Jefferies Healthcare
Temperature Check 2023

Foreword

I am proud to present the sixth edition of the Jefferies Healthcare Temperature Check, our annual research report that explores the issues at the top of the healthcare agenda. Over 600 senior leaders and investors from the healthcare sector have given their views on the opportunities and challenges they see in the market, providing insight to contextualise all the exciting discussions we can expect at our Jefferies London Healthcare Conference.

Against a backdrop of market and geopolitical uncertainty, the healthcare sector has remained resilient. Looking ahead, our report suggests the sector is quietly confident; supply chain pressures are moderating, and nearly half of participants expect to increase their exposure to Healthcare in the next 12 months. Forward-looking confidence in the MSCI World Health Care Index is encouraging, with over half of overall respondents expecting it to be higher by the end of 2024. Institutional investors have the most conviction.

However, the environment for raising capital is again expected to remain subdued, as market conditions continue to be challenging. A lack of accessible capital is now highlighted as the number one risk the sector is facing, evidenced by the mixed outlook from respondents on expectations for the IPO market.

Our report suggests there is confidence that M&A levels will rebound in 2024, with two-thirds of respondents expecting dealflow to be higher than in 2023, driven by corporate-led activity. Sentiment towards Europe, in particular, is improving, with the region increasingly seen as a value opportunity for 2024 – with private equity investors the most bullish.

A big theme on everyone’s radar is the GLP-1 market, as companies across the supply chain work to position themselves within the growth opportunity it presents. Respondents in our report were measured amidst the noise and excitement. A third believe there are substantial risks related to the GLP-1 market, with a further third of the view that they need more information to be convinced either way.

Regardless, it promises to be a topic of fascinating discussion at our conference. We are excited to welcome everyone to London for the fourteenth time, as we gather leaders from across the sector to get together, share ideas and discover opportunities.

In the meantime, we invite you to read on to view the full report and watch the video content sharing views from Jefferies’ Healthcare bankers and analysts. I personally thank you for your continued support for the Jefferies London Healthcare Conference, now the largest healthcare-dedicated conference in Europe.

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Cautious optimism for markets

Although uncertainty persists, there is hope for equity market strength in 2024, with nearly half of respondents expecting the FTSE 100 to be higher at the end of 2024. There is even more bullish sentiment on Healthcare itself, with 54% expecting the MSCI World Health Care Index to rise.

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Funding challenges

Raising capital remains a significant challenge, with 68% of respondents stating that the current economic environment is having a majorly adverse impact on the ability of healthcare companies to raise capital. Lack of funding was also picked as the #1 threat to the sector when participants were asked to pick out what they see as the greatest risks.

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Supply chains returning to normal

Encouragingly, supply chain pressures are thought to be moderating with the number concerned about the business impact of these significantly falling to only 39%. Institutional investors are the most relaxed, with 61% expressing limited concern about the business impact of supply chain challenges.

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Improving sentiment towards Europe

While North America is, once again, the market selected as representing the most value opportunity it is interesting to see sentiment towards mainland Europe improving. 43% of respondents highlight it as a value opportunity going into 2024. Private equity is the most enthusiastic, with 65% seeing upside value in Europe.

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Healthcare bulls

44% of participants expect to increase their exposure to Healthcare in the next 12 months, a higher proportion of respondents compared to the same question asked last year. Private equity is most confident of deploying capital, with 58% expecting to increase Healthcare exposure in 2024.

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A bounceback for M&A?

There is confidence that M&A levels will recover to some degree next year, with 68% predicting deal volumes to be higher in 2024 than in 2023. M&A led by corporates is seen to be the key driver of this activity, selected by 60% as the most dominant type of transaction.

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Uncertainty remains for the IPO market

The outlook for the IPO market remains highly uncertain with views mixed as to whether it will return - 40% say it will and 37% say it will not. Of all respondents, private equity is the most bullish with 47% predicting a return.

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Caution of the weight-loss miracle drug

Amidst the noise and excitement around the GLP-1 (Glucagon-like peptide-1) market a note of caution is struck. 33% express the view that there remain substantial risks related to the GLP-1 market, while another 35% believe there is still too little information to form a view.

Expectations for the FTSE 100 Index in 2024

2023 has seen markets fluctuating up and down and a year of continued volatility means expectations for the year ahead remain very similar to those at this time last year. 46% of respondents expect the FTSE 100 to be higher at the end of 2024, with 32% believing it will remain at similar levels. Only 22% expect it to be lower, a positive decrease from 31% last year, but, notably, institutional investors are more cautious with 27% of them anticipating a fall from current levels. Overall, while the outlook clearly remains uncertain, there is perhaps a little more optimism than at this time in 2023.

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46% expect the FTSE 100 to be higher at the end of 2024

Expectations for the MSCI World Health Care Index in 2024

Despite a fairly muted year to-date for the MSCI World Health Care Index, forward looking confidence in the healthcare sector itself is encouraging. 54% believe the index will be higher by the end of next year, and only 15% expect a fall from current levels. Institutional investors are the most upbeat, with 92% believing that it will be at the same level or higher, and only 8% predicting a decrease.

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54% of institutional investors believe that the MSCI World Health Care Index will be higher at the end of 2024

Capital constraints

Availability of capital has been a critical theme for the last 18 months and, once again, it is high on the agenda. Of our respondents, 68% state that the economic environment and outlook is having a ‘major adverse impact’ on the ability of healthcare companies to raise capital.

In total, 95% acknowledge that current economic conditions are having at least some impact on the ability of healthcare companies to raise capital.

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68% say the economic environment and outlook is having a ‘major adverse impact’ on the ability of healthcare companies to raise capital.

To what extent is the economic environment and outlook impacting the ability of healthcare companies to raise capital?

Supply chain pressures easing

Global supply chain pressures remain a theme, but these are seen to have moderated since 2022. Only 39% express concerns (32% state they are ‘somewhat concerned’ and 7% that they are ‘very concerned’) about the business impact of these, down from 59% last year. Institutional investors are the most relaxed, with 61% expressing ‘no major concern’, followed by healthcare corporates at 52%. Private equity investors are a relative outlier in being more cautious, with 48% admitting to being somewhat concerned.

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48% of private equity investors are somewhat concerned about the business impact of global supply chain pressures on the healthcare sector.

How concerned are you about supply chain issues?

Geographic allocation

It is no surprise to see North America again selected as one of the markets in which there is believed to be the greatest value opportunity for Healthcare in 2024 – chosen by 69%. Of more note is the improved sentiment with regards to Europe, with 43% selecting it as a value opportunity, an increase from 38% this time last year.

Appetite for China remains depressed, selected by just 12% (the same as last year), while there is also little change in demand for the UK, 20%, and the Middle East & Africa, 9%.

Private equity’s enthusiasm for Europe is striking, with 65% identifying it as a region of value opportunity versus 54% for North America. Also notable is the caution around the UK from corporates, with just 14% seeing it as a value opportunity in 2024. Finally, a trend worth keeping an eye on is the rising interest from institutional investors in Japan, with 15% selecting it, up threefold from 5% last year.

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65% of private equity respondents identify Europe as a region of value opportunity for the healthcare sector.

In which of the following locations do you see the greatest value opportunity for healthcare investing in 2024?

Best performing sub-sectors

Views on the sub-sectors expected to perform best over the next 12 months have undoubtedly changed. While on the surface demand for Life Sciences and Diagnostics has only marginally increased, from 11% to 13%, digging into the numbers shows a marked shift in attitude from institutional and private equity investors with 26% and 28% seeing this sub-sector as the best performer, up from 11% and 17% in 2022.

More broadly, there is an uptick in the perceived outlook for Large Cap Biopharmaceuticals, selected by 23% to be the best performer (up from 20%), and a decrease in outlook for Small and Mid-Cap Biotech, selected by 28% (down from 32%).

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23% select Large Cap Biopharmaceuticals to be the best-performing healthcare sub-sector in 2024.

It is good to see that participants continue to be bullish on Healthcare, with 44% expecting their exposure to the sector to be higher in 2024 compared to 2023, and only 4% expecting to reduce their weighting.

Private equity clearly has capital to deploy, with an impressive 58% expecting to increase their exposure in 2024, suggesting deal activity is on the horizon.

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44% expect their exposure to the healthcare sector to be higher in 2024 .

Where do you expect your exposure to the healthcare sector to be in 2024 compared to 2023?

When asked to identify the greatest risk to the healthcare sector in 2024, lack of funding is picked as the #1 threat, which closely tallies with the concerns over lack of funding highlighted elsewhere in our survey.

It is perhaps no surprise to see geopolitical developments rise up the agenda, and this is perceived as the second greatest risk, selected by 26% of respondents. Interestingly, institutional investors seem less preoccupied with this, picked by just 14% versus 31% and 28% for private equity and corporates respectively.

The threat of recession is also believed to have increased, chosen by 24% and up from just 10% last year.

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33% identify lack of funding as the greatest risk facing the sector.

What do you believe to be the greatest risk to the healthcare sector in 2024?

A comeback for deals in 2024?

After two years of muted activity, there are firm expectations of a deal recovery next year with 68% of all participants expecting M&A levels to be higher than in 2023. Healthcare corporates lead the way, with 70% predicting greater deal volumes. Institutional investors are a little more cautious with just 56% predicting an increase and 35% seeing activity remain at current levels. Overall, only 5% predict M&A activity levels to be lower.

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68% of all participants expect healthcare M&A levels to be higher in 2024.

Where do you expect healthcare M&A activity levels to be in 2024 compared to 2023?

Corporates to lead deal activity

M&A led by corporates is anticipated to be the dominant type of transaction next year, selected by 60% of respondents – an increase from 54% last year. In particular, both corporate, 63%, and institutional investors, 64%, expect there to be the most activity here.

As ever, private equity is more upbeat on its own activity with 24%, nearly a quarter, thinking private equity transactions will take the headlines in 2024. This is an increase from 2022, although not quite at the levels seen in 2020 and 2021.

Expectations of IPO activity remain relatively limited, when compared against M&A, despite a pick-up in the US especially, with only 6% selecting this as the most dominant type of transactional activity, albeit an increase from just 1% last year.

Views on debt refinancing remain similar (7% in 2023 versus 8% in 2022), and at slightly elevated levels to those seen historically. Finally, the excitement over SPACs looks well and truly over – chosen by only 1%.

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60% select M&A led by corporates to be the dominant type of transaction in the healthcare sector next year.

What transactional activity do you expect to dominate the Healthcare sector in 2024?

Will the IPO market return?

While IPOs may not match the prominence of M&A in 2024, we dug into whether respondents believe the market will return in 2024. It is fair to say that views were mixed with 40% agreeing with the sentiment that the market will return, and 37% predicting it will not. Private equity is the most bullish, with 47% predicting, and perhaps hoping, for a return. Ultimately, the range of views suggests we will need to wait and see.

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47% of private equity respondents predict a return for the IPO market.

When asked which area of innovation within Biopharma do you expect will have the biggest impact in 2024 the increase in respondents answering AI stands out, up to 20% from 12% last year. Within this, the number of institutional investors identifying AI has markedly increased, from 1% to 14%

Elsewhere, Targeted Therapies remains the number one area selected, but by an even greater number, 35% versus 23% this time last year. Vaccines and TCRs, both selected by 3%, have lost prominence.

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20% say AI will have the biggest impact in 2024 on innovation in Biopharma.

Which area of innovation within Biopharma do you expect will have the biggest impact in 2024?

It is refreshing to be back in person, once again, and hold a healthcare conference with COVID-19 no longer top of the agenda. We asked whether, with the threat of a new variant, COVID-19 will still be a relevant theme in the next twelve months. The response is very clear, with 84% stating that COVID-19 is no longer going to be a major theme to markets.

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84% state that COVID-19 is no longer going to be a major theme to markets.

Weight-loss drugs have been a hot topic this year. However, when asking about the developing GLP-1 market we found a divergence of views. Respondents were evenly split between seeing the market as ‘very large with long-term sustainability’, 33%, cautious on the ‘substantial risks that could deflate the market’, 35%, and of the view that information is too limited to express a clear view, 32%. In sum, while it is clear that there may be substantial upside for the GLP-1 market, uncertainties remain, further information is still needed and we need to be mindful of the risks.

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33% say the GLP-1 market is very large with long-term sustainability.

Q&A WITH TOMMY ERDEI

Global Joint Head of Healthcare Investment Banking

Peter Welford
Senior Equity Research Analyst
James Vane-Tempest
Senior Equity Research Analyst
Gil Bar-Nahum
EMEA Head of Biotechnology
Jefferies: A Leader in Global Healthcare Investment Banking
  • Jefferies is a global full-service investment bank offering M&A advisory, equity and debt capital markets, and equities and fixed income sales, trading and research across North & South America, EMEA, Asia, and Australia
  • Jefferies has one of the largest healthcare investment banking groups in the world with over 130 healthcare bankers worldwide
  • Jefferies is the #1 advisor across global healthcare M&A, equity transactions and LBO financing(1)
  • In the last five years, Jefferies has announced over 650 M&A advisory, bookrun equity and leverage finance healthcare transactions(2)
Number of Global Transactions Announced (January to October 2023(3))
100+ Across M&A, DCM and ECM
Number of EMEA Transactions Announced (January to October 2023(4))
35+ Across M&A, DCM and ECM
Selected Global Healthcare Transactions Executed by Jefferies
  1. From January 2015 to Present. Source: Thomson, Dealogic incl. Sponsor Backed Leveraged Loan Transactions
  2. From January 2019 to Present. Source: Thomson, Dealogic incl. Sponsor Backed Leveraged Loan Transactions
  3. As of 19th October 2023
  4. As of 19th October 2023. Includes EMEA and India M&A and ECM transactions, and EMEA leveraged finance transactions