Following on from their entry into the home healthcare business through their acquisition of Respironics, Philips has now acquired Medel, a leading aerosol therapy business based in Italy. As a bonus they also get an established manufacturing base in Guangdong, China.

According to CEO Don Spence:

Philips Home Healthcare Solutions CEO Don Spence, who in November 2008 succeeded former chief executive John Miclot, said: “When Philips acquired Respironics, the company also had a leading respiratory drug delivery business. Building upon that strength and fulfilling on our ambition to expand our high-growth compressor nebulizer systems franchise, we decided to acquire the aerosol therapy business of Medel which allows us to better serve the needs of our customers and their patients who suffer from asthma, chronic obstructive pulmonary disease (COPD), cystic fibrosis and other respiratory disorders.”

This is another smart move by Philips exanding it’s position in the higher value end of the homecare business as well as the drug delivery side homecare.

The question is what next in homecare? Diabetic therapies (also fits drug delivery), dialysis… or perhaps the most obvious, wound care. We could suggest several great candidates.

We have blogged quite a lot about the homecare respiratory business (including) about Respironics in the past. you may find this background interesting.

News Release

With the uncertainties of the new onslaught of Medicare cuts on respiratory equipment and the growing opacity and dynamism in the customer supply channel, Donald Spence, CEO at Philips Home Healthcare Systems has issued a statement putting paid to “rumors” that they – in effect – were “going direct” to consumers.

Rumors had been fueled by Philips-Respironics programs of drop-shipping supplies directly to consumers.

The company response is:

Supply Direct is a drop-ship service designed to help providers grow and manage their business. It enables
providers to order and directly ship OSA replacement supplies to their patients’ homes through a convenient
Web portal. This program was developed for and with the input of our customers to help them focus on patient
care, while reducing costs and inventory investments. This creates opportunity for homecare providers and
improves patient compliance.
o EncoreAnywhere is another example of how we are working together to meet market needs. The system
connects all the various care givers with access to a common view of patient compliance data and information
related to their patients’ sleep therapy. And it enables our customers to proactively gather, present and share this
information efficiently through a secure Web portal. This system is intended to provide a lower cost, more timely
and accurate methodology for monitoring patient acceptance to their therapy over manually intensive legacy
alternatives. It also provides a lower cost when changing prescriptions in the field.

The company has embarked on an advertizing campaign to make their perspective clear, in addition to this download on their website.

By the way - I called this one in July.

Sunrise announced that they have divested their US and South America Guardian business. (by the way the Guardian brand was never strong in their European business).

Sunrise CEO Michael N. Cannizzaro said:

For Sunrise Medical this is an important step in our strategy of being the industry’s leading Mobility and Seating Company. We will work closely with Medline to insure a smooth and seamless transition for all of our valued customers

Medline DME Division President said:

The acquisition of the Guardian line marks a significant step forward in the growth and value-added development of our Durable Medical Equipment division,” said Dave Jacobs, president, Medline Durable Medical Equipment division. “Guardian has a long-standing reputation for excellence and innovation in the healthcare industry and we are very pleased to have the opportunity to build on that tradition. In addition to bolstering our competitive position in the marketplace, the acquisition of this highly respected brand expands the range of products, services and value we can offer our customers

My take on this is that this move represents the next stage in industry (re) focus. Sunrise, a former pure play manufacturer, has chosen to exit a lower value added business that is increasingly dominated by people that have been smart in terms of how they source product from Asia. Medline has considerable expertise in this area.

Of interest perhaps is that this was conducted under Michael N. Cannizzaro’s watch. He was hired in 2007 by Vestarcapital partners – private equity shareholder of Sunrise. At about the same time Sunrise had been split into two parts – namely their respiratory business and wheelchair and other businesses.

Vestarcapital had taken Sunrise private in 2000 and speculation is that they may be looking for an exit.

Last week I wrote about Handicare, a relatively highly differentiated European based rehab company that is rapidly reaching the revenues of Sunrise, that acquired Linido, a relatively low value patient aid business last week.

Interesting…

New consumer company parent Phillips will no doubt be pleased with the recently announced direct ship to consumer program that Respironics has instituted in the United States for several of it’s obstructive sleep apnea consumables.

Full details are available from their sleepapnea site which lists their business provider services.

The service provides suppliers the opportunity of having sleep apnea supplies shipped directly to consumers homes, thus eliminating one additional step in the supply chain. The local supplier simply places the order online, elects to have the goods shipped directly to the consumers point of use – and that’s it. The supplier retains their customer without having to bother with inventory, logistics and other unwelcome costs.

Smart innovative move in the current industry environment where innovation in some cases seems to have taken a back seat to Medicare and competitive bigging squabbles.

You will recall two days ago the market noise that Resmed was about to be picked up by German Linde. We blogged about it here.

Now CNBC’s Jim Cramer talked about them benefiting from the potential reversal or low impact of competitive bidding. (I don’t think competitive bidding will be substantially reversed just to be clear.

Jim Cramer goes on to issue a potential target price of $53 which is a cool 30% premium.

(Update below)

Or perhaps, why has it taken so long.

The homecare market has several business segments, ranging from care services to ambulatory home dialysis, lower value home patient aids, wheelchairs as well as higher margin and faster growing segments like respiratory and diabetic care.

One of these segments is sleep therapy. Sleep apnea is being increasingly diagnosed (and increasingly easier to be diagnosed) in larger numbers of patients. The principle treatment is a CPAP (and variations) machine which essentially minimizes periods of apnea during sleep – a syndrome that not only effects a persons ability to function 100% during the day but also has been clearly shown to increase the risk of heart disease and premature death.

Some companies that sell respiratory products into the home, segment their business according to oxygen therapy and sleep therapy. CPAP falling into the later category.

Oxygen therapy (oxygen concentrators, liquid oxygen) is slower growing and tends to follow population growth while sleep therapy is fast growing.

At the end of 2007 Phillips acquired Respironics – a leading full line respiratory products company – to enter the homecare space. This provided them the opportunity of entering the homecare medical business at the higher value end. Speculation immediately followed as to how long it would take for Resmed, Respironics prime competitor in the sleep business to be snapped up.

According to this press report out of Australia (the home of Resmed founder – Peter Farrell), Linde, German gasses multinational is rumored to be in talks to acquire Resmed.

Synergies are clear – combine the medical gasses business with the high growth and margin medical homecare segment and strengthen their homecare presence.

If this one does not happen another one will – soon.

Update July 1, 2008:

Resmed have reacted to the market rumor by issuing the following statement on on the Australian stock Exchange:

“ResMed notes the comments in the Age and Australian Financial Review newspapers published today, 1 July 2008 to the effect that the company “is being stalked by German industrial and medical gases giant the Linde Group” (Age) and to “rumours of an agreed
cash bid” (AFR) under the headline “Sceptics doubt ResMed rumour”.The company confirms that it is not aware of any information that would require disclosure to the ASX in terms of listing rule 3.1.

Further, the company has a policy of not commenting on market rumours.”

The market likes the rumor anyway??

Resmed is trading at $38.34 up 7.7% at time of writing July 1, 2008

http://finance.yahoo.com/q?s=RMD

Hundreds of millions of dollars (euros) are about to be shaved off the homecare market as new government heathcare restructuring is implemented in arguably the worlds largest and most profitable homecare countries – the United States and Germany. Several other countries also have programs to restructure (read save money) largely at the expense of industry.

Having come shortly in the heals of power chair cuts and the respiratory quagmire – most readers here are aware of the confusion surrounding the implementation of National Competitive Bidding (NCB) in the US. What is not confusing is that it is going to happen – starting in the next several months. Don’t fool yourself NCB means just what it says. Your bid is going to have to be a lot more competitive – and that means prices down and in some cases – service up – or more simply put, margin squeeze. Here is todays update from HME NewsWire.

The following is the view of a homecare company executive in Germany, who comments on the hot off the press heathcare reforms in his country.

News from the German Healthcare -System…

Last weekend the new healthcare laws passed the “Bundesrat”, which means that the changes will be valid from April 1, 2007.

What does it mean?

• Homecare Dealers No Longer Require Accreditation

From the dealers point of view there will be a higher level of competition than it is even today, because everybody (who wants) can go and make contracts with Health-Insurances. There is no longer permission needed that approves a dealer as “Sanitätshaus”.
This opens the door for any company in the distribution and logistics business. They are perfectly in place to work all over Germany and provide the health insurance customers with e.g. all standard Patient aids, which are simple to use.

• Tenders For All Standard Patient Aids

Another fact is that the health insurance industry is forced to have tenders for all standard patient aids. So if this comes true, it will be very difficult for any dealer with a small location (stock) to stay in business. It is not yet clear if the insurance companies will have German wide or regional tenders. However a dealer has to have a huge stock when he wants to provide the insurance with products and service – and the price better be right.

• What Does This Mean For All The Buying Groups?

The winners are… Ergoh, Ortheg, Nowecor, TOP and all the others which have stock and members in their region or all over Germany. These buying groups can make offers for the tenders and they have, as members, a very good service and logistics structure.
Also winners are the two or three bigger independent dealers, that work already German wide.

So then –

What about Reha Team and Reha Vital? These are the biggest and most influent buying groups in Germany. In the moment it seems that they loose the game, but they have Germanys biggest dealers as members and they are well accepted by the insurance industry. So they will probably have one or more logistic centres in Germany and will also take part in tender business. But only if they understand what the new healthcare system means.

• Small Dealer In Trouble

Fact is that every small, local, independent dealer will be in trouble latest in 2008, when the “old” status of all dealers from today is not longer valid.

• What Does It mean For The Industry?

Lucky are all companies that do not deal with standard products (Congratulations to the Specialists etc.).

For all the others it means even faster price decreases, less market for every company that is not a good friend of the buying group or dealer that wins tenders.

Maybe some of the big companies will try to get more in special businesses which would mean that also in these segments the prices will decrease (Sorry to the Specialists.)

• Who Is The Customer?

The others will do what they always tried: be aggressive and manage their customer relation in a way they think it´s right. But who is the most important customer in future?

Will it be the dealer, the health insurance or the end user?

In the end it´s an open race, that’s been already started, which can only be won by the fastest – not the biggest…
…. To be continued

Oh – I nearly forgot to mention – the same Asian companies that have been supplying manufacturers and distributors in Germany are now making their own contracts with the health insurance companies – even by passing the dealer.