Considering the Future of Scandal-Plagued Olympus Corp.'s Endoscopy BusinessConsidering the Future of Scandal-Plagued Olympus Corp.'s Endoscopy Business

The accounting scandal engulfing Olympus Corp. is rocking the business world in general, but it will likely also have an effect on the medical device industry in particular, given that the troubled camera maker is one of the most dominant names in the endoscopy market. Since the story broke, there has been speculation that the company could spin off or sell its medical business. To get a better sense of some of the scenarios that could play out with Olympus’ medical units and the endoscopy space, I spoke with Venkat Rajan, an industry analyst with Frost & Sullivan.

Rajan cautioned that it’s impossible to know exactly how such a scandal will ultimately impact a company like Olympus, especially without knowing what kind of strategic conversations are happening internally and what sort of details may yet emerge. He made it clear that, at this point, he’s just speculating about the firm’s future. That said, Rajan says it’s very likely that Olympus’ medical business will continue in some form or another, whether it’s acquired by someone else or spun off into a new company. Considering how handily the unit commands the endoscopy market—Rajan says it has about 70% of the flexible endoscopy market and 30% of the rigid endoscopy market—he’d imagine that it’s “going to end up somewhere,” regardless of what happens to the rest of the company.

He suggests that Olympus’ medical business could follow in the footsteps of Covidien. That device company was spun off from former parent company Tyco International in 2007 after the latter became embroiled in a corporate accounting scandal of its own.

“Covidien ran fairly seamlessly after the split, and they’re still one of the stronger competitors in a number of different healthcare segments, and I guess it was good to get away from the Tyco name at the time,” Rajan says. “They haven’t had any sort of hiccups or anything in terms of the way they’ve operated around their business.”

Rajan guesses that the medical part of the business operates with enough autonomy that extricating itself from the messy situation wouldn’t be very difficult.

“I would imagine… that [the medical unit] was operated fairly independently anyway, and if it were spun off or sold to somebody else, there wouldn’t be too many pain points for them.”

Another logical scenario is for an outside company to purchase that part of Olympus’ business.

“Obviously, a lot of companies might see an opportunity there, and if the price is right, I’m sure someone might jump on it,” Rajan says.

For example, he says, a company that makes tools for minimally invasive surgery but does not make the visualization tools that Olympus specializes in may want to make a move. “Maybe one of those companies decides, ‘We can add this to give us a complete solution,’ “ Rajan says.

Though the future is still very much in doubt for Olympus, whatever happens, Rajan guesses that the endoscopy unit will continue to rule its space.

“I wouldn’t expect to see [the medical unit’s] market shares or other things dip because of this,” he says. Though the dramatic scandal continues to make headlines and generate negative buzz, the company’s endoscopy products will likely hang on to their sterling reputation, given how results-focused its buyers are. “If you polled doctors who use this product I’m sure only a few of them are actually aware of what’s happening in terms of the corporate stuff,” Rajan says.

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— Thomas Blair