in the COVID-19 outbreak, but by mid-April companies, especially those offering Covid-connected services, were seeing strong business returns, specialists said. And deal flows followed, with a rise of deal activity starting in the summer, although there was a disconnect between the buy and sell sides at the end of 2020.
On the sell side, companies were touting the extraordinary resilience of the sector, but on the buy side, investors were questioning growth prospects.
That bifurcation of expectations, Matthew Strassberg of Mid Europa Partners said in a Dechert LLP webcast, "may cause hiccups with deals happening [in 2021], even though 2020 dynamics were surprisingly positive."
Private COVID-19 vaccine development, for which companies tapped information technology to make happen in a quarter of the time it would have taken in the past and which resulted in effective rates of more than 90%, suggest promising outcomes going forward.
"That dynamic, and the efficiencies and capabilities it creates, attracted significant, if not record, amounts of capital, and I think that trend is going to continue," said Charles Kennedy, managing partner and CEO of Blue Ox Healthcare Partners.
Promising areas
The big question, especially in the United States, where healthcare remains unaffordable for many, is how new diagnostics and treatments will be paid for.
One area of promise is the rise of what Kennedy called value-based care, which the Biden administration is expected to champion through a little-known government body, the Center for Medicare and Medicaid Innovation. The government is slowly moving toward reimbursement methods that reward the most valuable procedures.
One area where this could accelerate in coming years is diagnostics. Companies are increasingly diagnosing conditions at the molecular level, long before they show up at the clinical, lab or radiological level, potentially making treatment more cost-effective.
"These innovations will be seen by providers and plans who are now very focused on costs," Kennedy said. "They may enable an improved preventive health strategy, and, if you can prevent disease, there's no better value that you can offer the payers."
There was concern when the U.K. government effectively nationalized the response to COVID-19, but the shift was temporary, and there's little reason to believe the government will retain a heavier hand going forward than in the past.
"This crisis has highlighted the need for nimbleness," Strassberg said. "It was the private players who were often ahead of the state systems in procuring, for example, protective equipment. So, overall, the perception by the state payer and state decision makers of the value of a symbiotic cooperative relationship with private operators has actually improved. By 2025, I expect greater openness in many countries in Europe to integrate private participation in solving the problems."
