2023 In Review: More multibillion-dollar acquisitions, early AI use, a historic drug approval, and more
Dec 18, 2023
Editor’s note: This is the last issue of Darwin’s Our Take for 2023. Look for the next one on Jan. 8.
1. Top health system mergers, partnerships, and tech initiatives
The deal that got the most news coverage was the one that didn’t happen: the proposed combination of Sanford Health and Fairview Health Services. The combined health system would have been valued at about $14 billion. But multiple stakeholders raised concerns, a review of the deal by Minnesota’s attorney general ensued, and the health systems terminated their plans in July.
The deal with the most potential impact was the one involving Risant Health, a nonprofit organization Kaiser Foundation Hospitals created to accelerate the adoption of value-based care. In April, Kaiser Foundation Hospitals and Geisinger announced the launch of Risant Health and a definitive agreement for Geisinger to be the first of several community-based health systems to join Risant over the next five years. Kaiser Permanente anticipates closing the deal in 2024.
Other high-profile partnerships and affiliations:
- AmerisourceBergen, now known as Cencora, and asset management firm TPG acquired Nashville, Tenn.-based OneOncology in June in a transaction valued at $2.1 billion, with TPG owning the majority interest.
- Aspirus Health, based in Wisconsin, and St. Luke’s, based in Minnesota, signed a definitive agreement in October to combine.
- Centura Health, a joint venture that originated in 1996 between Catholic Health Initiatives and Adventist Health Systems (now AdventHealth), is being dissolved. Eventually, AdventHealth will operate and manage the five hospitals it owns in Colorado, and CommonSpirit will operate and manage the joint venture’s remaining 15 hospitals and clinics. Separately, CommonSpirit acquired Steward Health’s Utah assets in May, and Centura Health will manage them.
- Essentia Health and Marshfield Clinic Health System signed an agreement in July to integrate, forming a 25-hospital system serving communities in Michigan, Minnesota, North Dakota, and Wisconsin.
- Froedtert Health and ThedaCare, both based in Wisconsin, signed a definitive agreement in September to merge.
- Henry Ford Health agreed in October to enter into a joint venture with Ascension Michigan; the Detroit-based health system will combine with Ascension’s southeast Michigan and Genesys health care facilities.
- Oregon Health & Science University signed a nonbinding letter of intent in August to merge with Portland-based Legacy Health, creating a 10-hospital health system with more than 100 locations serving the Pacific Northwest.
- Parkview Health System, based in Pueblo, Colo., merged with UCHealth, which has 12 hospitals and more than 150 clinics serving Colorado, southern Wyoming, and western Nebraska, on Dec. 1.
- Sparrow Health System, based in Lansing, Mich., became part of Ann Arbor, Mich.-based U-M Health in April. The combined system has more than 200 sites of care.
- Sutter Health agreed in October to integrate Sansum Clinic, an outpatient care provider based in Santa Barbara, into its network.
Many health systems took steps to advance value-based care and integrate advanced technology through collaborations such as these:
- Cleveland Clinic and IBM unveiled the IBM Quantum System One, the first private-sector, IBM-managed quantum computer in the U.S. and the first quantum computer dedicated solely to health care research, in March. Cleveland Clinic also opened its Mentor Hospital in Lake County, Ohio, in July. Through a collaboration with Verizon, the hospital is the first in the country to be built with 5G technology embedded from the start.
- CommonSpirit Health launched a population health services organization (PHSO) in September to support provider networks with both independent and employed physicians, with a goal of helping them excel in value-based care. The PHSO offers services such as advanced population health analytics, network management, care coordination, data management and analytics, technology infrastructure, and reporting.
- Endeavor Health (formerly NorthShore–Edward-Elmhurst Health) is incorporating Lumeris’ population health data platform into its value-based care strategy. Endeavor and Lumeris will also support providers in Endeavor’s clinically integrated network with various services and will form new ACO models through their payer-agnostic partnership.
- HCA Healthcare launched a pilot program in February in which physicians use Google Cloud’s AI technology and Augmedix’s ambient medical documentation app to create medical notes from their conversations during patient visits.
- Kaiser Permanente’s Permanente Medical Group launched a new program in May called the Augmented Intelligence in Medicine and Healthcare Initiative, or AIM-HI, which will grant several health systems up to $750,000 to research the use of AI and machine learning to enhance diagnostic decision-making.
- Mayo Clinic is collaborating with Google on the use of generative AI. The health system also revealed plans for a $5 billion redesign of its main campus in Rochester, Minn., in years to come. The plans include new buildings with a flexible grid design — a first for a health care facility, according to Mayo Clinic. The health system is also collaborating with GE HealthCare to advance medical imaging and theranostics, using AI-powered applications to accelerate development of advanced magnetic resonance technologies.
- Mercy, based in St. Louis, said it is exploring more than four dozen uses of artificial intelligence in partnership with Microsoft.
- Ochsner Health launched a pilot program using Microsoft’s Azure OpenAI Service to test a new Epic feature that drafts responses to basic, routine requests sent through the health system’s patient portal. UNC Health, UC San Diego Health, UW Health, and Stanford Health are also piloting the Epic-Microsoft patient messaging technology.
2. The biggest deals in Pharma and biotech
Pfizer achieved the largest of several multibillion-dollar transactions in 2023, completing the $43 billion acquisition of Seagen on Dec. 14 and adding the Seattle-based biotech’s first- and best-in-class antibody-drug conjugates (ADCs) to Pfizer’s portfolio.
Amgen completed its $27.8 billion of Dublin, Ireland-based Horizon Therapeutics, in October. The Federal Trade Commission sued in May to block the deal, claiming Amgen would be able to use rebates on its blockbuster drugs to pressure payers and pharmacy benefit managers into favoring Horizon’s two monopoly drugs. Amgen and Horizon countersued in July, and Amgen settled with the FTC in September by agreeing not to use such tactics.
Merck finalized an “asset acquisition” of Prometheus Biosciences, which develops therapeutics for immune-mediated diseases, for approximately $10.8 billion in June. Merck also invested heavily in the future of ADCs, paying $4 billion up front in October for the rights to jointly develop and commercialize three ADCs in Daiichi Sankyo’s pipeline, potentially pairing them with Keytruda (pembrolizumab). Including sales milestones, that deal could be worth up to $22 billion.
AbbVie signed back-to-back agreements late in the year, one in November to acquire ImmunoGen and its pipeline of ADCs for $10.1 billion, and the other early this month to acquire Cerevel Therapeutics, a CNS-focused biopharma company, for approximately $8.7 billion. The deals are expected to close in mid-2024.
Biogen finalized a deal in September to acquire Reata Pharmaceuticals in a deal valued at approximately $7.3 billion, giving Biogen gained the first FDA-approved treatment for Friedrich’s ataxia.
Roche completed a deal with Roivant last week to acquire Telavant Holdings for $7.1 billion up front. Roivant and Pfizer formed Telavant a year ago to develop and commercialize a potential first-in-class treatment for inflammatory bowel disease. Before closing the transaction with Roche, Roivant owned 75% of Telavant.
Roche agreed earlier this month to acquire Carmot Therapeutics for $2.7 billion up front plus milestone payments. The deal could give Roche an entrée into the lucrative GLP-1 weigh-loss market.
Other big-ticket transactions in 2023, by deal value:
- Astellas Pharma acquired Iveric Bio for $5.9 billion in July, gaining a treatment approved in August for the advanced stage of age-related macular degeneration.
- Bristol Myers Squibb announced in October that it would acquire Mirati Therapeutics for up to $5.8 billion. The deal could be completed in the first half of 2024.
- Kenvue, Johnson & Johnson’s consumer group spinout, raised $3.8 billion in May in one of the largest health care IPOs in over a decade.
- Novartis acquired Chinook Therapeutics for $3.2 billion, giving Novartis two late-stage assets in development for Berger’s disease.
- Sanofi acquired Provention Bio in April for $2.9 billion, giving Sanofi ownership of a first-in-class drug approved last year to delay the onset of stage 3 type 1 diabetes.
- Eli Lilly made two acquisitions in August — Dice Therapeutics, a company that develops therapies for autoimmune diseases, for $2.4 billion, and Versanis Bio, a privately owned company that’s developing a first-in-class drug candidate for weight loss, for up to $1.9 billion.
Not a transaction, but worth mentioning: J&J announced in September that Janssen Pharmaceuticals was being renamed Johnson & Johnson Innovative Medicine.
There were several high-profile drug approvals in 2023, but two are worth mentioning here. The FDA granted Eisai and Biogen’s Leqembi (lecanemab-irmb) accelerated approval on Jan. 6 as a treatment for patients with early Alzheimer’s disease. When the FDA converted the accelerated approval to a traditional approval in July, CMS confirmed broader Medicare coverage of the drug in accordance with a policy the agency had announced in June. Leqembi’s list price is $26,500 per year.
Vertex Pharmaceuticals and CRISPR Therapeutics made history in November when regulators in the U.K. granted conditional marketing authorization to Casgevy (exa-cel), the first CRISPR-based gene-edited therapy ever approved by a regulatory agency. The FDA approved Casgevy a few weeks later. The treatment is approved for patients with sickle cell disease who are at least 12 years old and have recurrent pain crises. Vertex set a list price of $2.2 million for Casgevy in the U.S.
3. Payers and other players continued to evolve their health care offerings
Amazon introduced a new prescription drug service at the start of the year called RxPass, which gives Prime members access to unlimited generic medications for a flat monthly fee of $5, with no charge for delivery.
In February, Amazon completed its $3.4 billion acquisition of the primary care chain One Medical, marking what Advisory Board referred to as one of “the biggest investments ever in care delivery by a non-health care entity.”
In September, Amazon announced a collaboration with Anthropic, an AI startup, and would invest up to $4 billion in the company. Anthropic’s AI assistant, Claude, competes with ChatGPT.
And last month, Amazon announced that One Medical would be a primary care provider for employers in the Health Transformation Alliance, an organization comprising nearly 60 large companies such as American Express, JPMorgan Chase, and Marriott.
UnitedHealth Group completed its acquisition of home health company LHC Group for $5.4 billion in February and is in the process of acquiring Amedisys, also a home health company, through Optum for $3.3 billion.
Initially, Amedisys planned to combine with Option Care Health in a deal valued at $3.6 billion. But soon after the companies announced their plans in May, Optum made an unsolicited cash bid of $3.3 billion for Amedisys. Amedisys chose Optum’s bid in July and Amedisys shareholders gave their approval in September, but the Department of Justice is still reviewing the proposed acquisition.
CVS Health continued to grow as a vertically integrated organization this year with two hefty acquisitions — home health services provider Signify Health for $8 billion in March, and value-based primary care provider Oak Street Health for $10.6 billion in May. CVS said both organizations would remain payer-agnostic.
Anticipating the integration costs of these acquisitions, CVS Health announced a restructuring plan in August that included laying off 5,000 employees. Three weeks later, the company announced the launch of Cordavis, a subsidiary that will work with manufacturers to commercialize and co-produce biosimilars.
Walgreens Boots Alliance closed on the full acquisition of Carecentrix, a post-acute and home care company, in March, paying approximately $380 million for the portion of the company it didn’t already own. In September, Walgreens announced a partnership with Pearl Health, a startup that helps independent physician practices transition to value-based payment models.
Walgreens launched a direct-to-consumer virtual care option in October that offers on-demand virtual or chat-based consultations, as well as video visits.
Failing to keep pace with CVS and Walgreens, and facing more than 1,600 opioid-related lawsuits, Rite Aid filed for Chapter 11 bankruptcy protection in October. Shortly before that, the company proposed closing nearly a quarter of its 2,100-plus locations.
4. Still in the hot seat, PBMs created new pricing and reimbursement models
Ongoing investigations into pharmacy benefit management practices continued and new ones began in 2023. Lawmakers resurrected legislation and crafted new bills intended to increase pricing transparency and reform or ban practices such as price spreading and pharmacy payment clawbacks.
A group of lesser-known PBMs that espouse many of the reforms Congress is considering formed Transparency-Rx, a coalition to advance PBM reform by “taking on corporate monopolies” and addressing issues that protect “a broken system.”
CMS issued a proposed rule that could curtail PBM price spreading in Medicaid programs by requiring PBMs to report the cost of covered outpatient drugs and dispensing or administration fees separately from additional PBM charges.
In April, Express Scripts said it would start capping copays and implement new transparency measures by summer. The PBM introduced ClearCareRx, describing it as a “fully transparent pricing model,” as well as an initiative designed to benefit independent pharmacies in rural areas.
In November, Express Scripts said it would offer a new cost-based pharmacy network option in 2024 similar to the pricing model Mark Cuban Cost Plus Drugs uses. A few weeks later, CVS Pharmacy said it would launch a pharmacy reimbursement model in 2025 that also is similar to Cost Plus Drugs’ pricing strategy.
Blue Shield of California unveiled a new pharmacy care model it will roll out to employees in 2024 and to members in 2025. The new model replaces most of CVS Health’s PBM functions with services provided by other companies, including Amazon Pharmacy, Mark Cuban Cost Plus Drugs, and Prime Therapeutics.
5. Hospital and pharmacy employees got vocal about working conditions
More than 7,000 nurses at Mount Sinai Hospital and Montefiore Medical Center went on a three-day strike in January, saying staffing shortages were causing high rates of burnout and inadequate patient care.
In October, an estimated 75,000 nurses and other employees at Kaiser Permanente went on a three-day strike — the largest strike ever in the health care sector. In addition to requesting wage increases, the workers wanted management to address chronic understaffing issues and invest in training for future staff. The health system reached a tentative agreement with worker unions about a week later.
Separate from the larger strike, pharmacy staff at four Kaiser Permanente locations in Oregon and southwest Washington went on a 21-day strike in October, followed by a second strike in which imaging techs later participated. The second strike ended in November without resolution.
Pharmacy workers at CVS locations in the Kansas City area staged two rounds of walkouts in September, protesting working conditions such as understaffing.
Then in October, pharmacy staff at Walgreens locations in four states took part in a planned walkout. That was followed by “Pharmageddon,” a larger, loosely organized walkout by pharmacy workers at chain drugstores nationwide.
It’s unknown how many participated in the last strike because most pharmacy workers are not represented by unions. Grassroots organizers launched The Pharmacy Guild in November in an effort to unionize staff at retail pharmacies.
6. Novo Nodisk’s weight-loss drug gained in popularity – and gained rival
For over a year and a half, Novo Nordisk has been trying to address a global shortage of semaglutide, a GLP-1 receptor agonist — which is sold as Wegovy (indicated for chronic weight management) and Ozempic (indicated for type 2 diabetes but prescribed off label for weight loss).
The Danish drugmaker brought Thermo Fisher on board in August as a second contract manufacturer to help meet U.S. demand for Wegovy. Novo Nordisk is also investing more than $6 billion to build new manufacturing facilities of its own.
Demand for semaglutide is certain to increase, even though it now has a rival: Eli Lilly’s tirzepatide, which the FDA approved last year as a treatment for type 2 diabetes, was approved for chronic weight management in November. Lilly sells tirzepatide under the brand name Mounjaro for diabetes and earlier this month started selling the drug under the brand name Zepbound for weight-loss.
Tirzepatide is a dual GIP and GLP-1 receptor agonist, which may make it more effective than semaglutide for some people.
However, last month Novo Nordisk filed to have Wegovy’s label updated to include a cardiovascular indication based on positive results from the Phase III SELECT trial, in which semaglutide reduced certain cardiovascular events by 20% compared with placebo.
7. Drug companies sparred with HHS over the 340B program and the IRA
An appellate court sided with AstraZeneca, Novo Nordisk, and Sanofi (and against the Department of Health and Human Services) in January, finding that the drug companies’ policies limiting 340B discounts on drugs dispensed by contract pharmacies do not violate federal law. More than a dozen drugmakers implemented such policies, starting in 2020, and the Health Resources and Services Administration issued violation letters notifying them of potential penalties. Multiple lawsuits ensued, with mixed outcomes. Other appeals are still pending.
Early last month, CMS said it would send lump sum payments totaling $9 billion to more than 1,600 hospitals participating in the 340B program. The payments are being made as restitution for reimbursement rate cuts HHS made in 2018. The Supreme Court ruled last year that the rate cuts were unlawful. To maintain budget neutrality, CMS said it would offset $7.8 billion of the $9 billion by reducing payments to hospitals for non-drug items and services by 0.5% for 16 years, starting in 2026.
After releasing initial guidance in February for the Medicare Prescription Drug Inflation Rebate program, CMS released revised guidance last week. Under the rebate program, which is part of the Inflation Reduction Act (IRA) passed in 2022, drug companies that increase their prices faster than the rate of inflation must pay rebates to the Medicare Trust Fund. In addition, Medicare beneficiaries may pay lower coinsurance amounts for the drugs that are subject to rebates. CMS identified the first group of rebatable drugs in March.
Merck sued HHS and CMS in June over Medicare price negotiations established in the IRA, claiming the law violates the Constitution by forcing manufacturers to negotiate prices below market value. Subsequently, other drug companies filed similar lawsuits to prevent the negotiations, but manufacturers of all 10 drugs in the first group of drugs that will be subject to negotiations, including Merck, signed the required agreements by the Oct. 1 deadline.
