Stephan Sturm, Chairman of the Management Board
Francesco De Meo, CEO, Fresenius Helios
Rachel Empey, CFO
Jürgen Götz, Chief Legal and Compliance Officer, and Labor Relations Director
Mats Henriksson, CEO, Fresenius Kabi
Rice Powell, CEO, Fresenius Medical Care
Ernst Wastler, CEO, Fresenius Vamed
NO. OF EMPLOYEES: 273,249 (total)
GLOBAL HEADQUARTERS: Bad Homburg, Germany
Fresenius Group is perfectly named—as a group. The organization consists of a group of four, seemingly unrelated, healthcare businesses that serve different aspects of the care chain. Fresenius Medical Care is a worldwide provider of products and services for those suffering from chronic kidney failure. Fresenius Kabi is focused on IV administered drugs and pharmaceutical solutions for the treatment of oncological and other critical diseases. Meanwhile, Fresenius Helios is a private hospital operator with locations in Germany and Spain (formerly Quirónsalud). Finally, Fresenius Vamed manages projects and provides services for hospitals and other healthcare facilities worldwide. All are valued healthcare partners across the care chain, but it is challenging to identify the Group’s medical device contingents.
As such, for the purposes of the revenue number presented at the beginning of this report, the sales are pulled from a few specific locations. First, and representing the largest portion of the total, is the Medical Care Business’ health care products segment, which contributed 3.3 billion euros to the total. This was a 6 percent increase over prior the fiscal year in 2016 (the company’s fiscal year runs Jan. 1-Dec. 31). An interesting aspect of Fresenius Medical Care is that it represents a model some have predicted the industry could see other medical device firms take. That is, the company focuses on one therapeutic sector (in the case of Medical Care, that condition is chronic kidney failure) and provides the complete vertical care chain to support treatment, from products to healthcare services. In comparison, Medtronic has been developing a similar care model for the treatment of diabetes for several years.
Also of note, while the overwhelming majority of Medical Care’s 17.8 billion euros in sales are attributed to the health care services’ segment in North America (more than 12 billion euros), the health care products’ segment in the same region is only 843 million euros. This is noteworthy when compared to the international figures for the business, which shows the segments contribute almost equally in sales. Products (2.4 billion euros; a 7 percent increase over 2016) come in just under health care services (2.5 billion euros; a 9 percent increase over the prior year). While the company’s annual report doesn’t cite a specific reason for the difference in these figures, it does note that Fresenius Medical Care holds a leading position in worldwide dialysis care, serving about 10 percent of all dialysis patients, and enjoys a 35 percent market share in dialysis products.
The disparity in North America could remain unchanged in next year’s report, but if a key acquisition goes through, the firm may see the gap between services and products shrink. In August, Fresenius announced that it was moving to acquire NxStage Medical. The company develops, manufactures, and markets products for the treatment of end-stage renal disease (ESRD) and acute kidney failure. It has also established a small number of dialysis clinics designed to treat patients with ESRD. In its 2017 fiscal year, NxStage posted almost $400 million in revenue, the overwhelming portion attributed to its Products Business (almost $380 million). This would certainly bolster the Medical Care business’ health care products segment revenue contribution.
“The acquisition supports our 2020 strategic initiative of driving growth in the core business with innovation, better clinical outcomes through Care Coordination, and improving the patient experience,” said Rice Powell, Fresenius Medical Care chairman and CEO. “Combining our two companies would strengthen and diversify our business in the U.S. and help meet the evolving needs of our patients.”
“Home dialysis is a critical component of renal care, and this acquisition would help us accelerate growth and innovation in this important modality,” said Bill Valle, CEO of Fresenius Medical Care North America. “I look forward to teaming up with Jeff Burbank [founder and CEO of NxStage Medical] and his team to transform the delivery of home dialysis care in the U.S.”
While Stephan Sturm, chairman of the management board at Fresenius, told shareholders in the company’s 2017 annual report the transaction was expected to close in 2018, as of this writing, the deal is not yet complete. Dan Caplinger pointed to several concerns with regard to the deal’s closing in an article for The Motley Fool in November 2017. Specifically, he noted, “The merger still needs to meet several conditions, including regulatory antitrust approval, avoiding adverse investigations from other regulators, and various other customary closing provisions. With the stock now between 10 percent and 15 percent below the $30-per-share cash offer price, NxStage investors seem to be a bit nervous about whether the deal will actually go through in its current form.” With a deadline of Aug. 7, 2018, it’s understandable why NxStage shareholders could be concerned about the completion of the approximately $2 billion merger. Those same shareholders had previously and overwhelmingly approved the deal in October 2017, with 72 percent of the shares voting in favor of the transaction.
The remainder of the $6.3 billion posted at the start of Fresenius’ report (converted into U.S. dollars) is pulled from two segments of the Kabi business. Specifically, infusion therapy’s 903 million euros in sales was combined with its Medical devices/Transfusion technology’s portion, which represented 1.1 billion euros in sales. These two segments enjoyed gains of 6 percent and 5 percent, respectively, over the prior year.
Similar to Medical Care, the Kabi business faced challenges in terms of M&A that could ultimately fall through. In April, Fresenius Kabi announced it was making a play for Akorn, a U.S.-based manufacturer and marketer of prescription and over-the-counter pharmaceutical products, for approximately $4.3 billion. While it was expected the deal would close in early 2018, the transaction ran aground in light of some questions regarding Akorn’s product development process for new drugs. In the aforementioned letter to shareholders in the annual report, Sturm explained that the company had “received specific, anonymous information alleging deficiencies and misconduct” in Akorn’s methods. He added, “Before we can close this acquisition, we are obligated to investigate these allegations thoroughly.” Further complicating the matter, Akorn’s financial performance has slumped substantially, which has likely caused Fresenius Kabi to reevaluate its initial offer. Like the Medical Care transaction, the fate of this deal is still unknown at the time of this writing.
Perhaps realizing the attention needed to address these transactions, as well as the typical financial responsibilities a company like Fresenius generates, a new chief financial officer, Rachel Empey, was brought aboard on Aug. 1, 2017. The position had been handled by Sturm, the previous CFO, who had been in the role since 2005 and continued even after his appointment to CEO in 2016. Empey had come to Fresenius from Telefónica Deutschland Holding AG, where she was chief financial and strategy officer.
Perhaps relieved to finally hand over the economic reins so as to be able to focus solely on the CEO position, Sturm commented, “I am very much looking forward to working with Rachel Empey. She is going to be the perfect fit for our Management Board. Along with first-rate qualifications and skills, wide-ranging experience, and an engaging personality, she will bring new insights to Fresenius from another dynamic and innovative industry.”