Last month Becton Dickinson (BD) announced it will purchase CR Bard (Bard) for $24 billion, creating buzz in the medtech space. At first this acquisition seems perplexing, these two companies have different approaches to achieving growth, have different relationships with providers in the US, and offer a fairly different range of devices. After discussing this acquisition with DRG medtech analysts who study these companies in depth (Xi Chen, Benazir Premji, Fernando Amador, and Beata Blachuta), we summarized their insight below.
Although it may seem like Bard and BD have little synergy in their product portfolios, this acquisition of Bard by BD will enable BD to offer a full continuum of care through the progression of a disease. Over the past few years we have seen swift hospital consolidation, with the provider landscape now dominated by large networks that own multiple hospitals, ambulatory surgical centers, and offices. As such, it is increasingly important for device companies to serve as a single vendor partner for providers. Bard’s devices will enable BD to offer an all-encompassing treatment for cancer, from diagnosis, to treatment, and pain management. Bard’s portfolio of biopsy devices, vascular access catheters, and feeding devices, will complement BD’s existing cancer product line, which includes chemotherapy drugs and medication management, as well as infusion pumps and drug-dispensing equipment from its acquisition of CareFusion in 2015. Similarly, Bard’s strong vascular disease portfolio will supplement BD’s existing diabetes line, providing product synergies for diabetic patients, who often suffer from peripheral vascular ailments.
Bard also benefits from BD’s different sales growth strategy. BD’s focus is on commodity products that every healthcare facility uses so its relationships with purchase order managers is essential. Bard, on the other hand, drives much of its growth from selling innovative therapeutic devices. This requires slick marketing to physicians. However, consolidated hospital networks in the US want to minimize the number of vendors they deal with, driving consolidation in the medtech space. Prime examples of this are Zimmer’s acquisition of Biomet, Medtronic of Covidien, and Abbott of St. Jude Medical. These large companies now offer a wide range of devices to satisfy the needs of larger customers. These customers are also more attentive to cost differentiation between competitors than the usual incremental clinical benefits that are the subject of marketing aimed at physicians. As the role of physicians in device purchasing continues to decline, the competitive advantage goes to companies who already speak the language of purchase order managers: pricing and logistics. Bard’s devices now have the advantage of accessing this sales strategy.
It is interesting to compare this recent transaction to Medtronic’s divestiture of its medical supplies business to Cardinal Health in April. Originally part of Covidien’s suite of devices, Medtronic’s medical supplies business is like what BD sells, facility commodities that compete on price. Cardinal Health is choosing to expand the range of simple devices they sell while BD is expanding into innovative therapeutic devices. Although the nature of these transactions are different, the reason for them is the same: offering a consolidated purchasing experience for large healthcare networks.
So what does Bard gain from being acquired? For one, it gains some protection from the growing number of lawsuits over its inferior vena cava filters and vaginal mesh devices. BD generates more than four times the revenue than Bard and the new combined company will be better able to whether the potential financial storm of paying thousands of litigants. Rebranding these devices under the ‘BD Interventional’ name may also help lessen the negative view of these devices, increasing sales.
Overall, both Bard and BD can leverage their individual presence in OUS markets to accelerate growth and strengthen their overall share in this space. While BD already has a well-established presence in markets outside the US, Bard’s strong international sales presence has allowed it to make significant progress abroad. Unifying these sales forces will create an international juggernaut that will be a force to be reckoned with.
It will be interesting to see how the sales and marketing team for Bard’s innovative devices division integrates into BD. The product portfolio synergies across the disease spectrum, offering a unified purchasing experience, lawsuit considerations, and OUS expansion all played a role in the decision for BD to acquire. We are now keeping our eyes on other medium-sized medtech companies that pose lucrative opportunities for healthcare companies to realize the same advantages of the newer and larger BD business.