Published July 11, 2023 | 4 min read
Key Points
- The healthcare sector adapted quickly to pandemic disruption and is now experiencing a remarkable acceleration of potential breakthroughs that will spur medical advancement.
- Healthcare mega cap Johnson & Johnson has kept up its R&D momentum and is developing a suite of life-saving drugs and technologies.
- While valuations remain lofty, good M&A deals can still be found if companies are willing to pay a premium for assets with strong long-term potential.
- An unprecedented revolution in healthcare technologies is accelerating the pace of change and expanding the horizon for which diseases are treatable.
The healthcare sector showed remarkable resilience in the face of the COVID-19 pandemic, which brought about a powerful convergence of medicine and technology, says Joe Wolk, EVP & CFO, Johnson & Johnson, speaking at the recent RBC Global Healthcare Conference. Pharma companies like Johnson & Johnson and the healthcare sector overall are experiencing a renaissance in medical advancements that help expand access to care, therefore providing a period of opportunity for the industry.
“The pandemic forced the entire healthcare industry to look at things very differently,” says Wolk. “There is a tremendous convergence of biology, chemistry, engineering, computer engineering and artificial intelligence. We're learning at a much faster rate. We're advancing science, not 10-fold from a couple years ago, but 10,000-fold in many cases.”
While hospitals and healthcare workers responded effectively, there was a significant drop in elective procedures as patients stayed away from hospitals during the height of the pandemic. This dampened uptake continued into the first quarter of 2023, which saw elective procedures at around 2019 levels. But volumes returned to pre-pandemic levels by the end of the quarter, says Wolk. “That is hopefully a good precursor for what the rest of the year could bring,” he adds.
On the pharmaceutical side, reduced physician visits caused a downturn in prescriptions, but the impact was less pronounced for the serious illnesses in which Johnson & Johnson specializes.
Keeping up R&D momentum
The pandemic didn’t alter Johnson & Johnson's commitment to research and development. The company kept up its R&D investment despite disruption to clinical trials and product rollouts. “We take great pride in ensuring that, as of last year, our R&D is double that of our commercial investment,” says Wolk. “The best marketing is a really good product that helps people sustain a better quality of life. I don't see that equation changing.”
“We developed a product for the treatment of multiple myeloma [a form of blood cancer] in a very short time and could likely soon have multiple therapies because it’s a very individualized disease. The pandemic taught us that you can move quickly with the right decision makers and by eliminating some bureaucracy. As difficult as that time was, the healthcare industry is a little bit better positioned for the future. There is also a much better appreciation for what good health means for society and how foundational it is to a good economy.”
Seeking new opportunities for M&A
While Wolk explains that valuations are still high in the life sciences space, he suggests that acquisitions should be considered when the opportunity arises, and that deals should be approached with a long-term perspective. “When we closed on Abiomed in late 2023, there was some angst in the markets, but we saw it as a great long-term opportunity. Good assets will always carry a premium.”
Johnson & Johnson has a broad innovation portfolio which includes the company’s venture fund, the Johnson & Johnson Development Corporation (JJDC); four life sciences Innovation Centers which support the development of smaller life sciences companies; and a start-up incubator called JLABS.
“We have a nice purview throughout that ecosystem as to what's trending and what's hot,” says Wolk. “Johnson & Johnson is agnostic as to where innovation comes from. We're always looking for great opportunities that fit nicely into our portfolio. Based on what we've seen, the market has been pretty active, particularly on the pharmaceutical side. With respect to M&A in MedTech, valuations have certainly come down. If it's a good asset, you can easily make that work.”
Advancing the healthcare revolution
Our new, more technologically advanced era holds untold potential for innovations in life sciences and healthcare. The next few years will continue to see a convergence of therapeutics with medical devices, providing enhanced patient outcomes.
“Gene and cell therapies in pharmaceuticals are the hot areas,” says Wolk. “And, in MedTech right now, in the robotics space, you've got some players making significant advancements. Currently only 5% of surgeries are robot-assisted, so there’s growth potential there.”
“The uptake of our successful VELYS orthopedics unit has been very strong. The precision of cuts we’re hearing about is better than even the best surgeon. Our MONARCH Platform can reach further parts of the lung to diagnose the early stages of lung cancer, which is the leading cause of deaths from cancer. We also recently acquired Abiomed, which is the world’s smallest heart pump. It gives patients the potential for surgeries that otherwise wouldn’t be feasible.”
“On the pharmaceutical side, we’re learning so much about how diseases can be treated and what will be most beneficial for patients. Technology is really assisting in terms of our understanding of biology and chemistry and how we might treat diseases that we didn't think were treatable in the past. The next 10 years in life sciences will be more revolutionary than the previous 100.”
This content is based on commentary and analysis from RBC Capital Markets' Global Healthcare Conference hosted in New York, NY on May 16-17 2023. For more information about the conference, please contact your RBC representative.
