Mike Hollan

While the industry as a whole still faces challenges, there are positive trends appearing for pharmaceutical and medical device companies.

Anyone hoping for good news for the financial state of the healthcare industry may have to wait until mid-2024.

S&P Global released its annual healthcare industry outlook, providing a thorough analysis of the state of the industry. The last few years have been a rollercoaster for the industry, with it seeing unbelievable highs during the pandemic, only to watch most of that enthusiasm (and the money that came with it) fade in 2023.

According to S&P Global’s report, its ratings outlook for the pharmaceutical and medical device subsectors is stable. However, it notes that the ratings outlook for the industry remains negative. This is due to lower end companies, which are typically sponsor-owned, struggling to maintain positive cash flow. There are a variety of factors that play into this, including inflation and ongoing labor issues. The report does note, however, that the labor situation is improving and demand for healthcare remains stable.

Companies that develop and produce medical devices, however, are noticing a positive change. One reason for this is a significant reduction in supply chain issues that plagued many industries, even after the pandemic subsided.

The report also has good news for pharmaceutical companies. While the benefits of the COVID 19 vaccine have diminished, other positive factors have emerged. According to S&P Global, one of the major positives for pharmaceuticals is the return of mergers and acquisitions (M&A). Several major companies made significant acquisitions in 2023, such as Pfizer acquiring Seagen Inc. This trend is expected to continue.

The FTC, however has shown some concern over M&A in the healthcare industry. While the agency is concerned that consolidation in healthcare is resulting in higher prices for medication and services (two areas where high prices are already an issue). The FTC is monitoring M&A in both the health services and pharmaceutical sectors of the industry. Several mergers have already been delayed or cancelled by the regulatory agency.

In regards to drug development, recent trends have shown an increase in awareness for weight loss drugs, which is expected to drive sales. There are also new treatments for cancer and Alzheimer’s that are expected to drive sales growth.

Pharmaceutical companies are concerned, however, about the Inflation Reduction Act’s impact on Medicare drug prices, which is set to take effect in 2026. S&P’s report, however, says that it’s still too early to make any speculations about the impact this will have on earnings and ratings.

Since 2024 is an election year, the report notes that legislative concerns will also play a key role in the coming year. It’s unclear which political party will be in power a year from now, and it’s likely that the winner of the upcoming election will have a significant impact on the legislative focus in the coming years.