IRELAND – Medtronic and DaVita Inc., a national provider of kidney-dialysis services, announced plans to merge some of their businesses to form an independent medical technology company focused on kidney health.

The new company would be led by Ven Manda, president of Medtronic’s Renal Care Solutions business, and would have a six-person board of directors — two from each company and two outside directors.

The new company will develop kidney care products and solutions, including future home-based products, to make different dialysis treatments more accessible to patients.

Medtronic is expected to contribute its Renal Care Solutions business, which manufactures dialysis catheters and other products and had US$325 million in sales in fiscal year 2022.

 According to a securities filing, both companies will also contribute US$200 million in cash to the new venture.

DaVita will make a cash payment to Medtronic as well as non-cash assets to the new company; the contributions, together with contingent payments based on milestones, are worth US$400 million to Medtronic, according to the company.

The two healthcare giants didn’t reveal much else about the planned new company in their announcement, including its name, location, or workforce size.

Chronic kidney disease affects nearly 10% of adults worldwide, amounting to 700 million people. At least 2.6 million of them are currently being treated for kidney failure, a figure that is expected to double by 2030.

There’s no better time for medical device companies to go all-in on developing new dialysis delivery systems and other technologies to treat the most advanced stages of kidney disease.

Disappointing Q4 earnings

Medtronic also reported disappointing fourth-quarter earnings of US$1.48 billion, or US$1.10 per share, compared to US$1.36 billion, or US$1 per share, in the same period last year.

Adjusted earnings per share were US$1.52 per share, lower than the US$1.56 per share expected by analysts.

Revenue fell 1.2 percent to US$8.09 billion, falling short of analysts’ expectations of US$8.4 billion.

According to CEO Geoff Martha, the results were harmed by global supply chain issues, such as China’s crackdown on Covid-19 outbreaks, which caused manufacturing disruptions in that country.

We understand the root causes, we’re addressing them, and we expect them to resolve over the near-term,” he said.

Looking ahead, the company anticipates organic revenue growth of 4% to 5% in fiscal 2023, with earnings ranging from US$5.53 to US$5.65 per share.

Medtronic also increased its quarterly dividend from 63 cents to 68 cents per share.

More spinoffs and divestitures expected

Firms like EY (Ernst & Young), which closely monitor trends in the life sciences industries, have predicted that medtech will see a high level of divestitures and spinoff announcements this year.

Notable examples of these trends have been witnessed in the recent past.

Zimmer Biomet recently completed the spin-off of its dental and spine businesses into ZimVie, BD is spinning off its diabetes business, Johnson & Johnson, GE Healthcare, and Bausch Health have all announced significant operational splits, and Cook Medical is selling its reproductive health unit.

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