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Healthcare's $40B day: 5 things to know about Thursday's mega-mergers

Bigger is better is the name of the game in the healthcare industry, as evidenced by the wave of deals announced Thursday, reaching a combined total of more than $40 billion.

Some of the deal activity among medical device makers and pharmaceutical companies can be explained by the belief that gaining scale and becoming a leading provider is essential for effectively negotiating business with hospitals and insurers, according to The New York Times. Some of the impetus to consolidate can also be explained by the desire to acquire emerging product lines and biotech firms to supplement the declining sales of older products.

Here are five things to know about the mega-mergers announced Thursday, according to The New York Times.

1. Some of the leading deals include Abbott's proposed purchase of St. Jude Medical for $25 billion, a move intended to expand the former's presence in the cardiovascular device sphere. To gain an edge in the prostate cancer treatment market, Sanofi made a bid to buy Medivation for about $9.3 billion. AbbVie signed a $5.8 billion deal to acquire Stemcentrxm to drive into oncology treatments, according to the report.

2. The frenzy of deals is linked to new regulations, new payment models and the perceived need to keep pace with the record consolidation occurring within the industry — healthcare company executives see no option other than to scale up. Over the last four days alone, the healthcare sector announced nearly $60 billion in transactions. The fact that more than $40 billion of these deals were announced Thursday is largely coincidence, however, according to the report.

3. The introduction of mandatory bundled payment through the Comprehensive Care for Joint Replacement Model is one of the new regulations pushing healthcare companies to team up. With the goal of making healthcare less expensive and more efficient, organizations that solidify their positions as leading providers of a product or service will be the most attractive partners for hospitals and insurers in bundled deals, while smaller firms are more likely to be skipped over. Additionally, analysts say it won't be long before bundled payment models emerge for cancer care and cardiovascular disease, according to The New York Times.

"If you can get enough critical mass as part of these acquisitions, they'll need you and then you'll have a place in the new world," David Friend, a managing director of BDO's Center for Healthcare Excellence and Innovation, told The New York Times. "If you're too small, or too limited, you'll just become irrelevant and bypassed."

4. Although gaining scale through acquisitions might seem like a strategic necessity for many companies, the deals often come at a cost. Shares of Abbot fell 7.8 percent after the company announced its proposed acquisition of St. Jude Medical. Sanofi's bid to acquire biotech company Medivation comes at a premium of more than 50 percent over Medivation's two-month volume-weighted average share price, Sanofi reported, according to The New York Times. And AbbVie paid 16 percent more than Stemcentrx made in its last fundraising round. AbbVie's shares increased by less than 1 percent Thursday.

5. Analysts predict there are more billion dollar deals to be made in healthcare, as long as antitrust regulators continue to allow them. "Do I think there will be a fair share of deals that have a 'b' in them? Absolutely," said Thad Kresho, lead partner in PwC's healthcare deals practice, according to the report. "From an activity perspective and number of transactions, we'll continue to be fairly strong."

More articles on transactions and valuation:
Northeast hospitals establish strategic partnership: 5 things to know
Methodist Health System buying bankrupt Texas hospital: 5 things to know
Pioneers Memorial Healthcare District becomes affiliate of Scripps Health: 4 things to know

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