Medtronic to Spin Renal Business into New Company

Quote by Medtronic renal care president, with kidney dialysis image in background.png
Medtronic will co-own the new kidney device company with DaVita, each with equal equity stakes.

Kidney patients may soon benefit from a new, independent kidney-focused medical device company that will be co-owned by Medtronic and DaVita, each with equal equity stakes, and led by an independent management team.

Dublin, Ireland-based Medtronic and Denver, CO-based DaVita announced Thursday the intention to launch the new kidney device company, which has not yet been named. The new company will develop kidney care products and solutions, including future home-based products, to make different dialysis treatments more accessible to patients.

"This is an exciting moment that will shape the future of kidney care," said Ven Manda, president of Medtronic's renal care solutions business, who will serve as CEO of the new company upon close. "Our singular focus on end-to-end kidney health solutions will position this new company to make a measurable difference in the lives of more than three million patients with kidney failure globally—a figure expected to double over the next decade."

Medtronic will contribute its renal care solutions business, including the current product portfolio (renal access, acute therapies, and chronic therapies), product pipeline, and global manufacturing R&D teams and facilities. Both companies will provide an initial investment to fund the new company and future operating capital.

"We're excited to collaborate with Medtronic and share our deep insight into patient and physician needs with the goal of accelerating the development and commercialization of scalable kidney care technologies," said Javier Rodriguez, CEO for DaVita. "DaVita is committed to best-in-class solutions that improve outcomes, access and the quality of life of our patients, and this is another way to provide more options to the market."

Image courtesy of: Tribune Content Agency LLC / Alamy Stock PhotoPatient Care Technician Monique Morales adjusts tubes in Melanie Perry's leg as she undergoes her tri-weekly dialysis treatment, at a DaVita Dialysis clinic in 2018. Medtronic and DaVita are launching a new kidney device company.

The new company will be governed by a six-person board of directors composed of two directors each from Medtronic and DaVita, and two independent directors. The transaction is expected to close in the next calendar year, subject to the completion of the information and consultation obligations with employee representative groups under applicable laws and receipt of customary regulatory approvals and satisfaction of customary closing conditions.

The spin is in

CEO Geoff Martha, who took the reins in April 2020 after Omar Ishrak retired, hinted during its fiscal third-quarter earnings call in February that the company would be making some big changes

"Over the last 18 months, we've made significant changes to our operating model, moving to 20 focused operating units as well as making major enhancements to our culture and incentives. These changes have improved our pace of innovation and our competitiveness, as evidenced by recent product filings and approvals that came faster than expected," Martha said Tuesday during the company's fiscal third-quarter earnings call. "And we're not finished driving change. We're accelerating improvements to our global supply chain and operations, leveraging our scale to further improve quality, increase product availability, and reduce costs."

Martha also said at the time that the management team would be looking at the Medtronic portfolio with a more critical eye, with a focus on growth, and creating shareholder value.

"I'd be surprised if there weren't changes over the coming fiscal year, but I don't know yet if they will be smaller or more significant," he said.

Ryan Zimmerman, a medtech analyst at BTIG, noted after the call that now is a good time for Medtronic to rationalize its portfolio, shed lower growth areas, and reinvest in the business.

While Martha declined to get into specifics, his reply does give us at least a vague idea of what his line of thinking is.

"Our north star is durable growth. And we're looking at our businesses and we're evaluating them for, one, how well they fit into the portfolio, how well they fit into our strategy, are we the right owners of these assets? And then how we, Medtronic, add value and grow these businesses," he said. "... we don't know if these changes will be significant or more limited."

Firms like EY (Ernst & Young) that closely track trends in the life sciences industries have suggested that medtech could see a large level of divestitures this year, as well as spinoff announcements.

"I think one of the themes that we're hearing is that the spin is in," John Babitt, a life sciences partner at EY, told MD+DI Editor-in-Chief Omar Ford during an episode of the Let's Talk Medtech podcast (click below to listen to the full conversation).

We've already seen some significant examples of these trends.

Zimmer Biomet recently completed spinning out its dental and spine business into ZimVieBD is spinning out its diabetes businessJohnson & JohnsonGE, and Bausch Health have each announced major operational splits, and Cook Medical is divesting its reproductive health unit.

TAGS: R&D
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