Prior Fiscal: $6.82 Billion
Percentage Change: +8.9%
No. of Employees: 96,163 (total)
Global Headquarters: St. Paul, Minn.
Michael F. Roman, Board Chairman, President, and CEO
John P. Banovetz, Sr. VP, Research and Development,
and Chief Technology Officer
Ivan K. Fong, Sr. VP, Legal Affairs and General Counsel
Julie L. Bushman, Exec. VP, International Operations
Nicholas C. Gangestad, Sr. VP and Chief Financial Officer
Eric D. Hammes, Sr. VP, Enterprise Operations
Stephen M. Shafer, Sr. VP, 3M Strategy and Business Development
Ty R. Silberhorn, Sr. VP, Business Transformation and Information Technology
Mojdeh Poul, Exec. VP, Health Care Business Group
Kara Fan once seemed destined for a computer science career.
She was the perfect prospect: intelligent, ambitious, diligent, somewhat nerdy, and extremely disciplined, guided by parents already working in the industry.
Then Fan’s grandmother became ill, and her destiny changed in an instant.
“A few years ago, my grandmother had a UTI [urinary tract] infection and she was taken to the emergency room,” Fan told news outlets last fall. “Thankfully, antibiotics saved her life. Since then, I got interested in this.”
“This” meaning microbiology—the study of microscopic organisms such as viruses, archea, fungi, protozoa, and bacteria. The latter class of beings particularly interested Fan for their direct involvement in her grandmother’s hospital visit.
In researching the subject of microbiology online, Fan found a Scientific American article about the overuse of antibiotics and the subsequent rise in drug-resistant “superbugs.” U.S. Centers for Disease Control (CDC) data show that more than 2.8 million antibiotic-resistant infections occur annually in the United States, and over 35,000 people die from them. In addition, nearly 223,900 U.S. residents required hospital care for C. difficile and at least 12,800 people died in 2017, according to CDC statistics. If left alone, the United Nations estimates that drug-resistant disease could lead to 10 million deaths worldwide by 2050.
ANALYST INSIGHTS: We certainly heard a lot about 3M during the COVID19 pandemic, as PPE became common jargon among average Americans. With that aside, 3M continues to focus on its core Healthcare biz units, and recently reinforced this with their May 2020 sale/spinout of Kindeva Drug Delivery to Altaris ($650M deal price) into a standalone CDMO drug delivery partner. (3M is retaining a 17% stake in Kindeva.)
—Mark Bonifacio, President, BCS LLC
The data concerned Fan. She didn’t want her grandmother (or parents) to become a statistic. Fan decided to find an alternative to antibiotics, an option that preferably could curb the alarming growth of drug-resistant bacteria. Early on in her quest, Fan discovered that some ancient civilizations used tiny amounts of copper or silver to help heal wounds.
Using the ancients as her inspiration, Fan began developing a nanoparticle liquid bandage that both treats wounds and prevents bacterial infection. She first enlisted copper nitrate in her personal war against germs, but the material proved ineffective; she achieved better results with silver (nitrate), mixed with lemon leaf and a water-soluble polymer. “Thousands of years ago, ancient people would use copper and silver to eat with and they would drink water from like copper bowls to kill bacteria,” she explained to Yahoo! finance. “I found out that it didn’t work. So I used nano silver.”
Fan tested her solutions at the University of California-San Diego, using a petri dish to measure the growth of bacterial colonies (Staphylococcus epidermidis, E. coli K12, Bacillus subtilis) against her liquid bandage. The teen’s innovation creates a thin layer of wound protection while simultaneously breaking down bacterial cell walls, killing the germs within seconds.
Fan unveiled her creation last spring at the California Science and Engineering Fair in Los Angeles. During the event, she learned about 3M’s Young Scientist Challenge, an annual competition for middle school student-created solutions to everyday problems. Fan entered the contest and won its top prize last fall, beating out hundreds of remedies.
Fan’s victory was not surprising to Sara Hemmer, a 3M advanced product development engineer who helped Fan prepare her presentation for the contest’s expert panel. “There are only a couple products on the market today that are being advertised as liquid bandage with the use of silver nanoparticles,” Hemmer told The San Diego Union-Tribune last fall. “Most of these products seem to do more preventing of infections and not necessarily treating the infection or bacteria. Kara’s solution actually reduces the growth of the bacteria. The issues she’s identified, the misuse and overuse of antibiotics, is a huge problem.”
A huge problem that, thanks to Fan, may finally have a viable solution.
Obviously, Fan’s liquid bandage is nowhere near ready for market, but her innovation is reportedly being evaluated by the Young Scientist Challenge sponsor, 3M. The multinational conglomerate manufactures several types of liquid bandages but none use silver as an antimicrobial agent.
Fan’s invention could potentially be a golden market opportunity for 3M as the company positions itself for long-term growth and value creation. In its quest to build a more customer-driven and streamlined organization, the materials science firm last year realigned its business segments, reducing its reporting groups from five to four and embarked on a five-year strategic improvement plan centered on four priorities: Portfolio, People and Culture, Innovation, and Transformation.
“In 2019 we began to take the next step in our transformation journey including a new global operating model and streamlined organizational structure. We have since reorganized the entire company around our new business groups to take full advantage of our transformation capabilities,” 3M Board Chairman and CEO Mike Roman said in the company’s 2019 annual report. “This new model will drive more accountability to our business groups to strengthen performance and serve both global and local customers, while enabling stronger customer insights and more powerful innovation. It will also allow us to leverage similarities across markets, while maintaining the robust local capabilities that differentiate 3M...Ultimately, this is a defining moment for our enterprise. We are modernizing how we run our business and building an organization for the future, and I am more confident than ever in our journey to transform into a more agile, efficient, and competitive enterprise.”
ANALYST INSIGHTS: Having received a lot of attention (positive and negative) during COVID due to its product lines, overall, 3M did receive a nice short-term reprieve for its financial performance as Q2 2020 bolstered its revenues dramatically. The question will now be if 3M can utilize that positive financial momentum to build its performance across its greater market segments in the next 12 to 24 months.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
That transformation was off to a slow start last year as 2019 total sales slipped 2.1 percent to $32.1 billion, net income tumbled 14.5 percent to $4.57 billion, and GAAP earnings per share shrank 12.1 percent to $7.81. Free cash flow rose 10 percent to $5.4 billion, and the company returned $4.7 billion to stockholders. Yet revenue rose in only half the company’s business segments—Consumer and Health Care.
The latter segment posted the largest growth rate in fiscal 2019, increasing revenue 8.9 percent to $7.43 billion. Robust health information systems, food safety, and medical solutions sales were somewhat offset by weaker separation/purification solutions proceeds. Oral care revenue remained flat, and drug delivery sales declined, impacting organic Health Care growth.
3M recapped its losses (and then some) in drug delivery sales by selling off the business (excluding its transdermal lineup) in mid-December to an Altaris Capital Partners affiliate for $650 million. The divested division generated roughly $380 million in annual global sales; its products included microneedle delivery systems, nasal devices, oral inhalers, and packaging films for drug delivery.
The business’s $650 million sale price included cash, an interest-bearing security, and a 17 percent non-controlling interest in the new company Altaris Capital created, called Kindeva Drug Delivery. 3M expected to gain 45-50 cents per share from the sale, once completed.
The drug delivery divestment was the third major sell-off for 3M last year: The firm also shed its flame and gas-detection business for $230 million, and a military armor business for roughly $100 million. The company unloaded some oral care technology as well, selling assets related to its True Definition Intraoral Scanner platform to dental equipment manufacturer/supplier Midmark Corporation.
“The ongoing review and reshaping of 3M portfolio is key to maximizing value across our company,” Roman noted in the annual report. “Since 2012 we have moved from 40 businesses to 23, while completing more than 10 divestitures and 14 acquisitions. In 2019 we continued to actively manage our portfolio, with particular progress in strengthening our Health Care business.”
That progress resulted mainly from purchasing M*Modal’s technology business and Acelity Inc. The $1 billion M*Modal deal—finalized in February 2019—excluded the company’s transcripton, medical scribing, and coding business. Franklin, Tenn.-headquartered M*Modal specializes in cloud-based conversational artificial intelligence (AI) systems used in physician documentation.
“This acquisition builds on our strategic commitment to invest in our Health Information Systems business and expands the capabilities of our revenue cycle management and population health priority growth platform,” Mike Vale, executive vice president of 3M’s Health Care Business Group, said in announcing the M*Modal purchase.
Three months after closing the M*Modal acquisition, 3M announced the year’s largest medtech deal, committing $6.7 billion to bring Acelity under its wing. Acelity’s KCI portfolio of surgical dressings, incision closures and advanced therapies are used in more than 800,000 procedures annually across 90 countries, making it one of the world’s biggest wound care companies. Its lineup includes VAC Therapy, the first negative-pressure, foam-based wound closure system, used in the United States since 1995. Newer versions automatically wash the wound with cleansers, while others are specially designed to vacuum out fluids from abdominal injuries while drawing the edges of the wound closer together.
3M acquired San Antonio, Texas-based Acelity from a consortium of funds advised by Apax Partners, the Canada Pension Plan Investment Board, and Public Sector Pension Investment Board (PSP Investments). Finalized in October, the purchase is part of 3M’s attempt to boost advanced and surgical wound care market share.
“Acelity is an excellent complement to our Health Care business,” Roman said when news of the acquisition broke. “This acquisition bolsters our Medical Solutions business and supports our growth strategy to offer comprehensive advanced and surgical wound care solutions to improve outcomes and enhance the patient and provider experience. We are excited to bring Acelity’s technologies and employees to our team. Together, we will apply 3M science to bring differentiated offerings to key wound and operative care solutions worldwide.”
Those solutions have yet to be developed, as 3M has been mostly consumed this year with pandemic relief efforts. But its union with M*Modal has already borne fruit—by way of a clinical documentation improvement tool that uses AI to boost speed and efficiency for clinicians and coders. Unveiled last September (2019), the 3M M*Modal CDI Engage One is deployed through a cloud-based platform and integrates with the 3M 360 Encompass computer-assisted coding and CDI workflow system, offering quality metrics and analytics. Together, the tools offer more efficient back-end CDI processes, helping health systems save hours of manual review with CDI worklist prioritization, streamlined queries, and clinical evidence-based documentation analysis.
The CDI Engage One was not 3M’s only new product last year. The company also expanded its wearable medical device adhesives lineup, adding the 3M Extended Wear Medical Transfer Adhesive 4075 to its offerings. Designed to laminate many substrates, the new addition features an extended wear pressure sensitive transfer adhesive and allows design engineers to use a variety of backings. It also offers excellent initial skin adhesion with up to a 14-day wear time, depending on the backing material used, according to 3M.
Q1 2020 Revenue: $8.07 Billion (total); $2.1 Billion (Health Care)
Q1 2019 Revenue: $7.86 Billion (total); $1.74 Billion (Health Care)
Percentage Change: +2.6% (total); +20.8% (Health Care)
3M begins increasing its monthly U.S. production of N95 respirators from 22 million to 26 million in anticipation of higher demand. It also ramps up global mask production at its facilities around the world in order to double its global output rate to 1.1 billion annually. As the virus spreads in China, the company increases its respirator production there, running manufacturing plants 24/7, even during the Lunar New Year holiday. Additionally, 3M helps the Chinese Center for Disease Control and Prevention develop guidelines regarding the use of all forms of respiratory protection in healthcare settings.
3M begins working with the FDA after the agency decides to provide emergency use authorization for respirators used in healthcare facilities. Its monthly U.S. production of N95 masks increases to 33 million, with the firm’s North American supply chain running operations 24/7. The company also helps the Chinese government validate and verify N95 respirator sales offers from non-Chinese entities, and identify potential fraud cases.
3M’s monthly U.S. production of N95 masks climbs to 35 million; respirator production increases at all plants worldwide. The firm and Ford Motor Company partner to increase production of powered air-purifying respirators (PAPRs). 3M delivers a letter to several governmental agencies highlighting its efforts to curb PPE counterfeiting and price-gouging during the pandemic; by month’s end the company establishes a hotline and website to help identify and fight fraud, price gouging, and respirator counterfeiting. 3M also secures Chinese government authorization to import 10 million N95 respirators manufactured in China into the United States.
3M works with the U.S. government to send 90 percent of the 35 million N95 respirators it is producing monthly to healthcare facilities and first responders, with the remainder dispersed to food production, pharmaceutical, and energy workers. The company and the U.S. government forge an agreement to import 166.5 million 3M respirators into America from the firm’s Asian manufacturing plants. President Trump issues an order under the Defense Production Act directing FEMA to acquire N95 respirators from 3M; monthly mask production in China, meanwhile, is expected to reach 50 million, an increase of nearly 200 percent from average 2019 levels. 3M and Columbus, Ind.-based Cummins Corporation team up to boost production of high-efficiency particulate filters for use in PAPRs. The company files multiple lawsuits against alleged price-gougers in the United States and Canada, and it partners with state and federal law enforcement authorities to stop fraud, price-gouging, and N95 counterfeiting.
3M announces additional legal actions to help combat fraud and N95 counterfeiting. The company is awarded two U.S. Department of Defense contracts to further expand its U.S. production of N95 masks. By month’s end, the company delivers to the United States more than 90 million masks made in its Asian plants. Also, the newly designed PAPRs that 3M developed with Ford begin shipping to healthcare workers.