07.29.15
$8.5 Billion
KEY EXECUTIVES:
Vincent A. Forlenza, Chairman, President & CEO
Gary M. Cohen, Exec. VP
Christopher R. Reidy, CFO & Exec. VP of Administration
William A. Kozy, Exec. VP & Chief Operating Officer
Thomas E. Polen, President, Medical
Linda M. Tharby, President, Life Sciences
Ellen R. Strahlman, M.D., Sr. VP, Research and Development & Chief Medical Officer
Stephen Sichak Jr., Sr. VP, Integrated Supply Chain
Alexandre Conroy, President, Europe, EMA and the Americas
James Lim, President, Greater Asia
Richard J. Naples, Sr. VP, Regulatory Affairs
Patti E. Russell, VP & Chief Ethics and Compliance Officer
NO. OF EMPLOYEES: 30,619
GLOBAL HEADQUARTERS: Franklin Lakes, N.J.
Talk about foreshadowing.
In late 2013, Vincent A. Forlenza espoused the virtues of corporate evolution and adaptability to Becton Dickinson and Company shareholders. “...no matter where you are in the world, healthcare is under significant pressure and scrutiny. I strongly believe that by partnering with our customers and other industry stakeholders we are more effective in facing the pressure head-on, innovating and evolving to deal with such challenges,” the chairman/president/CEO wrote at the start of BD’s FY13 annual report. “Throughout BD’s entire history, we have always adapted to meet the needs of our customers and demands of the industry. In order to remain a relevant healthcare leader and help our customers address their biggest challenges, we are committed to evolving again.”
Partnering with industry stakeholders. Evolving...again.
Forlenza couldn’t possibly have fathomed the prescient nature of his words at that moment. Or maybe he did.
Mere days after FY14 ended, Forlenza announced his company’s $12.2 billion merger with San Diego, Calif.-based CareFusion Corp., manufacturer of patient safety-focused medical devices like smart infusion pumps and automated medication administration cabinets. The purchase price was nearly three times CareFusion’s value on its first day of trading, when it closed with a $4.2 billion estimated worth.
The deal is quite the coup d’état for Forlenza, as it allows the chief executive (who will lead the combined entity, of course) to meld both firms’ complementary product portfolios into a formidable patient safety solutions provider, offering hospital clients integrated systems to maximize patient outcomes in infection prevention, respiratory care and acute care procedural effectiveness.
“CareFusion focuses a lot on medication dispensing and targets cutting healthcare custs through efficiency,” Bloomberg Intelligence analyst Jason McGorman told The San Diego Union-Tribune. “That may help hospitals cut costs and reduce infections, both of which are goals from Obamacare [the Patient Protection and Affordable Care Act].”
Indeed, CareFusion is a departure from BD’s traditional growth strategy of smaller, tuck-in acquisitions and thus may present some integration challenges not posed by previous deals. But many potential benefits exist—not the least of which is the boost it most certainly will give to BD’s bottom line: Industry analysts expect the deal to be double-digit accretive to Becton’s cash earnings per share (EPS) as early as this current fiscal year (ending Sept. 30). The company also is likely to adopt cash EPS reporting, which will allow the stock to be valued on a higher earnings base, Leerink Swann & Co. Senior Equity Research Analyst Richard Newitter predicted last year.
To minimize its integration risk exposure and limit the firm’s total debt load, BD trimmed $250 million from its operating expenses through overhead cost-cutting, combining operations and scaling down certain manufacturing operations. Company executives said the savings would be fully realized by 2018.
A wise financial move, for sure, but the downsizing’s estimated savings nevertheless is dwarfed by the $13.8 billion debt BD listed on its second-quarter 2015 balance sheet (ended March 31), more than quadrupling the $3.97 billion it owed at FY14’s close (ended Sept. 30, 2014). Most of the increased debt stems from the $7.7 billion in bonds, term loans and cash the company is using to finance the CareFusion marriage (at a 2.6 percent average interest rate).
The spike in debt prompted Moody’s Investors Service, the credit rating agency of Moody’s Corporation, to downgrade Becton’s senior unsecured ratings to Baa2 from A3 after the deal was finalized in March. The credit agency cited BD’s weakened liquidity profile, its questionable strength in emerging markets, its ability to help reduce medication errors, and its increased vulnerability to America’s fickle market for hospital capital equipment as reasons for the lower ratings.
Shrinking sales surely was a determinant as well, though Moody’s didn’t specifically address the likelihood that BD’s 4.5 percent to 5 percent annual revenue growth rate will dip below 4 percent with CareFusion under its wing. Industry analysts, however, expect any sales decline to be offset by “turbo-charged” earnings as the combined entity morphs into a medication management enterprise, controlling the delivery of therapy to patients—inside and outside the hospital—from syringes to dispensing and drug infusion pumps.
JPMorgan Chase & Co. analyst Michael Weinstein predicts Becton’s bottom-line growth to jump 5 percent to 12.7 percent through 2018—”accretion [that] will be hard to ignore.” The earnings expansion more than compensates for the sales decrease; thus the sacrifice “is a trade-off investors will be willing to make,” Weinstein wrote in his upgrade of BD stock last fall.
By expanding its scale of operations and its product portfolio, the new and improved BD is expected to have a greater influence with the hospitals it supplies. A fair portion of the company’s lineup traditionally has been commodity-based disposables, while CareFusion’s offerings often have been more difficult for healthcare institutions to swap out.
“We see the customer base changing rapidly around the globe,” Forlenza said when the mega-merger was announced. “We see them consolidating, and we think that the low-hanging fruit in healthcare cost savings have been achieved by the customer base. That means hospitals have to do business differently and that requires the re-engineering of processes. [With] this deal, we’re able to put together and end-to-end process system and really attack, with great transparency, a process that is central to running a hospital—the medication management process. You can only do that if you have scale in the opportunity, and breadth. And when I say breadth, I’m not talking about more products in the bag, I’m talking about things that fit together as a solution that enables you to re-engineer a process. I think there are people who are going for solutions, I think there are other industry players that are going for breadth, and I would characterize that as more products in the bag. This [deal] is about solutions. We think that positions us very well in an industry where the buying process is moving up in the organization, and they’re looking for strategic partners.”
Obviously, the CareFusion purchase radically enhanced BD’s collaborative appeal, but it was not the company’s only hookup last year. Becton also acquired privately held diagnostic instrument firm Alverix Inc. for $40 million; the pair worked together since 2008, designing and developing the BD Veritor System, a device that can rapidly detect Flu A + B. In addition, Becton joined forces with Microsoft and Healthbox to help nurture medtech startups, and with Israel’s Office of the Chief Scientist to further develop the country’s medical device industry.
“These relationships give BD access to some of the world’s best science, technology and entrepreneurs—all with the goal of incenting the entrepreneurial community to consider and pursue early-stage business concepts that align with BD’s strategic interests,” Forleza explained in the FY14 annual report. “Our aim is to create a portfolio of partnerships comprised of small financial investments with opportunities for deep, hands-on engagement and strategic exploration.”
And profits, of course. Forlenza is hoping BD’s new partnerships will help the firm evolve well beyond FY14’s financial results, though it might take some time before the company reaps the full rewards of all its unions (particularly the CareFusion merger). BD had a fairly profitable year in fiscal 2014, growing total revenue 4.8 percent to $8.4 billion and expanding both its basic and diluted EPS by more than 28 percent. Gross margin climbed 3.1 percent to $4.3 billion but net income fell 8.3 percent to $1.18 billion.
Cash flow from operations remained solid, totaling $1.7 billion, and the company returned $800 million to shareholders through a combination of buybacks and dividends.
More than 60 percent of FY14 sales ($5 billion) were international transactions, with more than 25 percent originating in emerging markets, according to the annual report. China, Latin America and India accounted for nearly 15 percent of total revenue while the United States comprised 40.5 percent at $3.4 billion.
Becton’s three business segments gave flawless performances, with each achieving solid increases in their respective swan songs (the firm restructured its business units as of Oct. 1, reducing its reporting divisions from three to two—BD Medical and BD Life Sciences). The Medical segment led in growth, boosting sales 6.2 percent to $4.5 billion due to strong emerging market and international safety proceeds. Across-the-board increases in the segment’s three product divisions didn’t hurt either: Medical Surgical Systems sales rose 5 percent to $2.3 billion, while Diabetes Care and Pharmaceutical Systems revenue jumped 7 percent and 7.6 percent to $1 billion and $1.2 billion, respectively.
BD bigwigs attributed Diabetes Care growth to strong pen needle sales, particularly the BD Ultra-Fine Nano, BD PentaPoint and AutoShield Duo products, the latter of which is now sold in retail pharmacies. Pharmaceutical Systems, on the other hand, benefited mainly from the first-quarter 2013 purchase of Safety Syringes Inc., a Carlsbad, Calif.-based developer of needle guard products for prefillable syringes.
The Diagnostics segment followed a similar growth trajectory, expanding revenue through strong performances in both its divisions as well as higher diagnostic platform proceeds. Diagnostic Systems sales drivers included the BD Max, BD Affirm, BD BACTEC blood culture and tuberculosis systems and BD Phoenix automated microbiology system. Those gains, however, were somewhat offset by weaker sales of the company’s Women’s Health and Cancer platform—due mostly to U.S. guidelines for increased pap smear testing intervals—and share losses related to the BD ProbeTec and BD Viper systems.
Despite the setbacks, Diagnostic segment revenue climbed 2.5 percent to $2.7 billion compared with FY13. Preanalytical Systems proceeds rose 4.4 percent to $1.4 billion on strong sales of safety-engineered products, including the BD Vacutainer push button blood collection set. Diagnostic Systems sales rose 0.6 percent to $1.3 billion.
Biosciences segment revenue jumped 5.2 percent to $1.15 billion. Executives attributed the gain to double-digit emerging market sales growth, strong clinical reagent revenue worldwide and solid instrument placements in both Asia and the United States.
KEY EXECUTIVES:
Vincent A. Forlenza, Chairman, President & CEO
Gary M. Cohen, Exec. VP
Christopher R. Reidy, CFO & Exec. VP of Administration
William A. Kozy, Exec. VP & Chief Operating Officer
Thomas E. Polen, President, Medical
Linda M. Tharby, President, Life Sciences
Ellen R. Strahlman, M.D., Sr. VP, Research and Development & Chief Medical Officer
Stephen Sichak Jr., Sr. VP, Integrated Supply Chain
Alexandre Conroy, President, Europe, EMA and the Americas
James Lim, President, Greater Asia
Richard J. Naples, Sr. VP, Regulatory Affairs
Patti E. Russell, VP & Chief Ethics and Compliance Officer
NO. OF EMPLOYEES: 30,619
GLOBAL HEADQUARTERS: Franklin Lakes, N.J.
Talk about foreshadowing.
In late 2013, Vincent A. Forlenza espoused the virtues of corporate evolution and adaptability to Becton Dickinson and Company shareholders. “...no matter where you are in the world, healthcare is under significant pressure and scrutiny. I strongly believe that by partnering with our customers and other industry stakeholders we are more effective in facing the pressure head-on, innovating and evolving to deal with such challenges,” the chairman/president/CEO wrote at the start of BD’s FY13 annual report. “Throughout BD’s entire history, we have always adapted to meet the needs of our customers and demands of the industry. In order to remain a relevant healthcare leader and help our customers address their biggest challenges, we are committed to evolving again.”
Partnering with industry stakeholders. Evolving...again.
Forlenza couldn’t possibly have fathomed the prescient nature of his words at that moment. Or maybe he did.
Mere days after FY14 ended, Forlenza announced his company’s $12.2 billion merger with San Diego, Calif.-based CareFusion Corp., manufacturer of patient safety-focused medical devices like smart infusion pumps and automated medication administration cabinets. The purchase price was nearly three times CareFusion’s value on its first day of trading, when it closed with a $4.2 billion estimated worth.
The deal is quite the coup d’état for Forlenza, as it allows the chief executive (who will lead the combined entity, of course) to meld both firms’ complementary product portfolios into a formidable patient safety solutions provider, offering hospital clients integrated systems to maximize patient outcomes in infection prevention, respiratory care and acute care procedural effectiveness.
“CareFusion focuses a lot on medication dispensing and targets cutting healthcare custs through efficiency,” Bloomberg Intelligence analyst Jason McGorman told The San Diego Union-Tribune. “That may help hospitals cut costs and reduce infections, both of which are goals from Obamacare [the Patient Protection and Affordable Care Act].”
Indeed, CareFusion is a departure from BD’s traditional growth strategy of smaller, tuck-in acquisitions and thus may present some integration challenges not posed by previous deals. But many potential benefits exist—not the least of which is the boost it most certainly will give to BD’s bottom line: Industry analysts expect the deal to be double-digit accretive to Becton’s cash earnings per share (EPS) as early as this current fiscal year (ending Sept. 30). The company also is likely to adopt cash EPS reporting, which will allow the stock to be valued on a higher earnings base, Leerink Swann & Co. Senior Equity Research Analyst Richard Newitter predicted last year.
To minimize its integration risk exposure and limit the firm’s total debt load, BD trimmed $250 million from its operating expenses through overhead cost-cutting, combining operations and scaling down certain manufacturing operations. Company executives said the savings would be fully realized by 2018.
A wise financial move, for sure, but the downsizing’s estimated savings nevertheless is dwarfed by the $13.8 billion debt BD listed on its second-quarter 2015 balance sheet (ended March 31), more than quadrupling the $3.97 billion it owed at FY14’s close (ended Sept. 30, 2014). Most of the increased debt stems from the $7.7 billion in bonds, term loans and cash the company is using to finance the CareFusion marriage (at a 2.6 percent average interest rate).
The spike in debt prompted Moody’s Investors Service, the credit rating agency of Moody’s Corporation, to downgrade Becton’s senior unsecured ratings to Baa2 from A3 after the deal was finalized in March. The credit agency cited BD’s weakened liquidity profile, its questionable strength in emerging markets, its ability to help reduce medication errors, and its increased vulnerability to America’s fickle market for hospital capital equipment as reasons for the lower ratings.
Shrinking sales surely was a determinant as well, though Moody’s didn’t specifically address the likelihood that BD’s 4.5 percent to 5 percent annual revenue growth rate will dip below 4 percent with CareFusion under its wing. Industry analysts, however, expect any sales decline to be offset by “turbo-charged” earnings as the combined entity morphs into a medication management enterprise, controlling the delivery of therapy to patients—inside and outside the hospital—from syringes to dispensing and drug infusion pumps.
JPMorgan Chase & Co. analyst Michael Weinstein predicts Becton’s bottom-line growth to jump 5 percent to 12.7 percent through 2018—”accretion [that] will be hard to ignore.” The earnings expansion more than compensates for the sales decrease; thus the sacrifice “is a trade-off investors will be willing to make,” Weinstein wrote in his upgrade of BD stock last fall.
By expanding its scale of operations and its product portfolio, the new and improved BD is expected to have a greater influence with the hospitals it supplies. A fair portion of the company’s lineup traditionally has been commodity-based disposables, while CareFusion’s offerings often have been more difficult for healthcare institutions to swap out.
“We see the customer base changing rapidly around the globe,” Forlenza said when the mega-merger was announced. “We see them consolidating, and we think that the low-hanging fruit in healthcare cost savings have been achieved by the customer base. That means hospitals have to do business differently and that requires the re-engineering of processes. [With] this deal, we’re able to put together and end-to-end process system and really attack, with great transparency, a process that is central to running a hospital—the medication management process. You can only do that if you have scale in the opportunity, and breadth. And when I say breadth, I’m not talking about more products in the bag, I’m talking about things that fit together as a solution that enables you to re-engineer a process. I think there are people who are going for solutions, I think there are other industry players that are going for breadth, and I would characterize that as more products in the bag. This [deal] is about solutions. We think that positions us very well in an industry where the buying process is moving up in the organization, and they’re looking for strategic partners.”
Obviously, the CareFusion purchase radically enhanced BD’s collaborative appeal, but it was not the company’s only hookup last year. Becton also acquired privately held diagnostic instrument firm Alverix Inc. for $40 million; the pair worked together since 2008, designing and developing the BD Veritor System, a device that can rapidly detect Flu A + B. In addition, Becton joined forces with Microsoft and Healthbox to help nurture medtech startups, and with Israel’s Office of the Chief Scientist to further develop the country’s medical device industry.
“These relationships give BD access to some of the world’s best science, technology and entrepreneurs—all with the goal of incenting the entrepreneurial community to consider and pursue early-stage business concepts that align with BD’s strategic interests,” Forleza explained in the FY14 annual report. “Our aim is to create a portfolio of partnerships comprised of small financial investments with opportunities for deep, hands-on engagement and strategic exploration.”
And profits, of course. Forlenza is hoping BD’s new partnerships will help the firm evolve well beyond FY14’s financial results, though it might take some time before the company reaps the full rewards of all its unions (particularly the CareFusion merger). BD had a fairly profitable year in fiscal 2014, growing total revenue 4.8 percent to $8.4 billion and expanding both its basic and diluted EPS by more than 28 percent. Gross margin climbed 3.1 percent to $4.3 billion but net income fell 8.3 percent to $1.18 billion.
Cash flow from operations remained solid, totaling $1.7 billion, and the company returned $800 million to shareholders through a combination of buybacks and dividends.
More than 60 percent of FY14 sales ($5 billion) were international transactions, with more than 25 percent originating in emerging markets, according to the annual report. China, Latin America and India accounted for nearly 15 percent of total revenue while the United States comprised 40.5 percent at $3.4 billion.
Becton’s three business segments gave flawless performances, with each achieving solid increases in their respective swan songs (the firm restructured its business units as of Oct. 1, reducing its reporting divisions from three to two—BD Medical and BD Life Sciences). The Medical segment led in growth, boosting sales 6.2 percent to $4.5 billion due to strong emerging market and international safety proceeds. Across-the-board increases in the segment’s three product divisions didn’t hurt either: Medical Surgical Systems sales rose 5 percent to $2.3 billion, while Diabetes Care and Pharmaceutical Systems revenue jumped 7 percent and 7.6 percent to $1 billion and $1.2 billion, respectively.
BD bigwigs attributed Diabetes Care growth to strong pen needle sales, particularly the BD Ultra-Fine Nano, BD PentaPoint and AutoShield Duo products, the latter of which is now sold in retail pharmacies. Pharmaceutical Systems, on the other hand, benefited mainly from the first-quarter 2013 purchase of Safety Syringes Inc., a Carlsbad, Calif.-based developer of needle guard products for prefillable syringes.
The Diagnostics segment followed a similar growth trajectory, expanding revenue through strong performances in both its divisions as well as higher diagnostic platform proceeds. Diagnostic Systems sales drivers included the BD Max, BD Affirm, BD BACTEC blood culture and tuberculosis systems and BD Phoenix automated microbiology system. Those gains, however, were somewhat offset by weaker sales of the company’s Women’s Health and Cancer platform—due mostly to U.S. guidelines for increased pap smear testing intervals—and share losses related to the BD ProbeTec and BD Viper systems.
Despite the setbacks, Diagnostic segment revenue climbed 2.5 percent to $2.7 billion compared with FY13. Preanalytical Systems proceeds rose 4.4 percent to $1.4 billion on strong sales of safety-engineered products, including the BD Vacutainer push button blood collection set. Diagnostic Systems sales rose 0.6 percent to $1.3 billion.
Biosciences segment revenue jumped 5.2 percent to $1.15 billion. Executives attributed the gain to double-digit emerging market sales growth, strong clinical reagent revenue worldwide and solid instrument placements in both Asia and the United States.