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Behind Becton Dickinson’s Strategic Restructuring and Business Consolidation

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Overview

The US medical device industry has been undergoing a disruptive change. Margins are shrinking, and competition is intensifying. To better position itself amid such changing business environment, Becton Dickinson and Company (BDX), or BD, has come to focus on business restructuring and business model evolution. The company is now aiming to divert capital from less profitable businesses and less strategically placed divisions toward core business needs to increase profitability and better sustainability.

Behind Becton Dickinson's Strategic Restructuring and Business Consolidation

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Rx business divestment

In January 2016, BD sold its BD Rx business, which includes its Simplist drug portfolio, as well as a pharmaceutical manufacturing plant to Fresenius Kabi, a Germany-based healthcare company. BD and Fresenius Kabi have also entered into a 10-year agreement for the supply of intravenous solutions. The agreement will provide BD with access to a growing device segment complementary to its existing product portfolio, and it should aid in the growth of BD’s medication management business.

BD’s Medical segment

In 1Q16, BD reported a ~1.9% YoY (year-over-year) increase in revenues in its Medical segment, wherein all sub-divisions reported an increase in revenues except in respiratory, which reported a decline of ~6.8%. Consequently, the company analyzed respiratory’s strategic fit and entered into a joint venture with Apax partners, which will hold a majority stake in the new entity. The deal is expected to be completed by the end of 2016 and is expected to be earnings dilutive, with an impact of around $0.10–$0.14 per share.

Other big players in the medical device industry, including Medtronic (MDT), Abbott Laboratories (ABT), and Thermo Fisher Scientific (TMO), are undergoing divestitures, collaborations, and business model changes to adjust to the changing industry environment. Investors looking for exposure to BD can consider investing in the iShares US Medical Devices ETF (IHI), which has about 5.7% of its total holdings in BD.

Continue to the next part for a look at BD’s Lifesciences and Medical segments.

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