Medical Technology Firms Branch Out
February 01 2016 - 5:42PM
Dow Jones News
By Joseph Walker
Medical technology firms Abbott Laboratories and Stryker Corp.
announced separate acquisitions with a combined value of $8.6
billion, aiming to further expand their portfolios beyond implanted
devices and appeal to hospitals and clinics looking to bring down
costs.
Abbott agreed to pay $5.8 billion for diagnostic-testing company
Alere Inc., whose tests for HIV, malaria and the flu can deliver
results faster than traditional laboratory tests that can take days
to process. Abbott said it would pay $56 a share, a 51% premium to
Alere's closing price on Friday. Alere has $2.6 billion in debt,
which Abbott said it would take on or refinance.
Stryker said on Monday it would buy closely held Sage Products
LLC for $2.78 billion in cash. Sage, whose revenue increased 13% to
$430 million in 2015, makes a broad array of products used to
reduce the risk of patients acquiring new infections or conditions
while in the hospital. Sage's products include antiseptic cloths to
clean patients and an inflatable device for moving patients between
beds or surfaces.
Monday's deals are the latest in which medical technology
companies have aimed to diversify their businesses outside of
expensive medical-device implants. Both Stryker, which makes
replacement hip and knee implants, and Abbott, maker of devices for
heart disease, have faced increased price pressure from hospitals
looking to cut costs by negotiating better discounts on implanted
devices.
"Device companies are a cost that hospitals are managing," said
Raj Denhoy, an analyst at Jefferies LLC, in an interview. "If
you're just offering an implant that's used in a one-off procedure,
that's going to be difficult business over time, and it already is
a difficult business."
Abbott, based outside of Chicago, already has a diagnostic
business that had global sales of $4.65 billion in 2015,
representing nearly a quarter of the company's $20.41 billion in
total revenue last year.
About 10% of Abbott's diagnostics revenue came from the type of
testing Alere specializes in--so-called point-of-care testing,
which is performed at the doctor's office or clinic where the
patient is being treated. Abbott Chief Executive Miles White said
he didn't see a "high risk" of antitrust regulators challenging the
deal.
"Demand for point-of-care testing is accelerating as health-care
providers and consumers look for better ways to get fast, accurate
and actionable information," Abbott's Mr. White said during a
conference call with analysts on Monday to discuss the
acquisition.
Point-of-care tests are often more expensive than those done at
a central, off-site lab, Jefferies's Mr. Denhoy said. But the tests
are also much faster at diagnosing disease and infection, which, if
treated quickly, can prevent or reduce even greater costs down the
road, he said.
Alere, based in Waltham, Mass., had grown rapidly through
acquisitions, but more recently sold off some of its noncore
businesses such as its analytics business for disease
management.
Alere struggled in 2015, missing analyst estimates in the second
half of the year, in part due to challenges in its malaria and HIV
testing business in Africa, Mr. Denhoy said. Last August, Alere was
subpoenaed by the U.S. Securities and Exchange Commission in
relation to its tax strategies and policies, and its sales
practices related to government entities in Africa. Alere didn't
immediately respond to request for comment about the subpoena.
Alere shares jumped 45% on Monday, to $54.11, and Abbott's
shares were up 1.6%.
Stryker's deal for Sage is its latest geared toward reducing
infections and medical mishaps that can cost hospitals money. In
December 2013, Stryker purchased the maker of software designed to
track surgical sponges and prevent them from being left in
patients' bodies during surgery. Stryker is based in Kalamazoo,
Mich. Sage is based in Cary, Ill.
Stryker Chief Executive Kevin Lobo said on a conference call
with analysts on Monday that the acquisition of Sage shouldn't be
viewed as a strategic shift away from orthopedic devices.
"The next deal we do could very well be in the implant side of
the business or it may not," Mr. Lobo said. Stryker shares were
trading flat at Monday's close.
Write to Joseph Walker at joseph.walker@wsj.com
(END) Dow Jones Newswires
February 01, 2016 17:27 ET (22:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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