12 Major Trends from the 2018 J.P. Morgan Healthcare Conference: Capital Returning to Drug R&D and Companies Pursuing Smart Growth
Capital was already stirring before most biopharma executives and investors had even boarded their flights to San Francisco.
The annual J.P. Morgan Healthcare Conference has concluded in San Francisco. As in previous years, the conference typically sparks a wave of mergers and acquisitions, investment activities, and reveals emerging trends in healthcare, and this year was no exception.
VCBeat (WeChat ID: vcbeat) has compiled the key financing activities and future trends revealed at the 2018 J.P. Morgan Healthcare Conference, along with twelve pertinent recommendations for enterprises.
On the morning of the first day of the conference, Novo Nordisk proposed to acquire Ablynx, a Belgian antibody drug developer, for approximately $3.1 billion. In pre-conference preparations, Celgene announced its plan to spend up to $7 billion to acquire Impact Biomedicine. Meanwhile, Takeda Pharmaceutical announced its plan to acquire TiGenix for approximately $625 million.
Novo hoped to incorporate Ablynx’s antibodies into its development pipeline, including caplacizumab, a drug used to treat rare bleeding disorders, but Ablynx rejected Novo’s proposal. Although Novo pledged to continue investing in Ablynx and keep its R&D center in Belgium, Ablynx CEO Edwin Moses remained unmoved. Novo has now publicly announced its intention to pressure Ablynx’s board of directors.
At the core of the Celgene transaction is fedratinib, a JAK2 inhibitor that has completed a Phase III clinical trial for myelofibrosis, a severe bone marrow disorder. The compound was originally discovered by TargeGen, which was acquired by Sanofi in 2010; however, Sanofi subsequently halted its development due to safety concerns.
John Hood, the inventor of this molecule and a former TargeGen chemist, founded Impact Biomedicine in 2016 to further develop the drug.
In addition, Takeda Pharmaceutical announced its acquisition of TiGenix, thereby introducing a stem cell therapy for Crohn’s disease into its portfolio. The Japanese company also unveiled a drug discovery agreement with Denali Therapeutics.
Denali Therapeutics, founded in 2015 by former Genentech executives, is a biotechnology company focused on neuroscience.
In the lead-up to the conference, a large number of young biotechnology companies also secured venture capital funding. Last week, venture capitalists invested in biotech firms researching various diseases and technologies.Raised over $650 million in Series A funding。
Of which, the majority of funds were invested inBioNTech, Gossamer Bio, KBP Biosciences, and Expansion Therapeutics, while also establishing a trend in which venture capitalists pour substantial resources into promising young companies.
1. The potential impact of tax reform remains unclear
Investors are seeking large-scale deals, but they believe that the new tax law, which aims to attract companies back to the United States by allowing access to overseas funds, will not yield substantial results. Adam Schechter, President of Merck’s Human Health division, speaks favorably of the tax reform, arguing that it provides a “level playing field” for companies that choose to remain in the U.S. But will this lead to more transactions? He stated, “Tax reform alone cannot drive increased M&A activity; deals ultimately depend on the valuation of prices and assets.”
Paul Biondi, Head of Business Development at Bristol-Myers Squibb, stated that tax reform could serve as a “catalyst” to help the industry complete more deals. However, he believes that the anticipated increase in future deal activity is primarily due to currently low transaction volumes, which will eventually return to average levels.
2. Is Large-Scale Financing Conducive to Innovation?
Bernard Munos, a senior fellow at the Milken Institute’s FasterCures Center for Health Innovation, stated thatHe is pleased to see capital flowing into drug R&D, but the industry must remain vigilant about the potential risk of inefficiency.
Munos stated, “Large-scale financing is concerning because an abundance of capital in banks is detrimental to the development of innovative drugs.” Investors also hold an optimistic view that public markets will benefit biotechnology companies preparing for initial public offerings (IPOs).
“Everyone is eagerly hoping that the initial public offering (IPO) market will open its doors to high-quality biotechnology deals,” said Wende Hutton, General Partner at Canaan Partners. “There is too much capital remaining here; you have to be bullish on this industry.”
Bruce Booth, a partner at Atlas Venture, also believes that investors are very excited about “a large number of mature, high-quality biotech companies.” However, venture capitalists warn that shifts in the political landscape during the midterm election cycle could impact company valuations.
The aforementioned wave of mega-mergers and acquisitions, coupled with intensifying market forces and a shifting political landscape, has shrouded the future of the U.S. healthcare delivery system in uncertainty. Nevertheless, the annual J.P. Morgan Healthcare Conference consistently offers valuable strategic insights for the U.S. healthcare system, helping companies navigate the path ahead in the coming year.
Representatives from more than 20 of the largest and most prestigious healthcare delivery systems in the United States shared their strategic roadmaps at the conference. Although the ultimate destination for each organization remains undetermined, their directions are, in fact, remarkably clear and consistent.
1. The size of an enterprise is not the determining factor; scale expansion can be achieved through various approaches
Clearly, the 2018 J.P. Morgan Conference remained focused on major merger activities. Among these were two landmark M&A deals:
First, the merger between Downers Grove, Illinois-based and Aurora, Wisconsin-based entities will create a $10 billion organization with approximately 70,000 employees;
The second major M&A activity was the merger between San Francisco-based Dignity Health and Englewood-based Catholic Health Initiatives, creating a combined entity valued at $28 billion with 160,000 employees.
The scale of these mergers is quite staggering. Although recent large-scale M&A activity has compelled many companies to examine what such transactions truly mean for them, there is a clear consensus among participating firms that there are multiple pathways to achieving a certain corporate scale.
Enterprises such as Baylor Scott & White in Texas already have an ambitious plan for regional expansion. Other companies are looking to partnerships to deliver equal or even greater value.
Two points are certain: First, the market’s definition of scale no longer exists. Second, although recent merger and acquisition activities have been in full swing,“Becoming a large enterprise” is no longer the sole objective for companies。
2. Pursuing “Smart Growth” to Identify New Revenue Streams
Headquartered in Salt Lake City, Intermountain has chosen to go against the grain of the market’s M&A frenzy, demonstrating the advantages of an “asset-light” strategy within “smart growth.” This approach runs completely counter to industry norms.
As part of its strategy, Intermountain will launch telehealth services offering consultations and remote patient monitoring."Virtual Hospital". The healthcare system will also launch several healthcare companies annually, thereby leveraging its substantial resources in a manner it believes will generate higher returns.
Other healthcare systems have also proposed similar plans to diversify their revenue streams and expand their operations into higher-margin, higher-growth business models.
Mercy Health is one such example, achieving robust growth and leverage through its investment in revenue cycle management companies.
Advocate in Illinois has partnered with Walgreens. Together, they now operate 56 small clinics, and Advocate has already seen significant impact from the influx of new patients and downstream revenue.
The bottom line is that they must think and act differently than in the past to continue funding their clinical missions and serving their communities.
3. Measure and Manage Costs and Profits in an Advanced Manner
While actively pursuing scale expansion, every enterprise hopes to utilize its owned resources more effectively to achieve greater operating leverage.
When companies identify budget gaps, they increasingly adopt consistent and stable operating models that balance profit management with the implementation of conservative strategies, making profit compression a recurring theme. New principles and continuous processes for cost and profit management are emerging, with a level of complexity comparable to the revenue cycle management we have seen in the past.
To this end, the market has begun to implement advanced cost accounting systems. The role of such systems is commonly referred to as financial decision support, providing accurate and actionable cost information that helps organizations understand their true profit margins when entering into risk-based contracts.
During the conference, it was referred to as the “killer app” for driving financial value.
4. Treat patients as consumers, and build brands with a focus on experience
For healthcare systems, investing in and better leveraging their brand has become an essential strategy. As patients’ role shifts to that of “consumers” in the eyes of healthcare providers, the operational complexity of healthcare systems continues to increase.
Meanwhile, major investments in the healthcare system are increasingly directed toward brand experience rather than brand image.Companies are beginning to focus on understanding and thoroughly examining the consumer experience.
Every healthcare system is making meaningful investments in digital communication with consumers, creating and leveraging resources through telemedicine and mobile applications to enhance the customer experience.
5. Operate in a systematic manner, ensuring consistency between words and actions
The extent to which different enterprises and organizations implement systematic operations varies. While there are many reasons for this, it is indeed challenging for companies to align their actions with their words. In recent years, the volume of merger and acquisition activities has been substantial, and companies have increasingly adopted an ambitious approach to addressing holistic issues.
This psychological shift is critical and may well be the most important new trend. Many healthcare systems are undergoing deep organizational restructuring and making substantial investments in leadership development to accelerate change.
6. Think Big, Execute with Precision
As healthcare systems pursue high-tech principles and processes, the term “agile” has rapidly gained traction within the industry. Northwestern Medicine, headquartered in Chicago, has experienced rapid growth over the past five years, now generating nearly $5 billion in revenue. Meanwhile, it has identified a way to drive value creation by starting small and leveraging the cumulative impact of routine organizational measures.
In recent years, WakeMed in North Carolina has rigorously enhanced its operations in surgery, pharmacy, and emergency services, ultimately achieving a remarkable financial turnaround.
7. Enhance Physician Engagement to Drive Change
Employee engagement is a critical theme. Significant transformation is required both now and in the future, and for high-performing healthcare systems, cultural enhancement is an indispensable strategic priority. Nevertheless, only a few healthcare systems are currently focused on monitoring and evaluating physician engagement.
Given thatPhysicians are involved in approximately 80% of nursing care decision-making., which accounts for 80% of spending control, this phenomenon may represent a significant oversight. Data indicate that physician engagement at Northwestern Medicine increased by 117%. Major transformations require clinical guidance and genuine partnerships with physicians.
8. Rational Utilization and Analysis of Data
Many healthcare systems have achieved the initial goal of adopting digital clinical records, only to discover that this is not the end point. Although significant investments have been made in big data, machine learning, and artificial intelligence, these efforts will yield true value only when clinical and financial data are integrated.
Financial capabilities urgently need to be strengthened; enterprises must deploy a dedicated platform for financial planning, analysis, and performance. The focus should be not only on translating analytics into insights but also into action.
9. Be adept at self-protection and maintaining cybersecurity
As organizations delve deeper into data, there is a growing recognition that cybersecurity will become a major risk. More than 40% of data breaches occur in the healthcare sector. Jamie Dimon, CEO of JPMorgan Chase, stated that his company will spend $700 million this year to protect itself and its customers.
Driven by operational and reputational risks, corporate investment in cybersecurity will continue to grow. Cybersecurity has become a top agenda item and priority for executive teams across every healthcare delivery system.
10. Focus on the Management of Social Determinants
Perhaps the most inspiring aspect for healthcare provider organizations is forging connections with the communities they serve while addressing the social determinants of health. As Intermountain Healthcare has stated, “Your zip code matters more than your genetic code.” To this end, Geisinger highlights its focus on “ZNA” (Zip Code Neighborhood Analysis).
One of WakeMed’s initiatives focuses on serving vulnerable populations in underserved communities, resulting in a significant decrease in emergency department visits and hospitalization rates, with cost savings exceeding $6 million.
11. Help Address the Issue of Opioid Abuse
The opioid crisis is an issue that healthcare professionals must specifically address and are responsible for resolving. Every participating healthcare system raised this concern, and every leader expressed deep anxiety over it.
This is good news, but even better is that they are taking action. For example, Geisinger invested in a CleanState Medicaid pilot program, which resulted in a 23% reduction in emergency department visits and a 35% decrease in healthcare expenditures, achieving break-even in less than 10 months.
Although many may consider economic rationalization unnecessary for such an important matter, in fact, any excuse for inaction is unjustified.
12. Shift Mindsets and Create Value Through Professionalism
New York's Hospital for Special Surgery isAmerica's Largest Orthopedic Hospital, and is also a model for providing value-based care. Thirty-six percent of patients who sought a second opinion from their healthcare providers received non-surgical recommendations.
This is value-based consulting and value-based decision-making, which will help overturn the traditional healthcare model. Some healthcare systems are already far ahead; Northwestern Medicine now has 25% of its patients enrolled in value-based agreements. As the Intermountain team stated, “You cannot market value. You just need to keep doing the right thing.”
References:
https://www.beckershospitalreview.com/hospital-management-administration/12-things-you-need-to-know-from-the-2018-jp-morgan-healthcare-conference-while-the-destination-is-uncertain-the-direction-is-clear.html
https://cen.acs.org/articles/96/i3/Investment-flows-JP-Morgan-Healthcare.html
https://www.forbes.com/sites/matthewherper/2018/01/11/wait-it-costs-how-much-biotech-balances-optimism-uncertainty-for-2018/#320f1e8d3aae
Related Reading from the J.P. Morgan Healthcare Conference: