After six years, Cardinal Health is dropping its Cordis medical device division, makers of cardiovascular catheters and diagnostic hardware, in a $1 billion deal with private equity firm Hellman & Friedman.
The healthcare services and distribution giant previously spent $1.9 billion to acquire Cordis from Johnson & Johnson in 2015, following months of rumors, with the hope of using it to grow its global footprint and deliver a broader device portfolio.
However, establishing the infrastructure needed to do so became more expensive than Cardinal Health anticipated—with large write-offs by 2018 due to expiring product inventories plus difficulties in optimizing Cordis’ manufacturing plants.
"Our decision to divest Cordis demonstrates our disciplined approach to evaluating our portfolio and focusing our resources in our strategic growth areas where we are an advantaged owner," said Mike Kaufmann, CEO of Cardinal Health, which estimates that the company brings in $60 million to $70 million in profit annually.
Now, Hellman & Friedman plan to spin Cordis into a mainstay provider of minimally invasive cardiovascular devices—and it’s enlisting the help of two medtech investment and innovation firms to do so: Ajax Health and Zeus Health.
Both are headed up by medtech veteran entrepreneur Duke Rohlen. Ajax provides companies with expertise in business strategy, R&D, clinical development and regulatory affairs, while Zeus launched late last year through a $100 million partnership with investment firm KKR.
"We at Ajax Health and Zeus Health are ecstatic about injecting growth into Cordis' powerful platform, and will do so through investments in the core business and through an independent R&D engine—the 'Cordis Accelerator'—to develop and commercialize a new pipeline of products exclusively for Cordis," said Rohlen, who is slated to serve as executive chairman of Cordis and CEO of the accelerator project once the deal closes later this year.
Most assets and liabilities will be transferred in the transaction, though Cardinal Health will retain authority over injury lawsuits related to filter implants for the inferior vena cava, a stentlike device designed to protect against pulmonary embolism. Claims and legal defense costs amounted to (PDF) about $220 million over the company’s 2019 and 2020 fiscal years.
Additionally, Cardinal Health expects to incur costs of up to $125 million associated with the divestiture, mostly across its 2021 and 2022 fiscal years.