Medtronic is rumored to be in talks with Cardinal Health to sell its medical supplies business for $6 billion to the Ohio drug distribution company, according to Reuters.
Large companies prune their portfolios from time to time so there’s nothing unusual about this. After all, Medtronic did close its acquisition of Covidien in January 2015 for a whopping $49.9 billion through which it gained the medical supplies business and is now picking the pieces most desirable.
What’s newsworthy about this specific bit of potential transaction is what this offloading means. The medical supplies business sells low-margin, commodity items — everything from syringes to staples and surgical instruments.
As such, the business it is probably better suited for a distribution company looking to make inroads into the devices world such as Cardinal Health, which made a multi-billion dollar purchase of another on-the-chopping-block asset of a large company – Cordis from Johnson & Johnson.
Here’s how an industry analyst described the rumored transaction.
“Those consumable products gained in the Covidien acquisition were of low strategic importance to Medtronic, while for Cardinal they bolster their portfolio with a number of products that are very highly regarded by users,” said Venkat Rajan, industry manager, medical devices, Frost & Sullivan, in an emailed response. “Similar to their deal with J&J for their Cordis interventional cardiology products, this enhances the options and discounts Cardinal can provide their customers over other competitors in the medical device distribution space.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The operative terms in the above statement “of low strategic importance.”
Under Omar Ishrak, CEO of Medtronic, the largest medical device vendor has sought to fashion itself into a “premier medtech solutions partner” to hospitals.
Those were Ishrak’s words as he described how the company must justify both the clinical value and the economic value of its products. And in doing so, the Irish company has attempted to shed its image as a widget maker, however profitable that business is.
Recall the purchase of a Dutch diabetes clinic back in the spring of 2015, which led to a device company actually employing physicians.
“This acquisition marks Medtronic’s first entry into a diabetes integrated care model approach and signifies that Medtronic Diabetes is more than pumps and sensors – we are a holistic diabetes management company focused on making a real difference in outcomes and cost,” said Hooman Hakami, executive vice president and president of the Diabetes Group at Medtronic, in a news release at the time.
And the above quote can be extrapolated to the overall company’s strategic direction that is moving it in the direction of predictive analytics, disease management and helping hospitals manage patients better.
In other words, the new Medtronic is not really interested in making nuts and bolts, especially single-use consumables.
It also means there’s a death: RIP widget maker.
Photo: DeoSum, Getty Images
