Editor’s blog: How will “the Mikes” spend their money?
The atmosphere at the Westin St. Francis Hotel in San Francisco this week was heavy with testosterone and bullishness as the bros of pharma, healthcare, and finance gathered for the annual JP Morgan Healthcare Conference.
The conference venue and surrounding hotels, bars, and galleries swarmed with 8,000 official attendees and tens of thousands of hangers-on using this convening of healthcare power players as a chance to do deals, polish up investments, rub shoulders with industry bigwigs, and scout for new jobs.
There is a lot of soul searching in PR about lack of diversity at senior levels, but an analysis of the JPM agenda by health, medicine, and science publication STAT found that a staggering 94% of the 540 mainly CEO presenters were men – 22 were named Michael, 20 were women.
PRWeek sister title MM&M’s on-site correspondent Laura Fentis recounted how her Uber driver told her he’d been ferrying around “men – lots of men talking about money and who they know.” The air was thick with talk of shareholder value creation, headwinds, patent cliffs, and capital allocation.
The bullishness was epitomized by Bijan Salehizadeh, MD at NaviMed Capital, who Axios quoted as saying: “We are in the middle of a bubble in all healthcare asset classes. Everyone knows it, but no one knows how it will end.”
Part of Salehizadeh’s contention is driven by President Trump’s latest tax reforms, which will facilitate the one-time repatriation of significant tranches of cash currently held overseas to U.S. shores and see federal corporate tax rates fall from 35% to 21%.
Goldman Sachs estimates that $250 billion will be repatriated, and that there will be a concentration in the healthcare and tech sectors relative to these enterprises’ market capitalization.
This is all on top of significant cash piles that have already been accumulated by many corporations, which have been adopting a wait-and-see approach since the new administration came to office one year ago.
A Bank of America Merrill Lynch survey suggested two out of three companies would use the cash to pay down debt, but where else will the money go?
Separately to the JPM conference, Walmart this week announced it would be using the tax windfall to raise its starting hourly wage from $9 to $11 and hand out one-time bonuses of $1,000 to certain employees. The new arrangements come into force next month and will cost the U.S.’s largest private employer a total of about $700 million, around one-third of its total tax reduction according to The New York Times, which dubbed the move a “minor act of redistribution.”
AT&T and Comcast are already doling out one-time bonuses, and Wells Fargo is increasing its base pay to $15 an hour. Some analysts have dubbed these developments “PR moves” by the companies involved – whatever that means. Cynics might reflect that all these three businesses have reasons to curry favor with president Trump and their staffers at the moment.
But whatever the rationale, there is a lot of new money that will be swilling around the economic system in 2018.
At the JP Morgan event, pharma CEOs I listened to were mulling options including share buybacks, investment in R&D, wage rises for staffers, and – least likely – lower drug prices. They were particularly keen to reaffirm their commitment to more R&D, explaining that doing best by patients and treating conditions was their main raison d’être.
President Trump, shareholders, activists, employees, communities, analysts, customers, and patients will all have their say, and PR pros will need to be on red alert to monitor sentiment and construct authentic and transparent narratives across all these stakeholder groups.
In a breakout session after his main stage appearance, Cigna CEO David Cordani said: “Tax reform will open up significant cash to invest in the business and create shareholder value.” In a similar session, Eli Lilly’s youthful CEO Dave Ricks emphasized the need to create “the most after-tax value for shareholders.”
Stock buybacks will certainly be on the immediate agenda and AmerisourceBergen CEO Steve Collins said in another breakout that “buying stock back is an attractive option” and he “loves the flexibility that the repayment situation is going to give us.”
From the main stage, Johnson & Johnson CFO Dominic Caruso credited the tax overhaul for making the U.S. competitive again: “Corporations now have the freedom to access the cash they earn abroad without punitive taxation.”
The specter of Amazon entering the pharmaceutical distribution chain hung over the conference, although Lilly’s Ricks said “more actors are better” and he “welcomed non-traditional players” in the space, summing up that “we are paid to innovate,” so shouldn’t be frightened of the Amazon effect. He also noted there are numerous elements of the “distribution and pharma benefit management systems that don’t benefit patients or pharma companies.”
PRWeek teamed up with Bayer to convene a discussion in San Francisco on M&A and the communications environment to coincide with the JP Morgan conference.
Our panelists pointed out that mergers and acquisitions don’t just happen out of thin air or grow on trees and they take a long time to set up and navigate. There were few deals announced this week, but our panelists do expect 2018 and 2019 to be stronger for healthcare M&A, which will mean more work for specialist PR firms in that area to block and tackle while in-house teams are busy babysitting their C-suites and dealing with the mechanics of deals.
There will also inevitably be significant share buybacks. However, they also see R&D as the best place to spend money if companies are to be true to their overarching missions to make life better for patients.
From a communications point of view, our panelists’ main takeaway was the need to double down on company culture and prioritize internal communications – and that is clearly an area where in-house and agency PR pros have a big role to play. One client-side panelist bemoaned the difficulty in engaging firms with significant expertise in employee communications, so that is definitely an area for agency-side operators to look at and invest in.
You can read a full summary of the panel discussion and view videos from the event over the next few weeks, so look out for that as it is well worth close attention.
Internal comms is especially important pre-, during, and post- M&A, as every staffer wonders what the deals mean for them personally and contemplate a future often very different cultures are merged together.
PR pros will also need to monitor carefully the President’s and activist shareholders’ responses to how “the Mikes” spend their money and be prepared to react accordingly, so that will boost demand for marcomms services.
Healthcare represents one of every five dollars in the U.S. economy, so the JP Morgan event is a useful bellwether of wider business trends. The big conundrum is that 2017 seemed to show an environment where companies were freezing or reducing marcomms budgets, reflected by universally poor marketing services holding company results across the year.
As discussed, it’s too early to say how this healthcare bubble will end, but one thing is for sure, the bar takings in San Francisco’s hotels and bars this week suggest the black swans have not yet arrived.
It would be nice to think that, in this newly liquid environment, when “the Mikes” in healthcare and other industries open up their pocketbooks in 2018 and beyond all ships will rise, and that at least some of the cash will be invested in higher marketing and communications budgets.