This year was packed with mergers and acquisitions, including some big-time deals in healthcare. There were plenty of combinations that made headlines, but in this segment from Industry Focus: Healthcare, analyst Shannon Jones and Fool.com contributor Todd Campbell weigh in on the most important deals, including CVS Health's (NYSE: CVS) merger with Aetna (NYSE: AET).
A full transcript follows the video.
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This video was recorded on Dec. 12, 2018.
Shannon Jones: The flip side of biotech pipeline blow-ups, the things you can expect in a given year. You can also expect deals, deals, and more deals, and 2018 did not disappoint, Todd Campbell.
Todd Campbell: So many deals, Shannon! I mean, oh, my God, again, another whole show right here. We're going to crank through a few of them that were notable to us anyways. You had, in the first nine months of 2018, across all sectors, $3.3 trillion worth of deals. About 40% of those deals were here in the U.S. alone. Two of those deals, the biggest to me in healthcare, was the acquisition of Aetna by CVS, which was a $69 billion deal. That closed on November 28th, just before this month. Then, you also had the $67 billion dollar tie up between Cigna and the pharmacy benefit manager Express Scripts, which was supposed to close this year, but now looks like it won't close until June.
Jones: Yeah. The CVS-Aetna deal is one that I don't think investors fully appreciate just yet. When you think about it, CVS has been your neighborhood retail pharmacy that you go to. Now, they've acquired this huge health insurer. And now, you're really starting to see the strategy that they're going after. They're going to transform from this neighborhood retail pharmacy store to a much bigger healthcare conglomerate. They've been doing smaller acquisitions along the way to build that up. They've got right now 1,100 walk-in clinics. Then, they're also managing prescription benefits of more than 94 million people. You can see that CVS is going to be a stock to watch just because there's so much going on with it.
Campbell: Right. They're now an insurer. They're a pharmacy benefit manager. They're a pharmacy fulfillment company. And they're a healthcare provider. What this year showed us with the CVS-Aetna deal and the Cigna-Express Scripts deal is that these companies feel like the way to win in the future is to get as vertically integrated as possible, to cut out the middleman as much as possible, so that they can maintain margin and not have to pay those middlemen their costs.
But those are only some of the deals. Other deals that happened this year in healthcare that were notable to me was private equity taking Athenahealth private for $5.7 billion. That was big in the healthcare IT area. You had Roche's acquisition for $5.3 billion of Foundation Medicine, a company that uses your DNA to help doctors figure out how to treat your cancer. You had Medtronic buying Mazor Robotics, a robotic surgery company, for $1.6 billion. You had Illumina buying PacBio in gene sequencing for $1.2 billion. There were just so many deals on and on. That doesn't even include, you had Celgene's big deal at the beginning of the year, where they went out and bought CAR-T company Juno Therapeutics for about $9 billion. So many deals we could be talking about.
Jones: Yeah, so many deals. One other notable one, Bristol-Myers Squibb, this was actually the largest biotech licensing fee in history, they paid $1 billion to develop Nektar's NKTR-214T, basically combination approach, another huge deal. Yes, there are so many deals this year, we could go on and on. It really, truly could be its own episode.
Shannon Jones has no position in any of the stocks mentioned. Todd Campbell owns shares of CELG. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends CELG and ILMN. The Motley Fool owns shares of MDT. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.