Fresenius Medical Care is set to buy NxStage Medical for about $2 billion. The takeover will bolster Fresenius’ presence in the at-home dialysis market, positioning it to continue profiting if patients opt against receiving treatment in its care centers.
Germany’s Fresenius has built its business upon a network of global 3,690 dialysis clinics and lines of machines for use within them. But the move toward at-home dialysis has threatened to disrupt this vertically integrated business. Fresenius tried to head off the threat by introducing an at-home dialysis device in 2011. Yet, with NxStage selling the smaller, more portable System One, Fresenius failed to blow its rival away.
Now, Fresenius is using its financial firepower to mitigate the risk posed by NxStage. Fresenius has persuaded the NxStage board to accept a bid of $30 a share. The offer represents a 30% premium over NxStage’s Friday stock price. But is slightly below the highs NxStage hit in May before its first quarter results dampened expectations for the year ahead.
If the deal goes through, Fresenius will gain control of the System One device, NxStage’s emerging network of dialysis centers and a pipeline of new technologies. The pipeline includes a peritoneal dialysis device designed to cut the weight of supplies by 80% and setup time by 90%. NxStage has abandoned its goal of getting the device on the market by the end of 2017. But the company still thinks it will gain regulatory clearance before a rival product from Baxter does.
Waltham, MA-based NxStage’s attempt to take peritoneal dialysis market share from larger rivals is now set to benefit from the support of Fresenius, which plans to use its manufacturing, supply chain and marketing capabilities to drive the acquired business forward.
Fresenius thinks the deal can cut the companies’ combined costs by up $100 million a year over the next 3 to 5 years. What that means for NxStage’s 3,400 employees is unclear. Last year, NxStage’s cost of revenues and operating expenses came in at $214 million and $156 million, respectively.
For NxStage, selling up to Fresenius eliminates one of the threats to its business. As both a supplier to and rival of Fresenius, NxStage is vulnerable to shifts in policy at the German business. Fresenius accounted for about one-fifth of NxStage revenues last year. But the terms of the rolling 30-day, no minimum purchase contract allow it to cut promotion of System One in favor of its own products at any time.
Fresenius expects the deal to close next year.