In services push, Medtronic to pay $350 million for Italian firm

  • Article by: JOE CARLSON , Star Tribune
  • Updated: August 28, 2014 - 5:50 AM

Italy’s NGC Medical manages cardiovascular suites, operating rooms and intensive care units.

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Medtronic took another step in the development of its services business by acquiring the portion of Italy-based NGC Medical that it didn't already own. File photo of Medtronic's Fridley headquarters.

Medtronic Inc., which already has big contracts to manage heart-lab operations in dozens of European hospitals, announced a $350 million Italian acquisition Wednesday that aims to expand those efforts.

The Fridley-based maker of medical devices said it would buy NGC Medical S.p.A., of Tolochenaz, which runs hospital departments that use common Medtronic products. The deal is part of an effort by Medtronic to go beyond selling devices to doctors and hospitals and start selling services that put the company in direct contact with patients.

The NGC announcement also fits with a trend of acquisition news streaming out of Medtronic in recent months, including a $43 billion proposed deal to acquire surgical supplier Covidien that would relocate Medtronic’s corporate headquarters to Ireland. On Tuesday, Medtronic announced a $200 million acquisition of Dutch firm Sapiens SBS, which is developing a next-generation deep-brain stimulation device to relieve symptoms of neurodegenerative diseases.

But the NGC acquisition is different because it’s not about expanding Medtronic’s line of physical products.

Rather, NGC provides services — managing cardiovascular suites, operating rooms and intensive care units for Italian hospitals. The company has designs on expanding it services across Europe and elsewhere.

Medtronic already had a 30 percent ownership stake in the company. It had also already quietly built up $500 million in contracts to manage heart-catheterization labs in hospitals in several European nations.

Cath labs are where many cardiac interventions are done using Medtronic products, including stents, which prop open clogged heart arteries with wire-mesh tubes.

Though Medtronic is growing its hospital-solutions business overseas, U.S. consumers shouldn’t expect to see the inside of a Medtronic-branded heart catheterization lab at a hospital near them anytime soon, said Mike Genau, senior vice president of Medtronic’s U.S. region.

American hospitals have much easier access to capital to start up and run cath labs, as compared with the European hospitals where Medtronic is working, which are generally funded directly by governments. Bureaucrats in those countries often find it tough to prioritize hospital funding over other domestic needs, creating a niche for Medtronic to run joint programs to equip and help staff the European labs where Medtronic’s stents could be used.

But Medtronic hasn’t totally foreclosed the idea of bringing the service to the U.S. “To say it will never happen would be too bold,” Genau said in an interview.

In the United States, Medtronic’s push into the “solutions” business has taken the form of remote-monitoring health-data sensors and telehealth services. That includes last year’s $200 million acquisition of CardioCom, a company specializing in devices that help chronically ill patients take their own vitals at home and transmit them to healthcare providers. Moving such services out of expensive clinical care settings and into homes can create value in the company’s eyes.

Medtronic officials declined to release revenue numbers for CardioCom services, but Genau said the number of patients using it has grown 25 percent in roughly the past year, and revenue growth has been even faster.

Medtronic chief executive Omar Ishrak has said that providing solutions, rather than just individual products, will be a key strategy in the future. Boston Scientific, another large devicemaker with a significant workforce in Minnesota, has announced a similar focus.

The move is a logical one for devicemakers in an era when healthcare reform and a ballooning national deficit in the U.S. are creating huge pressure to control healthcare spending.

“We are focused on increasing hospital operational efficiency — providing meaningful clinical and economic improvements for customers, reducing costs associated with readmissions and post-acute care, and helping the system more effectively manage populations of chronically ill patients,” Ishrak wrote in his preamble to Medtronic’s 2014 annual report last spring.

 

Joe Carlson • 612-673-4779

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