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EMEA- Healthcare Industry Analysis

Analysts: Nicolas Bojenko (University of Sussex), Max Rosmuller (University of St. Gallen)

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Healthcare Industry

Healthcare as Essential Industry through 2020

The healthcare industry has historically served as a refuge for investors during economic crises. The Covid-19 pandemic was no different, as the industry attracted new investor interest and large amounts of capital looking for safe harbour. Moreover, the economic crises throughout 2020 were caused by a pandemic, providing an additional opportunity for the healthcare industry. Globally, over 100 million people have contracted the Covid-19 virus, creating immense demand, but also strain, for the healthcare industry. Hospitals overflowed and medical equipment became scarce through the peak of the pandemic, creating an incentive for consolidation. Moreover, pharmaceutical companies rushed to develop vaccines to allow the world to return to normal. BioNTech SE, a German biotechnology company, collaborated with Pfizer to develop a Covid-19 vaccine within the short time span of a year. In the UK, AstraZeneca rolled out its version of the vaccine as well. Besides vaccine development, the healthcare industry was in high demand throughout 2020 with the increased usage of disinfectants, protective equipment like surgical masks and gloves, and high amounts of hospitalizations. Overall, the healthcare sector was not only a safe harbour for investors and in high demand due to the pandemic, but the industry itself is also a major part of EMEA GDP. Most recent data shows that healthcare expenditures account for an average of 9.9% of GDP throughout European member states. In the Middle East and North Africa, healthcare accounts for 5.9% of GDP on average.

Covid Vaccine development and the logistics of its distribution

Whilst the healthcare industry has seen more prominent commercialization over the years, the sanitary crisis experienced by Covid only highlighted the importance of the industry to citizen’s health as well as to revenue opportunities. Since November, multiple companies worldwide have announced more or less successful vaccine development results. Pfizer&BioNTech in the US and Germany, or the Oxford Uni-AstraZeneca in the UK or even the “Gamaleya” Sputnik V in Russia. As these vaccines have been developed in different countries, under different local regulations, their usage and characteristics vary quite significantly. Factors such as cost per dose, storage condition needs, availability and effectiveness of vaccines create a huge disparity between each of these vaccines, where the Pfizer one must be stored under -70-degree Celsius conditions for example, Oxford Uni and Sputnik V can be stored in regular fridge conditions. These differences are quite important when it comes to the logistics of vaccine distribution, which is certainly an issue that affects countries in Africa more significantly than Europe for example. According to an Economist research, most of the African continent will have coronavirus vaccines widely available only around April 2022 - 2023, much later than for the majority of the European continent, where the expected dates are between September 2021 and March 2022. An interesting phenomenon was the positive increase of these companies’ stock prices when successful vaccine trials were announced in early November, figure below shows historical stock prices for Astra Zeneca AZN and BioNTech BNTX. This can however be understood, as people are locked at home and are progressively getting tired of the situation, a vaccine seems like the only solution.

M&A Activity overview

Healthcare M&A deals activity has remained quite strong in Q3 & Q4 of 2020. In fact, the number of deals in the EMEA region in healthcare services and pharmaceuticals was at 651, an increase in numbers from the same period last year (579). This is however unsurprising as although Covid-19 put a heavy toll on certain industries, the healthcare sector certainly benefited from increased demand for antiseptics, disinfectants, and protecting equipment such as surgical masks and gloves. Close to the beginning of the year, European countries had struggles when it came to providing ventilators to Covid sick patients. With hospitals overflown by patients, Italy pressured the country’s only ventilator manufacturer to “quadruple monthly production”, which besides highlighting the seriousness of the situation, underlines higher levels of profitability to the healthcare industry. In comparison to Q1 & Q2 of 2020, the volume of deals rose quite sharply, a 95.4% increase from $10.084b to $19.707b (excluding megadeals). Increased confidence of vaccine development and the announcement of German Siemens Healthineers’s Megadeal acquisition of Varian Medical Systems for a value of $16.4b in cash, appear as important factors in boosting overall M&A deal volumes. It’s also important to scale this in relation to world M&A volume amounting to $114.7 b (excluding mega deals). The EMEA region in the last two quarters of 2020 was thus responsible for about 17.2% of total M&A volume worldwide.

Healthcare Meets Tech

While the trend towards specialization has been around for a while in the healthcare sector, there has been an increase in strategic acquisitions involving new and innovative technologies. Particularly health-tech and tech-enabled service providers are driving the digitalization of the pharma ecosystem and are thus attractive acquisition opportunities for large established pharmaceutical companies looking to digitize their business. These acquisitions are especially important when considering the potential impact of large tech corporations entering the healthcare sector and can therefore be seen as a defensive move by established healthcare companies. On the other hand, the Covid-19 pandemic forced most businesses to rethink their business delivery models to cope with social distancing measures, including those active in healthcare. Matt Hancock, Secretary of State for Health and Social Care in the UK, stated that all medical consultations should be done by telemedicine, unless there are clinical or practical reasons. This is yet another reason for increased tech acquisitions or partnerships by healthcare companies, as the industry becomes increasingly digitized. Some major healthcare and technology deals that occurred throughout the EMEA region in the second half of 2020 include Germany based Siemens Healthineers’ acquisition of Varian Medical for $16.4 billion.

With the acquisition, Siemens Healthineers will be able to leverage Varian’s expertise in the field of artificial intelligence, machine learning and data analysis in the field of cancer care. Additionally, relating to social distancing measures as a result of Covid-19, Dutch conglomerate Philips acquired remote cardiac diagnostic and monitoring company BioTelemetry in a deal worth $2.8 billion. The acquisition fits with Philips’

Conclusion and Forward-Looking Remarks

If we were to put forward an opinion on how well the healthcare sector did in comparison to other sectors, we would say - pretty well. In fact, these last two quarters appeared for giant pharmaceutical firms as remarkable in terms of record vaccine development. In fact, one might argue that the healthcare sector is one of the few sectors that benefitted majorly from the Covid-19 pandemic. This can be seen in a solid increase in M&A volume in Q3 & Q4 of 2020, as well as increased demand for medical supplies and products, and the appreciation of medical stock prices. However, logistics appear to be a topic of debate, where will vaccines be distributed first? Why so? From overall trends, it looks like First World Countries will get access to the vaccine, much earlier than African countries. Whilst this year appeared to be a strong one for the healthcare sector, it is certainly a trend that will remain in 2021 and beyond. Just like food and shelter, doctors will always be needed to treat patients, looking forward to the year 2021 appears to open many doors to these companies, as those have been truly seen as the “saviours” of the world in 2020.

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