Medtronic plc MDT recently entered into an agreement with kidney care provider, DaVita Inc. DVA to form an independent kidney care-focused medical device company. The newly-formed company, termed now NewCo, is targeted to enhance patient treatment experience and improve overall outcomes.
Per the terms of the deal, Medtronic and DaVita will both co-own NewCo with equal equity stakes. The new company will be operated by an independent management team. Both companies will provide an initial investment to fund NewCo and some future operating capital. No other financial terms of the deal were disclosed.
More Insight on NewCo
According to both the founding companies, NewCo will focus on developing a comprehensive range of advanced kidney care products and solutions, which include future home-based products, to make different dialysis treatments more accessible.
This new company is expected to successfully align with its targets, leveraging on Medtronic's capabilities as a healthcare technology leader and DaVita's deep expertise as a comprehensive kidney care provider.
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Ven Manda, the current president of Medtronic's Renal Care Solutions business, will be NewCo's CEO upon close. According to him, Medtronic’s 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. This figure is expected to double over the next decade, he stated.
The deal will close expectedly in the next calendar year, subject to fulfillment of the customary closing conditions.
Importance of the Deal for MDT
Medtronic’s Renal Care Solutions (RCS) business, including the current product portfolio (renal access, acute therapies, and chronic therapies), product pipeline, and global manufacturing R&D teams and facilities will be shifted under the new company’s operations. No other Medtronic products or portfolios, including those in the AV access portfolio in the Peripheral Vascular Health business, however, will be added.
Medtronic, on the Q4 earnings conference call, noted that while its RCS business will contribute to NewCo, in return, it expects to receive up to $400 million in value from NewCo.
According to Medtronic, this deal will be a strategic fit for the company, considering DaVita is a global leader in kidney care and will be a great partner in commercializing and scaling kidney solution technology. This Renal Care Solutions joint venture with DaVita is going to be a smaller initial step in terms of MDT’s portfolio management work.
Going by the Insight Partners report published in Cision, the global kidney disease market is expected to reach $133.4 billion by 2027 from $81.1 billion in 2019. The market is estimated to witness a CAGR of 6.5% from 2020 to 2027.
With solid market prospects in this space, Medtronic’s latest strategic JV with DaVita to form NewCo, seems well-timed.
Share Price Performance
Shares of Medtronic declined 21.4% over the past year as compared to a 25.8% plunge of the industry.
Zacks Rank and Key Picks
Medtronic currently carries a Zacks Rank #3 (Hold).
Two better-ranked stocks in the broader medical space include UnitedHealth Group Incorporated UNH and Medpace Holdings, Inc. MEDP.
UnitedHealth, having a Zacks Rank #2 (Buy), reported first-quarter 2022 earnings per share (EPS) of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.
Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.
Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.
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