The Economist: Medtronic’s deal with Covidien makes sense

From The Economist:

As American hospital operators consolidate, medical-device companies can no longer woo individual doctors over filet mignon, but must present their wares to sceptical, centralised hospital bureaucracies.

Medtronic, like many other device firms, is trying to respond to these changes. Last year it announced a new business to help hospitals become more efficient—it wants them to start seeing it as an ally, not an adversary. Its collaborations include running two catheter labs for Britain’s National Health Service. Medtronic is also seeking to develop not just slightly improved products, but much better ones. Its new implanted heart monitor, about the size of a paper clip, sends a patient’s data to his doctor and nurses, so they can immediately spot problems. And Medtronic has enthusiastically chased growth in emerging markets. In 2012 it spent more than $800 million buying Kanghui, a Chinese maker of replacement hips and knees.

Covidien will help it do more. As in any merger between similar firms, there will be scope for cutting overlapping costs. Their product ranges are complementary: Medtronic excels at specialist gear for cardiology, neurology and diabetes; Covidien’s strengths include tools for general surgery. In rich countries, being able to offer bundles of kit will give the group a better negotiating position with governments and hospitals. And in emerging markets, Medtronic will be able to reach a broader set of patients, notes Matthew Dodds, an analyst at Citigroup. Medtronic’s sophisticated implants are well suited to upmarket urban hospitals in China, for example. But even less advanced hospitals are likely to buy Covidien’s sutures and staples, used in all kinds of surgery.

Posted by on June 20th, 2014 at 11:51 am


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