So far in 2023, mergers and acquisitions in the healthcare industry are up 62% year-over-year, to $119.6 billion, according to Refinitiv. Follow-on offers are also up 22% versus last year, and excitement is growing around the possibilities for large initial public offerings (IPOs) within the industry later this year.
In April, Johnson & Johnson announced plans to spinoff of its consumer business under the name Kenvue. The new company will include brands Tylenol, Band-Aid, Aveeno, Neutrogena, Listerine, and Johnson’s.
Filings indicate shares will be priced at $20 to $23 in an IPO set to take place later this year, meaning the spinoff company would have a roughly $40 billion value. That would make it the largest IPO of the year so far.1
And with World Healthcare Day happening on April 7th, the World Economic Forum (WEF) highlighted eight trends shaping global healthcare today. While the WEF found widening inequalities, healthcare worker shortages and burnout, and increased mental health challenges were prevalent worldwide (and especially in low- and middle-income countries) in the aftermath of the pandemic, the report also cited several reasons for optimism.
According to the WEF, global healthcare spending grew more than 40% to $12 trillion between 2018 and 2022. Healthcare investments are also at all-time highs, with particular focus on gene immunotherapy and mRNA vaccines.
The field has also benefitted from digital innovation and the use of big data and AI to aid in research and improved patient outcomes. Digital investment in the sector is now $57 billion, with growth seen particularly in telehealth and mental health. AI is being rolled out to assist in diagnosis, monitoring and treatment, improved medical imaging, and AI-assisted drug research and development.2
Updates on Specific Healthcare Companies
Merck & Co
Merck & Co. is taking steps to enhance its research pipeline with its most lucrative cancer drug, Keytruda, set to lose patent protection later this decade. Merck & Co. announced in April that it will buy Prometheus Biosciences and its portfolio of drugs for $10.8 billion.
The agreement is one of the largest deals in the pharma sector in recent years and promises to contribute revenue for Merck once Keytruda’s patent expires. The deal gives Merck access to promising new autoimmune drugs in Prometheus’ pipeline, including a monoclonal antibody treatment for inflammatory bowel disease that has already shown positive results in clinical trials.3
In its April earnings report, Novartis raised its full-year earnings outlook following cost cuts and success in clinical trials of its breast cancer drug and radiotherapy drug against prostate cancer. Q1 group sales rose 3% to $12.95 billion, beating analyst predictions of $12.6 billion. Novartis now expects its core operating income will grow by a “high single digit to low double digit” percentage for the year, up from earlier forecasts of a “mid-to-high single digit.”4
Novartis also announced that its planned spinoff of generic drug division Sandoz is still on track for the second half of 2023.5 Novartis plans to spin off Sandoz into a new publicly traded standalone company to create Europe’s leading generics and biosimilars company. This move will allow both Sandoz and Novartis shareholders to potentially benefit from future growth. The two companies will pursue separate growth strategies, with Sandoz having access to a pipeline of more than 15 biosimilars molecules, while Novartis focuses on developing innovative medicines and improving its financial profile and capital returns.6
LIFE ETF: Investing in Global Healthcare
Investing in ETFs can be one way to add cutting-edge healthcare to your portfolio.
Evolve Global Healthcare Enhanced Yield Fund (LIFE ETF) provides investors with exposure to twenty global blue-chip companies in the healthcare industry, with a covered call strategy that is actively managed to provide increased yield potential while helping mitigate risk. For more information about the Evolve Global Healthcare Enhanced Yield Fund or any of Evolve ETF’s lineup of exchange-traded funds, please visit our website or contact us.
LIFE ETF Portfolio Strategy and Activity
For the month, Eli Lilly & Co. made the largest contribution to the Fund, followed by Medtronic and Novartis AG. The largest detractors to performance for the month were Danaher Corporation, followed by AbbVie Inc and Pfizer Inc. On last rebalance, one security was added to the portfolio: Intuitive Surgical, Inc.
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- Goodkind, N., “The banking crisis may have set the stage for an IPO comeback,” CNN Business, April 25, 2023; https://www.cnn.com/2023/04/25/investing/premarket-stocks-trading/index.html
- Bishen, S., “World Health Day: 8 trends shaping global healthcare,” World Economic Forum, April 5, 2023; https://www.weforum.org/agenda/2023/04/world-health-day-healthcare-trends/
- Krasny, R., Mello, G. & Brown, K., “Merck to Cushion Patent Loss With Prometheus Acquisition,” Bloomberg, April 16, 2023; https://www.bloomberg.com/news/articles/2023-04-16/merck-agrees-to-buy-prometheus-for-200-per-share-in-cash
- Burger, L., “Novartis, helped by cost cuts, raises full-year outlook,” Reuters, April 25, 2023; https://www.reuters.com/business/healthcare-pharmaceuticals/novartis-lifts-full-year-earnings-outlook-2023-04-25/
- “Novartis delivers strong sales growth, robust margin expansion and major innovation milestones. Raises FY guidance,” Sandoz, April 25, 2023; https://www.sandoz.com/news/media-releases/novartis-delivers-strong-sales-growth-robust-margin-expansion-and-major-innovation-milestones-raises-fy-guidance
- “Novartis announces intention to separate Sandoz business to create a standalone company by way of a 100% spin-off,” Novartis, August 25, 2022; https://www.novartis.com/news/media-releases/novartis-announces-intention-separate-sandoz-business-create-standalone-company-way-100-spin
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