Sean Fenske, Editor-in-Chief07.27.18
What was I just saying in my Letter last issue? The more things change…? Well, it holds true going forward in this issue too—our annual Top Companies report. This expansive offering provides an in-depth look at the happenings within the top 30 companies leading the medtech sector (ranked by sales, not our opinions). After reviewing all 30, certain patterns and trends begin to reveal themselves. And this is where the phrase from last issue’s Letter rings true.
In my last Top Companies issue Letter in 2017, I reflected on a number of trends that had been covered a year earlier in the 2016 Letter to see what differences there were 12 months later. This year, many of those same trends are still prominent within the reports. Megamergers and aggressive M&A strategies dominate the medtech landscape. There were a multitude of deals with a price tag that reached into the billions, and a bevy of transactions in the hundreds of millions in value. In addition, companies are adjusting to address a value-based healthcare marketplace, whether through key product releases or comprehensive service offerings. A global market view was yet another trend identified in those previous Letters—a strategy that remains in this year’s reports.
Again, the more things change…
One item of note left unmentioned, however, in either Letter (although it was highlighted in the introduction to the Top 30 reports last year) is a trend that could be called a strategic refocusing. That is, the divestiture of non-key business units, products, or capabilities in order to streamline a company’s portfolio to center on therapies that executives view as better growth or higher revenue opportunities. Sure, this has happened through all the reports in the last few years, but it seemed to be even more prominent after completing this year’s feature.
Now, not every divestiture is a company shedding an underperforming business unit. For example, Abbott (page 66) sold elements of its (and St. Jude’s) Vascular Closer Business to Terumo (page 129) as a necessary stipulation in order to be able to finalize the St. Jude acquisition.
In other scenarios, a parent company will spin off a unit because the business demonstrates an ability to stand alone. Such is the case with GE Healthcare (page 50), one of the more successful divisions of GE, which has been a troubled company overall in recent years. GE Healthcare, as an independent entity, will not be weighed down by poor performing sister divisions within GE, impacting its ability to grow and prosper as a single-focused healthcare technology entity.
Or another recently announced spinoff, Alcon (page 114) will finally leave Novartis and become an independent entity. The parent company had announced it would conduct an extensive review of the eye care unit during 2017 and, perhaps due in part to the segment finally showing positive gains, was deemed able to stand on its own.
Companies that have divested portions of their business to better focus on other healthcare sectors include Medtronic’s (page 37) sale of the former Covidien medical supplies business to Cardinal Health (page 74), Varian’s (page 150) separation from Varex, Baxter’s (page 87) launching of Baxalta, Getinge’s (page 145) breakup from Arjo, and Johnson & Johnson’s (page 44) sell-off of its diabetes assets. There are a number of other examples of this trend to be found within this issues’ reports.
Perhaps it’s a gross oversimplification, but I did get a feel for what it must be like to attempt to run a business that maintains focuses on multiple, unique industry sectors. In writing some of these reports, when a company touches different markets such as healthcare, consumer, aviation, etc., it was more challenging to delve into the healthcare segment than with those focused 100 percent on the medical space. Take a company like Philips (page 56). In previous years, the firm’s annual report was a conglomerate of insights on financial performances across a number of industries. Uncovering motivation for certain actions the company took was difficult because decisions at other segments could have influenced those moves. Now, as a pure healthcare company, that type of information is more readily revealed.
I hope you enjoy diving into this year’s company reports and gain valuable insights on the performance of these firms. I expect you will find trends and patterns yourself. Perhaps the next big megamerger will be unveiled to you before any such announcement based on potential synergies you see in the reports of two companies. At the very least, I hope the information helps with your own business planning or allows you to identify customer prospects who are focusing on healthcare segments for which you are developing new innovations.
In my last Top Companies issue Letter in 2017, I reflected on a number of trends that had been covered a year earlier in the 2016 Letter to see what differences there were 12 months later. This year, many of those same trends are still prominent within the reports. Megamergers and aggressive M&A strategies dominate the medtech landscape. There were a multitude of deals with a price tag that reached into the billions, and a bevy of transactions in the hundreds of millions in value. In addition, companies are adjusting to address a value-based healthcare marketplace, whether through key product releases or comprehensive service offerings. A global market view was yet another trend identified in those previous Letters—a strategy that remains in this year’s reports.
Again, the more things change…
One item of note left unmentioned, however, in either Letter (although it was highlighted in the introduction to the Top 30 reports last year) is a trend that could be called a strategic refocusing. That is, the divestiture of non-key business units, products, or capabilities in order to streamline a company’s portfolio to center on therapies that executives view as better growth or higher revenue opportunities. Sure, this has happened through all the reports in the last few years, but it seemed to be even more prominent after completing this year’s feature.
Now, not every divestiture is a company shedding an underperforming business unit. For example, Abbott (page 66) sold elements of its (and St. Jude’s) Vascular Closer Business to Terumo (page 129) as a necessary stipulation in order to be able to finalize the St. Jude acquisition.
In other scenarios, a parent company will spin off a unit because the business demonstrates an ability to stand alone. Such is the case with GE Healthcare (page 50), one of the more successful divisions of GE, which has been a troubled company overall in recent years. GE Healthcare, as an independent entity, will not be weighed down by poor performing sister divisions within GE, impacting its ability to grow and prosper as a single-focused healthcare technology entity.
Or another recently announced spinoff, Alcon (page 114) will finally leave Novartis and become an independent entity. The parent company had announced it would conduct an extensive review of the eye care unit during 2017 and, perhaps due in part to the segment finally showing positive gains, was deemed able to stand on its own.
Companies that have divested portions of their business to better focus on other healthcare sectors include Medtronic’s (page 37) sale of the former Covidien medical supplies business to Cardinal Health (page 74), Varian’s (page 150) separation from Varex, Baxter’s (page 87) launching of Baxalta, Getinge’s (page 145) breakup from Arjo, and Johnson & Johnson’s (page 44) sell-off of its diabetes assets. There are a number of other examples of this trend to be found within this issues’ reports.
Perhaps it’s a gross oversimplification, but I did get a feel for what it must be like to attempt to run a business that maintains focuses on multiple, unique industry sectors. In writing some of these reports, when a company touches different markets such as healthcare, consumer, aviation, etc., it was more challenging to delve into the healthcare segment than with those focused 100 percent on the medical space. Take a company like Philips (page 56). In previous years, the firm’s annual report was a conglomerate of insights on financial performances across a number of industries. Uncovering motivation for certain actions the company took was difficult because decisions at other segments could have influenced those moves. Now, as a pure healthcare company, that type of information is more readily revealed.
I hope you enjoy diving into this year’s company reports and gain valuable insights on the performance of these firms. I expect you will find trends and patterns yourself. Perhaps the next big megamerger will be unveiled to you before any such announcement based on potential synergies you see in the reports of two companies. At the very least, I hope the information helps with your own business planning or allows you to identify customer prospects who are focusing on healthcare segments for which you are developing new innovations.
