Asked during a conference call with analyts about the cumulative dilution from a string of smaller acquisitions, Ishrak said the 1st line of defense comes from cutting R&D.
“Well, 1st of all the way we look at this is that the business units themselves make product tradeoffs. In several of them, we kind of cancel [the] existing program to cover for that. So the 1st responsibility to cover the dilution actually goes right down to business units and there, there is a real savings,” he said during the call, in discussing Medtronic’s fiscal 1st-quarter results.
“And then, as we go up, we cover in the group and then we cover at a corporate level, and through that we can cover the whole dilution,” Ishrak said.
“If we do these types of acquisitions, we’ve got to cover that, if it’s dilutive to the company, which some of them will be,” CFO Gary Ellis added, according to a Seeking Alpha transcript. “We’ve got to make trade-offs within the rest of the organization.”
Citing the $458 million buyout of transcatheter mitral valve implant maker Twelve Inc., Ellis said some of the more technology-based acquisitions make for a higher rate of dilution because of the cost of clinical trials and ongoing R&D.
“That will have more of a dilution impact, but yes that will be basically Mike [Coyle, cardiac & vascular group president] and his team will view them as an R&D program and they’ll cover that in their R&D budget as they move forward,” he said.
For other, smaller buyouts, especially those already generating revenues, the dilutive effect is neutral or even positive, he said.
Registration is open for DeviceTalks Boston! Join us on June 5-6, 2019, as we explore the trends and technology that are shaping the future of the medical device industry.