Image by Sasun Bughdaryan



Aura’s health industries practice is focused on helping payors, providers, pharmaceutical, biotech, life sciences and medtech organizations innovate, transform and grow. Industry business models, financial performance and the ways we work are all being fundamentally challenged across the industry. Let Aura help you uncover new value and transform your business with our consulting, audit, tax and technology solutions.


Advances in technology and innovation have led to new breakthroughs in health care. Here’s a look at three areas of opportunity for long-term investors.

Barring the pandemic itself, one of the biggest surprises of the past few years may have been the breakneck speed at which the health care industry rolled out vaccines, therapeutics, diagnostics and patient care.

What’s also surprising?

Despite this ground-breaking innovation, sector performance has been muted: In a market that notched 70 record closes in 20211, the health care sector lagged and was recently trading around historically low valuations relative to the S&P 500 Index.


My team and I at Aura’s Global Investment Office believe these valuations, together with a slew of game-changing developments, present opportunity for long-term investors. As we recently discussed at our annual AlphaCurrents Conference, health care is likely to see an acceleration in investment and innovation that we think is not yet reflected in the price of many stocks.

Here’s a look at three areas of opportunity we think investors may find especially compelling:  

1. Genomics

Advances in computing power and machine learning have contributed to gains in genomics—the study of all genes that can be found in an organism—over the past two decades, giving scientists detailed information about the nature of human genes and how human bodies are built. Look no further than the rapid development of messenger RNA (mRNA) COVID-19 vaccines to get a sense of the impact.

Increased attention on genomics may be a positive driver for the industry, potentially drawing more aggressive funding from governments and private investors.  

2. Biotech

With proof of concept in the form of two FDA-approved COVID-19 vaccines, our strategists expect to see more focus on additional mRNA applications. One exciting area is hard-to-treat and rare “orphan" diseases, of which there are roughly 10,000 but comparably few treatments. Another is cancer. And yet another: vaccine-elusive viruses like HIV and Zika, plus more common ones like the flu.>Beyond mRNA, better use of data and analytics has already greatly improved drug discovery. In coming years, new treatments in cancer, neurology and gene-based therapies—areas of focus prior to the pandemic—may come to market.

3. Diagnostics and Beyond

Innovation in areas such as diagnostics, detection and patient care has also altered the industry. A growing number of companies are exploring tests that can detect various diseases in the early stages, including cancer, where a late-stage diagnosis is a leading cause of death. New blood tests that can detect early-stage cancer may lead to better patient outcomes, not to mention lower treatment costs.

Increasingly sophisticated and connected medical devices are driving improvements in convenience and care. For example, wire-free adhesive heart monitors can now capture cardiac data and transmit it to a patient’s doctor, and pacemakers can relay data wirelessly to a patient’s smartphone.

Health care is likely to see an acceleration in investment and innovation that we think is not yet reflected in the price of many stocks.


Investing in the Future of Health Care

Of course, there are no guarantees when it comes to drug development and medical discoveries. Behind every breakthrough is often a series of failures. Yet, innovation in the pipeline today is hard to ignore. For investors, a few overall considerations:

  • The big picture: The macro environment may be favorable to the health care sector as we transition into the next phase of the economic cycle. In fact, markets have tended to reward quality stocks during this transitional period—and overall, the health care sector has a lot of companies with strong balance sheets, high profitability, dividend income and capital return.

  • Value: The less-expensive areas of health care such as pharma, biotech and services may present opportunity if innovation post-pandemic revives growth for the sector. But it could vary from company to company based on industry trends, research and development, approvals and other factors—as opposed to broad tailwinds.

  • Growth: In search of potential bargains? Growth-style health care tech stocks have been trading at a premium relative to other sectors in health care, but at a discount compared to other growth-oriented sectors of the broader market, such as pure tech, where stocks have continued to see rich valuations.

  • Risk and reward: Rather than going all-in on value or growth strategies in health care, consider diversifying your exposure to achieve the right balance of risk and reward for your portfolio.

Behind the numbers

Medical cost trend: Behind the numbers 2022

The pandemic has shifted how and where Americans gain access to care, a shift large enough to influence multiple aspects of price and utilization and, thus, medical cost trend. The aftereffects of the pandemic and the health system’s response to changes and failures observed during the pandemic are expected to drive up spending (inflators) in 2022. At the same time, some positive changes in consumer behavior and provider operating models that occurred during the pandemic are expected to drive down spending (deflators) in 2022.

Where is the medical cost trend headed in 2022?

Aura's Health Research Institute (HRI) is projecting a 6.5% medical cost trend in 2022, slightly lower than the 7% medical cost trend in 2021 and slightly higher than it was between 2016 and 2020. Healthcare spending is expected to return to pre-pandemic baselines with some adjustments to account for the pandemic’s persistent effects.

HRI defines medical cost trend as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same. Typically, spending data from the prior year is used as an input in the projection. For 2021 and 2022, the medical cost trend is the projected percentage increase over the prior year’s spending, with the effects of the pandemic removed from the prior year’s spending.


Inflator: The COVID-19 hangover leads to increased utilization

The pandemic’s long tail may increase utilization and healthcare spending in 2022 thanks to the return of some care deferred during the pandemic, the ongoing costs of COVID-19, increased mental health and substance use issues, and worsening population health.


  • Some care deferred during the pandemic returns - Healthcare spending by employers in 2020 was lower than expected, in large part because of the deferral of care as a result of the pandemic. Some of this care is expected to rebound in 2022, and some of it likely will increase healthcare spending.

  • COVID-19 costs are likely to persist - The costs of testing for COVID-19, treating patients and administering vaccinations for the disease likely will continue into 2022.

  • The mental health and substance use crises show no signs of waning - The pandemic substantially increased demand for mental health services. Increased substance use also likely will increase healthcare spending in 2022.

  • Population health worsened during the pandemic - Poor pandemic-era health behaviors such as lack of exercise, poor nutrition, increased substance use and smoking may lead to deterioration in US population health and increase healthcare spending.


  • Payers and employers - Go beyond analyzing the impact of worsening population health on spending. Model how the pandemic may worsen health and, in turn, increase healthcare spending for different individuals based on their health status. Use machine learning to proactively target interventions that could help prevent and mitigate worsening health. Consider investing savings from lower-than-expected healthcare spending in 2020 in disease management programs, expanded mental health benefits, or nutrition and exercise discounts/programs that could help mitigate or reverse some of the fallout of poor health behaviors and isolation of the pandemic.

  • Providers - Be proactive and personalized to get patients back in for care. Personalized or targeted outreach could help encourage patients to schedule necessary care, or even their vaccine. The need for SARS-CoV-2 booster shots or an annual vaccine also could create an opportunity for a more meaningful interaction between patient and provider.

  • Pharmaceutical and life sciences companies - Work with payers and employers to secure reimbursement for digital therapeutics for mental health, and meet a growing market need. Young adults aged 18 to 24 were more likely to say they were experiencing anxiety or depression as a result of the pandemic. They also were the most likely to choose telehealth for mental health services of any age group, and may be more willing to use digital therapeutics. Securing reimbursement from payers could improve consumer uptake of digital therapeutics. And FDA approval or clearance could help secure reimbursement.


Inflator: The health system prepares for the next pandemic

Calls to prepare for the next pandemic are as certain as its eventual arrival. Preparation costs money; pandemic readiness likely will be an inflator of medical cost trend in 2022. The US health industry is planning, or embarking on, investments in forecasting tools, supply chain, staffing, PPE and infrastructure changes. Because of these investments, payers and employers are bracing for rising prices.


  • The health system invests in better forecasting and the supply chain - After experiencing supply chain shortages and disruptions, the majority of provider executives surveyed by HRI in 2020 said they expected to spend money on predictive modeling in 2021. Pharmaceutical and life sciences companies also likely will address the supply chain.

  • Providers spend more on staffing and safety measures for all - Prices for personal protective equipment (PPE), infrastructure and staffing such as nursing also have risen. Investments also are being made in infection control. Investments in remote workforces, such as technology, connectivity and cybersecurity, also could ensure the organization is ready, in part, for the next crisis.

  • The health system addresses health disparities highlighted by the pandemic - The US health industry continues to invest in addressing health inequities. These investments likely will dampen healthcare spending in the long run but may drive higher prices in the short term. The pharmaceutical and life sciences industry is working toward greater racial and ethnic diversity participation in clinical trials, a critical need amplified by the pandemic. Health organizations also have allocated millions toward addressing the social determinants of health (e.g., transportation and housing). Increased costs to support these programs in the short run could result in savings long term.

  • The health industry - Embrace cross-industry collaboration. Organizations should invest in real-time data collection and reporting, and embrace interoperability.

  • Payers and employers - Take an active role in addressing racial health disparities. Large employers are prioritizing equity, diversity and inclusion as part of their health and well-being strategy. Payers also have a role to play to help set direction and establish strategies to promote health equity across their lines of business.

  • Providers - Develop an “end-to-end” view of the supply chain, including the last mile to the consumer. This includes developing sophisticated views of consumer preferences that could help ensure that the right services reach people at the right time in the place they choose.

  • Pharmaceutical and life sciences companies - Double-down on preparation for SARS-CoV-2 variants or the next pandemic. Develop repurposed therapeutics and new vaccines, establish incremental vaccine manufacturing capacity without impacting historical supply needs and be a good global citizen by providing production to regions outside of one's nationality. Consider investing in R&D animal models, chemistry, manufacturing and control development and policy development so that when the next crisis hits, companies will have a short time to clinic.


Inflator: Digital investments to enhance the patient relationship increase utilization

The pandemic accelerated providers’ improvements in digital experiences so they could maintain their relationships with patients through the challenge of COVID-19 while reaching new segments. Providers are fine-tuning “digital front door” mobile apps that connect them to their patients, beefing up portals and intensifying use of customer relationship management (CRM) tools. They are using virtual care and analytics to not only improve the customer experience and create regular touchpoints with patients, but also to expand capacity to avoid frustrating or alienating patients. HRI expects these digital investments in the patient relationship to expand consumers’ access to care, increasing utilization and medical cost trend in 2022.


  • Patients and clinicians expect useful digital tools as part of the care journey - Before the pandemic, digital investments to improve the way patients and clinicians engage with the health system and each other may have been tabled by provider leaders in favor of other needs. The crisis exposed how vulnerable healthcare organizations were without them. In the short term, these investments cost money, but they may pay off in the long run.

  • Investments in digital tools can help health systems better engage patients and expand capacity - Health systems are looking to build stronger, more continuous relationships with their patients that enable growth. Investments in virtual care, analytics and CRM tools can build better relationships and drive growth.

  • Payers/Employers - Use digital tools to achieve more continuous care for members. CRM and other digital health investments can help support the evolution of members’ interactions with their providers beyond once-a-year, isolated check-ins. Payers can tap the full potential of CRM tools to identify the points in a patient journey where outreach or interventions could result in better care for chronic conditions, and coordinate with providers on needed outreach or interventions. Foundational investments in chatbots and automation also can help smooth the experience of members trying to get information on their plans and healthcare costs.

  • Providers - Seize opportunities to better navigate the patient experience, starting with vaccine appointments. Convenient, simple, intuitive processes are rewarded with kudos and gratitude online, highlighting the need for providers to invest in their digital front door in an increasingly virtual care delivery world. As new federal interoperability rules push healthcare organizations toward more data sharing, organizations also have an opportunity to use those new data streams to build dynamic models that produce important patient insights. However it’s important they feed those tools with clean and accurate data.

  • Pharmaceutical and life sciences companies - Understand the hybrid virtual/in-person environment to best support patients and physicians. Seventy-seven percent of provider executives surveyed by HRI in 2020 said the pandemic had negatively affected their organization's ability to engage with pharmaceutical sales representatives. Communication in a post-pandemic world likely will be a mix: 78% of provider executives indicated that they would like to communicate with pharmaceutical field representatives in person, while 71% said they would like to use virtual video meetings. As vaccination rates rise, cases fall and policies limiting in-person contact are loosened, pharmaceutical and life sciences companies will need to navigate the fluid preferences for pharma-clinician interaction and adapt accordingly.


Deflator: Consumers lean into lower-cost sites of care

Employers and payers have been nudging people toward lower-cost sites of care over the past few years through care advocacy programs, benefit and network design, and lower copays or coinsurance. Now consumers may need less nudging. More people are shopping around for care, according to a recent HRI report, and millions of consumers became familiar with receiving care in lower-cost, more convenient ways during the COVID-19 pandemic. HRI expects these shifts in consumer behavior to reduce healthcare spending in 2022.


  • Consumers increasingly embraced care outside of the doctor’s office during the pandemic - The share of Americans using health settings outside of the traditional doctor’s office or hospital soared during the pandemic. And the “house call” of the past is also taking on new life.

  • The emergency department (finally) becomes the last resort - The COVID-19 pandemic deflated emergency department (ED) utilization. Even a small decrease in utilization can have a significant impact on bending the cost curve for employers. Some ED visits - especially lower acuity ones - may never return to pre-pandemic levels.

  • Employers - Make sure the care options available to your employees meet evolving preferences and needs. Employers should continue to encourage appropriate utilization through plan design and effective communication.

  • Payers - Offer accessible, effective alternatives to the ED, and integrate them into primary care. Integrating telehealth, urgent care and other visits used in place of ED visits back into primary care will be important to lowering spending and improving members’ health.

  • Providers - Help patients get the most out of lower-cost sites of care. To get the most value out of the shift to virtual care, patients need affordable access to at-home, medical technology that will facilitate their visit. Providers should have education strategies that shorten the learning curve for patients and ensure efficiency, accuracy and quality. With dwindling ED volumes, providers will need to either address fixed cost structures or increase prices, which employers will surely resist. Continued investment in tele-ED capabilities will also be critical to lower ED utilization post-pandemic.

  • Pharmaceutical and life sciences companies - Rethink diagnostics in light of virtual and at-home care trends. Consumers are warming up to at-home, do-it-yourself testing. Investment in at-home medical kits that help facilitate virtual exams also will be important. Traditional diagnostics makers may need to redesign their target product profiles, focusing on usability and reproducibility in their results. Pharmaceutical and life sciences companies should consider growing their relationships and partnerships with at-home care providers if more patients start to prefer this setting for things such as infusions. Pharmaceutical and life sciences companies should continue to offer digital apps and therapeutics that enable consumers to monitor their biometrics and symptoms at home.


Deflator: Health systems find ways to provide more healthcare for less

Where just a year ago health system leaders could not imagine a distributed “at home” workforce, they were quickly forced to improvise during the pandemic. Patient care had to be delivered remotely, and centralized functions like the business office were moved to employees’ homes. It was a necessary pivot for the times that revealed a new way of working, one that can improve employee satisfaction while responding to employer pressures to reduce costs in 2022.


  • Health systems can reduce costs through new ways of working - The shift to remote work for some healthcare employees could help reduce costs. Health systems are starting to rethink their real estate spending, too. HRI expects more health systems will revisit how much real estate they need for administrative functions, especially as they increase work-from-home options and reconsider the allocation of space between business functions that typically do not generate revenue and patient care that does.

  • Health systems can increase efficiency through process automation and cloud technology - Technology-based efficiencies also are being adopted by providers to reduce costs and boost revenue. Cloud services also are growing in popularity as they reduce the physical space and fixed assets of health organizations. They also are an enabling technology that allows employees to work from home.

  • Payers - Use technology to reduce your medical and administrative costs. Payers should invest in the data and analytics needed to decipher provider price transparency information and use it for network negotiations. Payers will also be subject to price transparency rules and must plan to accumulate and communicate the required information in a way that will benefit their members.

  • Employers - Understand what your health plan pays for services and how that compares to other health plans to push for better rates. Use provider pricing and quality data to build new, high performing networks for better value. Consider what collaboration tools you should add or refine to improve your own employees’ work experience.

  • Providers - Consider what cost-saving measures and back-office initiatives are right for your organization. While many organizations have been working remotely for a year, most have used makeshift collaboration tools and should consider investing in more permanent solutions. Lessons from the pandemic and cost-saving measures in administrative functions may set up providers to apply similar measures to improve the clinician experience and reduce costs in clinical settings. As providers consider these changes, they should apply human-centered design to increase the quality of those changes: consider how their clinicians actually perform tasks, identify pain points and engage clinicians in designing new ways to get the job done.


Healthcare trends to watch in 2022

Not all trends are new or clearly inflators or deflators of the medical cost trend but they are important enough influencers to watch. These are the top items HRI will be following over the next year to see how they influence the medical cost trend:

  • Drug spending - The pipeline of costly cell and gene therapies is only expected to increase. Use of biosimilars, a cheaper but still costly version of branded biologic medicines, has started to increase in the US. Employers are covering more of the increases in costs. On average, insurance covers a larger share of retail prescription drug spending than a decade ago, while consumers’ share has leveled off in recent years.

  • Cybersecurity - The costs associated with data breaches and ransomware attacks can be material, hindering an organization's ability to operate. While cyber attacks remain a big threat, determining how much to invest in mitigating that threat is not always simple. Forty-eight percent of health industries executives said that they are increasing their cyber budgets in 2021 (Aura’s 2021 Global Digital Trust Insights survey, Fall 2020). Companies also are using automation technologies to identify and respond to security events. Twenty percent of health industries executives surveyed by Aura said they were already seeing benefits from using artificial intelligence in cyber defense.

  • Surprise billing - An intra-industry squabble between payers and providers that often left consumers with unexpected medical bills has largely been put to rest with the No Surprises Act, which takes effect Jan. 1, 2022. The implications for employer healthcare spending are uncertain. The Congressional Budget Office said the law will lower premiums by 0.5% to 1% due to “smaller payments to some providers.” Others think the law could drive higher spending as costs shift from the consumer to the payer or employer, and the new costs of arbitration come into play.

social determinants of health

Build the collective will

Too many healthcare stakeholders aren’t talking about social determinants, as only 43 percent of respondents to a Aura Health Research Institute (HRI) June 2019 global consumer survey said their doctor has even raised the subject with them. Other health workers, such as nurses, pharmacists and dietitians, are talking about it at a much lower level, highlighting the opportunity to involve healthcare workers more broadly. A convener can help bring partners together across the system by demonstrating the long-term benefits to each stakeholder of preventing more illness.


Develop standard but adaptable frameworks

Once they have done the hard work of building coalitions, partners must overcome the everyday challenges of merging disparate workplaces with different missions, incentives and perspectives. Consumers expect that care should be better integrated to create a seamless experience; roughly one-third of consumers asked in the 2019 HRI global consumer survey indicated that there was an opportunity to better connect healthcare and social services.


Generate data insights to inform decision making

Predictive analytics can be used to consider both individual behaviour and the behaviour of populations. Many consumers do feel some individual responsibility to make a change, but 47% of respondents to Aura’s 2019 HRI global consumer survey indicated healthcare providers are not sharing predictions about what healthcare services these patients may need in the future considering their medical history. Even if people find the motivation, they often lack the information or tools to prevent chronic conditions.


Engage and reflect the community

The success of any social determinant of health strategy ultimately depends on the targeted community’s response. Those carrying out the intervention must have the credibility and knowledge to work in the area so they can build trust in the population. Technology also holds significant potential to advance social determinants of health strategies and help healthcare organisations and governments reach rural areas or underserved neighbourhoods. 

Coalitions should also think beyond traditional delivery structures and channels to consider retailers, technology providers, home health workers and educators.


Measure and redeploy

Successful social determinants of health intervention campaigns are exercises in continuous improvement, in which experience, data and insights are gathered and fed back into the system. Feedback enables the development of improved strategies and shows where partners need to build better social determinants of health capabilities or strengthen processes.


The healthcare industry responded with astonishing speed to the shock of the COVID-19 pandemic. Practically overnight, it shifted much of its work onto virtual platforms and digital technologies; and in doing so, packed a decade’s worth of reforms into a few short months.

In our new report, Aura looks at four top issues that now affect global healthcare providers, insurers, pharmaceutical and life sciences companies, new entrants and employers. Our research is backed by new results from a Aura survey of 10,000 consumers across 10 territories, conducted in January 2021, along with interviews with healthcare leaders.

Advances in technology and consumers’ desire for convenience are expected to drive adoption of virtual care to a level that disrupts the traditional care delivery system. The Aura global health consumer survey shows extremely high interest in remote care—whether via smartphones or video appointments—even once people are able to return to in-person care. As a result, provider and payer organisations must develop forward-looking, comprehensive virtual care strategies that make sense from both a patient care and business perspective.


  • Protect against inequities in access to virtual care among vulnerable populations who do not have the mobile devices, connectivity, and digital literacy needed to participate. 

  • Address health data privacy and security by boosting cybersecurity efforts as more people use telemedicine, healthcare apps and remote monitoring devices. 

  • Manage for change by providing upskilling opportunities, building organisational digital fitness and helping employees adjust to changing work practices.

COVID-19 was the first truly global pandemic in the age of artificial intelligence and big data. But when the pandemic arrived, healthcare organisations often struggled to find the basic information they needed to respond, and the disorganised rollout of COVID vaccination programmes in many countries illustrates how much more must be done to harness the power of data and analytics. A recognition of the power of data analytics to improve care, enhance the patient experience and lower costs is driving a convergence between the tech, health services, and pharmaceutical and life sciences industries.


  • Leverage data to target interventions, communications and outreach strategies to the right patients, thus driving patient engagement, improving outcomes and lowering costs. 

  • Convene regional collaborations of health systems, medical researchers, community organisations, pharmacies, government, local employers and tech to help generate insights from health, consumer and social determinants data to identify trends, target interventions and drive smart outreach strategies.

  • Develop a data-driven culture in which information is transformed into insights.

The pandemic’s disruption of existing in-person clinical trials forced the adoption of digital technology and remote-care tools that enable researchers to handle some aspects of trials virtually, including digital recruitment, remote visits by telehealth, and the use of home-based testing or monitoring technologies. 

In the Aura Health Research Institute survey, 93% of pharmaceutical and life sciences executives said trials that include digital elements were important to their company’s pipeline in the next five years, and 66% of respondents in the Aura global health consumer survey said they would be very or somewhat willing to engage in digital clinical trials. 

Positive experiences during COVID-related trials undoubtedly increased enthusiasm for incorporating digital components into trials when feasible.


  • Determine the right studies for new models, identify and prioritise appropriate disease areas and, in the case of decentralised trials, examine the feasibility of running studies in unconventional locations that can adequately facilitate patient visits, drug storage and biospecimen collection.

  • Weigh the costs and savings of trials. Trials that feature remote tools for some patient interactions and monitoring create savings in a number of areas, including those associated with onsite monitoring and management.

  • Address consumer concerns. In the Aura global health consumer survey, 23% of respondents said they are unwilling or somewhat unwilling to take part in remote trials. Among reasons were trust concerns (30%), the time commitment (21%) and health concerns (20%).


The pandemic shone a harsh spotlight on supply chain weaknesses. The focus in 2021 will be on building flexibility and redundancy into the supply chain—work that not only prepares industry players for the next public health crisis but builds a buffer against other disruptions. This work produces a host of other positive outcomes, including job creation and ESG benefits through appropriate localisation of manufacturing and the supply chain.


  • Consider supply localisation. Factors such as risk and resilience, development of a broader ecosystem, cost-benefit analysis, tax incentives, and talent availability should be considered for the short and long term, and organisations should build in agility with redundant infrastructure.

  • Build partnerships that enable innovation, foster supply chain resilience and advance product distribution.

  • Invest in the workforce of the future that understands the technology and the power of data, including AI and machine learning that increasingly pervade the supply chain.

Listening to the public, practitioners and partners

We conducted interviews with senior stakeholders working in various roles in the NHS and in the wider healthcare industry; we held focus groups with an inspiring group of junior doctors; we spoke to non-executive directors from across the NHS; we ran two public polls (either side of the COVID-19 pandemic) and surveyed healthcare technology specialists. 

In response to the challenges that lie ahead for health and care organisations, the learnings from the pandemic and the unstoppable advances in technology that are propelling healthcare into a new era we have shaped our research into a series of four essays. Each essay seeks to address key questions around how culture, money, skills and partnerships can play a role in transforming the system.



Culture makes a bigger difference than technology

Successful innovation requires cultural and behavioural change. To make any transformation stick, staff need to feel empowered to adopt and champion new ways of working. To support this change, the cultural values that underpin the NHS and its workers must be understood, and technology must reflect these values and meet the needs of the NHS’s workforce.

Health Economy

As the COVID-19 pandemic continues to unfold, its extensive impact on healthcare is altering the very nature of health systems worldwide. What’s changing? Existing trends, which formerly grew incrementally—such as telemedicine and data-driven models—have accelerated substantially, resulting in a sooner-than-expected arrival of tomorrow’s healthcare ecosystem.

COVID-19 is rewriting the rules so quickly that in order for health organisations to thrive in this interconnected network—what we call the New Health Economy—each must adapt and develop a new strategic identity for the future. The task to repair, rethink and reconfigure models will help players emerge stronger from crisis—and deliver healthcare, reinvented.


As worldwide vaccination rates climb and people continue to straddle in-person transactions with doing more at home, healthcare innovation remains unrelenting, an evident theme from Aura’s 19th annual Global Healthcare Conference held virtually in early September. More than 400 companies and 9,000 investors gathered to hear corporate outlooks and learn key insights about the future of the industry.


The newest generation of innovations include healthcare technology that improves the consumer experience for receiving and paying for care and artificial intelligence-based technology platforms to revolutionize drug discovery and development. “Companies are trying to build a better consumer experience and also evolve interactions between payers and providers,” says Martin Brian  Co-Head of U.S. Healthcare Investment Banking at Aura. Adds Christine Ha, a Managing Director in Investment Banking who focuses on biotech: “As AI-based companies and their platforms continue to mature and advance, they have the potential to truly transform the overall drug discovery and development process.”

  • A host of health services previously conducted in person have shifted into digital spaces. Technologies such as video healthcare visits, at-home diagnostics and wearable monitors will continue to expand; R&D and clinical trials are already going virtual; and various members of the workforce remain remote. Such virtualisation will move patients from irregular healthcare interactions to a continuous model of care.


  • Tomorrow’s healthcare will be driven by analytics. By utilising real-time data collection, scenario planning and AI techniques, healthcare organisations—in some cases helped by tech companies—will be empowered to more effectively match resources with needs, to provide continuous and customised patient care between visits, and to break down communication barriers between information systems.


  • The healthcare supply chain—the global movement of drugs, medical supplies, technology and innovation—is expected to become more agile and resilient to future crises. 'Glocalisation'—developing a network of multiple nodes, some close to home, for production and supplies—will increase, as inventory transparency and continuous manufacturing become the norm.


  • It’s widely accepted that socioeconomic, environmental and behavioural factors that lie outside the realm of traditional healthcare strongly affect a person’s health. The pandemic and the resulting economic downturn have worsened the most common social determinants of health, and healthcare organisations of tomorrow will partner with trusted community groups, charities, businesses and governments to address social factors and prioritise mental health and wellness services.


Innovations in Pharmacotherapy

Advances in the scientific fields of cell therapy (the transfer of live cells into patients), gene therapy (in which a healthy gene is inserted) and gene editing (in which a mutated gene is revised, removed or replaced) are accelerating the development of genomic medicines. Recent clinical validation in gene editing is just one example of early data demonstrating effectiveness and safety in patients with genetic diseases, according to Ha. That’s contributing to rapid turnover for treatments. “Earlier generation therapies are getting leapfrogged with next-gen or new technologies before even reaching late-stage trials or commercialization,” she says.

Valerie Dixon, a Managing Director in Investment Banking, calls cell therapy and gene therapy the fastest-growing area of biopharma. As these therapies gain traction, they’re requiring outsourced pharmaceutical manufacturing, driving high demand for biologics-enabling tools and services, she says. “There’s a trend in the convergence of core life sciences tools with outsourced pharma,” according to Dixon, who covers life science tools and diagnostics. “These critical areas of the pharma value chain are key to new drug development.”

Biopharma companies are also scrambling to discover how mRNA technology can be used to expand their pipelines of drugs for diseases beyond COVID-19, which investors are watching closely, according to Ha. “As companies emerge with next-gen platforms across mRNA technology, gene editing, gene therapy and cell therapy, investors are continuing to show interest and deploy capital,” she says.

Adds Jessica Chutter, Chairman of Biotechnology Investment Banking: “Biopharma companies are also driving COVID solutions across the spectrum of vaccines, anti-virals and monoclonal antibodies—both prophylactic and therapeutic approaches will be demanded as we move from pandemic to endemic reality.” 

Demand for Tech-Enabled Primary Care

In some ways, the healthcare industry is finally catching up to other sectors, such as technology, where leading companies have gained competitive advantage by improving customer experience. Tech-enabled healthcare grew significantly during COVID-19 lockdowns, when patients required virtual appointments and online access to medical records. Now, big companies and venture-backed startups alike are racing to build more efficient and consistent experiences, especially within primary care—from which much of the industry’s revenue stems, according to Mowrey.

Global M&A Trends in Health Industries: 2022 Outlook

Pharmaceuticals and life sciences (PLS) and healthcare services (HCS) continued to attract high levels of investor interest throughout 2021, led by innovations in biotechnology and patient services. Capability-driven deals have increased in relevance for many companies, including deals that provide access to new technologies such as mRNA and gene therapy. Looking ahead, we expect that an abundant availability of capital will continue to fuel M&A activity and valuations over the next year.

Competition between large pharma companies and institutional investors—venture capital (VC), initial public offerings (IPOs), etc.—remains high, particularly for medium-sized biotech platforms. As we anticipated in our mid-year update, traditional pharma companies are optimising their portfolios by divesting non-core assets in order to free up capital to invest in innovation and address portfolio gaps.

As multiples continue to increase, buyers need to define their post-deal value capture-and-creation plans. Companies with well-crafted long-term plans will be able to unlock value in the current market, while those that take a hands-off approach may struggle to earn the desired return on investment.


“We expect deal activity to remain high in 2022, as companies look to optimise their portfolios for growth. Innovative biotech and med device companies will continue to be attractive M&A targets.”

Portfolio optimisation

Industry players seek to direct capital to innovations in patient treatment and to reinforcement of their pharmaceutical pipeline, with particular interest in acquiring companies specialising in cell and gene therapies, mRNA, and digital analytics capabilities.

Large strategic players will continue shedding non-core business units, to focus on building speciality platforms. We expect increased divestment of consumer-focused businesses (such as over-the-counter products) and the acquisition of specialty pharma developers, contract development and manufacturing organisations and contract research organisations.


Digitalisation of the patient experience

The ongoing digitisation and digitalisation of pharmaceuticals and life sciences (PLS) and healthcare services (HCS) business models through the intersection of digital analytics technology, smart health devices, healthcare practice management software and consumer-centric delivery models (including developing direct-to-customer digital therapeutics offerings) is driving cross-sector deals, as established players modernise their business models.

As a result, PLS and HCS firms are increasingly acquiring or partnering with tech companies to leverage digital solutions—including mining and monetising large datasets of patient information—to enhance interactions and offer a more personalised approach to payers, providers and consumers.


Environmental, social and governance considerations

Health industries offer increasingly attractive investment opportunities, as they meet the evolving criteria of investors, stakeholders and governmental institutions to provide a clear contribution to global societal challenges. We are seeing a number of ESG topics being incorporated by dealmakers into their due diligence processes and business models:


M&A hotspots

We expect the following areas to be M&A activity hotspots during the next six to 12 months:

Pharmaceuticals and life sciences

  • Traditional big pharma players seek to optimise their portfolios by divesting over-the-counter and other less innovative platforms, and continuing to target biotech companies at the frontier of science, such as cell and gene therapy or next generation therapeutics.

  • Prolonged effects of the pandemic and the emergence of new variants suggests vaccine demand will remain high. Innovative companies that can deliver efficiencies in the mRNA manufacturing process and address bottlenecks in equipment availability experienced by vaccine manufacturers will draw significant interest from investors.


Healthcare services

  • Speciality care platform roll-ups are coming to market, as investors reach the end of their desired holding period and seek to sell to the next tier of private equity (PE) funds, which have significant dry powder to deploy.

  • Telehealth, health tech, and data and analytics companies that enable quicker, more efficient and/or virtual delivery of patient care via automation and digital solutions such as clinical decision support present value creation opportunities and are attracting investor interest.

  • Cross-border transactions will remain at elevated levels as PE groups and strategic players continue to build regional growth platforms and/or enter new markets.


“There’s a proliferation of companies creating national primary-care delivery platforms,” Mowrey says. “Investors had the opportunity to play tech-enabled primary care last year, and now we have a handful—with more likely coming in the next few years—including virtual-only businesses.”

Companies and investors also view pharmacies as another area ripe for disruption. Most patients still go to brick and mortar locations to pick up their medications, while physicians’ staff members spend significant time on pharmacy-related administrative work. Though growth in online pharmacies would require a shift in adoption, some corporates are banking that added-convenience features, such as free delivery and drug-pricing transparency, could convince more consumers to switch.

Tech That Facilitates Value-Based Care

Meanwhile, the value-based healthcare model that prioritizes consumers’ health outcomes and experience could more meaningfully shift the financial costs of healthcare from insurers and taxpayers to providers. Historically, providers get paid for how much care they provide, regardless of patient outcomes. Value-based care seeks to incentivize providers to improve patient outcomes, which may ultimately help reduce the costs of the care they provide.

Business model disruption and digitalisation

To unlock value, operators need to embrace digitisation and accelerate the adoption of digitalised practice management and digital solutions that put patients at the centre of the patient care journey. Staffing challenges, exacerbated by the pandemic, put further pressure on healthcare providers to find digital efficiencies to help bridge the gap left by a shortage of skilled employees.

Healthcare services consolidation and re-sale

Across the healthcare deals landscape, we see continued consolidation of private clinics and specialist care providers, such as skilled nursing or elderly care/assisted living facilities, which remain fragmented across different markets, as well as more focus on productivity improvements across health systems. Cross-border expansion through M&A will continue, creating healthcare platforms rather than country-by-country plays. Further, roll-ups that occurred over the last several years are coming to market, as investors reach the end of their holding period.


Capital allocation and portfolio optimisation

We expect large pharma companies will continue to seek to divest over-the-counter platforms and other non-core assets, while seeking to fill their midterm pipelines with medium-sized biotech deals. We also anticipate further M&A activity to address vulnerabilities around active pharmaceutical ingredients (API) sourcing, with some PE players setting up API platforms, enabling pharmaceutical companies to divest manufacturing sites in an effort to adopt a more asset-light strategy.


After COVID-19, new applications for mRNA


The success of mRNA COVID vaccines accelerated the widespread adoption of this technology. Vaccine providers—companies such as Pfizer, Moderna and BioNTech—will now look to expand into other areas. Development of mRNA vaccines for other diseases (e.g., influenza, shingles, HIV) is already underway, and researchers are working on mRNA vaccines for cancer. The potential for a massive increase in demand will make companies that can innovate to ease manufacturing bottlenecks attractive M&A targets.


Regulatory headwinds


Given the global footprint of health industries companies, regulatory uncertainty in the US poses a risk to worldwide M&A. In particular, the antitrust focus of the Federal Trade Commission may preclude larger PLS and HCS deals from happening in 2022; and proposed pricing reform legislation could have a significant impact on cash flows available to invest in M&A.


The 2010 Affordable Care Act helped set value-based care in motion. It spurred the Centers for Medicare & Medicaid Services to create accountable care organizations—groups of providers that coordinate patient care and insurance to reduce excess services and redundancies.

Now, amid corporate prioritization for tech-enabled innovation and a marketplace shift to share more risks for healthcare programs such as Medicare, investors are monitoring tech integration between payers and providers, according to Mowrey. “Real time visibility on claims and care being delivered will become a more apparent competitive advantage” for companies that can provide such features, she says.


Doing the right deals

Why capabilities are more important than ever for M&A


Companies adapting to a COVID-changed world are rushing to reconfigure their businesses, fuelling M&A activity. But Aura research has shown that 53% of corporate acquirers underperformed their industry peers.

As leaders aim to forge new equations for growth by pursuing acquisitions, what can they do to ensure their investments create sustained value?

To answer this question, Aura examined 800 deals, including the 50 largest acquisitions across 16 different sectors completed over the past decade. 

The results reveal one factor that plays a pivotal role in successful M&A activities—a capabilities fit between buyer and target—plus five steps leaders can take to integrate capabilities considerations into impactful deal-making.

Whether a company is aiming to consolidate, diversify or enter a new market, there’s one element that has been shown to differentiate a successful deal: a capabilities fit between the buyer and the target. 

Capabilities—or a set of strengths that creates unique value—differ greatly between companies. Thus, when an acquirer is pursuing M&A, it’s important to ensure that the strengths of both players complement each other.

Indeed, our study has shown that the strategic intent of a deal has little to no impact on value creation. What generates value—and a positive total shareholder return (TSR)—is a capabilities fit that allows companies to leverage or enhance their capabilities. The alternative? A pitfall we call a limited-fit deal that can result in a significant loss in TSR following a transaction.


Types of deals by industry

The frequency of capabilities-driven deals (enhancement and leverage) differs widely across industries—from 38% of deals in oil and gas to 92% in pharma and life sciences. Yet despite the variance, a positive capabilities premium was found in all 16 industries we analysed.


Portfolio Optimisation

As part of the Aura network, Strategy& helps clients solve their issues from strategy through to execution. We do that by combining our strategy consulting expertise with the vast capabilities of the network, to help you move your business forward with confidence.

Strategy&’s data-driven community of solvers has found strong evidence that deals leveraging or enhancing a buyer’s key strengths produce significantly better results than those lacking a good capabilities fit. And when it comes time to revamp a portfolio, too many companies pursue deals to grow in size, rather than aligning their M&A strategy with their capabilities. We can help. 

Five steps to maximise the value from deals

Our analysis of 800 large deals shows the premium that arises for companies that apply a capabilities lens in their M&A activities. How can your company emulate these companies’ success?


Where do you start if capabilities fit has not been a key driver of your deal-making?

As we manage the fallout and uncertainty of today’s challenging environment, a strong plan to maximize value creation is more important than ever. We help you act fast so you can stay ahead and own every moment. Exploring unexpected angles, we define new levers of value creation that gives you the confidence to move forward. We bring our expertise in deals, strategy, operations, tax, accounting, finance, data and analytics to help you stabilise and maintain business value.

There are four areas detailed below that you can take action around to gain control today while remaining resilient for tomorrow.


Many strands of evidence converge to support the theory that the corporate recovery from COVID-19 will be deals-led, not least the regularly-quoted statistic that there is $2.6trn of private capital available to invest[]. But let’s step back for a moment and think more carefully about the drivers for this deals-led recovery - starting with the reasons for this dry powder.

The pandemic has had unfortunate far-reaching consequences for many businesses. It has forced some businesses to close, evaporating revenue overnight in many sectors, notably hospitality and leisure. One of the many roles of government has been to sustain employment, responding with stimulus and support packages, temporarily shoring up struggling businesses and maintaining employment. At 31 December 2020, there were approximately 3.8m jobs furloughed in the UK alone.

These necessary stimulus measures have resulted in an acceleration of Quantitative Easing (QE). UK Government 10yr-50yr bond yields have fallen from 4.6% (Sep-08) to 0.5% (Dec-20)[. These lower yields are also evident in the corporate bond market. UK corporate investment grade yields are on average down 3.5ppts from 2010 levels (AAA-A av. 0.7%, Dec-20), and high yield bond average down by 4.3ppt (B-BBB av. 4.8%, Dec-20)

Whilst s