When Medtronic (NYSE:MDT) announced that it paid $200 million in cash for chronic disease management firm Cardiocom the medical device giant said the acquisition was indicative of a broader vision for the company’s future, but Wall Street analysts are warning that it may also suggest "challenging times ahead" for the device industry.
In a company statement and in a conference call earlier this month Medtronic CEO Omar Ishrak said the company could reach a much larger swath of patients by widening its scope to include more healthcare services and solutions, starting with heart failure patients. Ishrak also acknowledged that Medtronic needs some new moves to keep up with new trends in healthcare in the U.S. and abroad.
"The necessity for change is unmistakable," Ishrak said during a conference call with analysts. "The good news for Medtronic is that, in this time of uncertainty, there will be a premium placed on those who can innovate. And no one is positioned better to innovate and find solutions to tough healthcare problems around the world than Medtronic."
Device makers must prepare to expand their vision of innovation beyond new technologies and FDA approvals, Ishrak added. Leaders need to broaden their horizons to target the entire continuum of care, rather than remain focused on devices alone.
Some analysts took Medtronic’s maneuvering as a sign of things to come for the medical device industry in a time of harsh hospital budget cutting and big overhauls in healthcare.
"The challenge for a company like Medtronic is that the products are typically a substantial portion of the costs and in many cases hospital efforts to reduce costs are focused on just gaining greater price or standardizing to use less or lower cost products," Deutsche Bank analyst Kristen Stewart wrote in a note to investors. "The necessity of changing the business model underscores the challenges that face all device companies today."
"Clearly, a significant departure from the past and it is likely to mean challenging times ahead for device manufacturers," Steward added.
MDT shares were up 0.3% to $51.68 as of about 12:45 p.m. today.
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