Visual China.
Text |VB arterial network.In 2023, Livanova exceeded Wall Street's expectations for three consecutive years of rapid growth, which made analysts feel a little shock.
Livanova reported financial results for the first three quarters of 2023.
Among the many medical companies around the world, Livanova is a very worthwhile case study, especially one that is worth studying now. The reason why I say this is because standing at the starting point of 2024, Livanova has already made a strategic prediction; Second, since 2015, Livanova has broken its wrists many times, cut its business units, and adjusted its product portfolio, but still maintains rapid growth; This can also give some experience and inspiration to domestic enterprises that are focused on product diversification.
Based on its fast-growing revenue, Livanova has raised its full-year guidance for the third time in a row. At the end of the first quarter, Livanova raised its full-year guidance to growth of 4%-6%; At the end of the second quarter, Livanova raised its full-year guidance to growth of 8%-10%; At the end of the third quarter, Livanova raised its full-year guidance to 9%-11%.
It seems that Livanova's recent growth is booming, but before the release of its fourth quarter report, Livanova will start 2024 by cutting the advanced circular support business, one of its three core businesses. On January 8, 2024, Livanova announced that the company has decided to gradually shut down the Advanced Circulatory Support (ACS) business unit and transition profitable products such as intubation and related accessories to the cardiopulmonary business unit in the first quarter of 2024; Shut down products and services such as Lifesparc and the Hemolung system by the end of 2024.
The decision came as a sudden, as the Advanced Cycle Support business achieved 266% year-on-year growth. However, the secondary market is very recognizant of this decision. On the day of the announcement, Livanova's stock price jumped 689% to 52 per share$16**.
Why did the secondary market recognize Livanova's elimination of core divisions? What does it mean for Livanova to make this decision in early 2024? How will Livanova face up to 2024?
From 2007 to 2015, André-Michel Ballester was CEO of SORIN. Later, Cyberonics acquired Solin for $2.7 billion, and the two merged to form a new medical device giant, Livanova. André-Michel Ballester is CEO of Livanova and facilitates the business combination of the two companies.
At the initial stage of the merger, Livanova's main business was cardiac surgery, neuromodulation, and heart rhythm management, accounting for a large proportion of business. 5%。
From its birth, Livanova has shown the momentum of looking down on the world. With Cyberonics and Sorin, Livanova is a global market leader in neuromodulation, cardiac surgery and heart rhythm management, and has even greater growth opportunities with the combined strengths.
After the merger, André-Michel Ballester set a long-term strategy for Livanova.
First, provide patients with high-quality products and better outcomes, provide useful data for doctors, and provide value for payers. "We want this to remain a top priority for the company. André-Michel Ballester said at the time.
Second, focus on emerging growth platforms. As a result of the merger, Livanova has created a new investment arm that invests primarily in businesses and technologies with significant growth opportunities. It targets three major areas: mitral valve disease, obstructive sleep apnea and heart failure.
Third, increase overseas revenue. At that time, 80% of Livanova's revenue came from the US and European markets, and 20% from markets outside of Europe and the United States. In this case, Livanova decided to expand its overseas sales (revenue outside of Europe and the United States). Livanova also said at the time: China has always been the focus of our attention.
Fourth, embrace change. Livanova believes that the healthcare industry is changing at an ever-increasing pace, from different payment models, continued expansion in emerging markets to product upgrades, Livanova needs to be at the forefront of the industry and evaluate and optimize the company's business model in response to the changing environment.
Although a long-term strategy was set, André-Michel Ballester did not have the opportunity to complete it. After Livanova completed the run-in and the team began to create synergies, André-Michel Ballester also ended his mission and left at the end of 2016 to succeed as CEO of Damien McDonald.
In fact, through combing, we found that the CEO handover of Livanova was designed before July 2016.
In July 2016, Livanova announced an organizational redesign that added a Chief Operating Officer in addition to Livanova's existing corporate support function. In October, Damien McDonald joined the company as Chief Operating Officer, responsible for innovative product development and commercial expansion worldwide. In November, Livanova announced that Damien McDonald would take over as CEO on January 1, 2017.
According to reports, Damien McDonald previously served as an executive at Danaher, leading a $1.5 billion dental consumables company, and also served as president of the Kerr Group, where he was responsible for building the R&D pipeline. In addition, he led Zimmer's Spine Division, where he led the team to create growth miracles ......
Once in office, Damien McDonald also set a strategy for Livanova.
First, to maintain the company's strong leadership position in cardiac surgery and neuromodulation through innovative products and strategic investments. On the one hand, it shares approved innovations within the team to stimulate innovation. Remote monitoring algorithms and wireless technologies, such as those used in neuromodulation, are also valuable in heart failure and obstructive sleep apnea. On the other hand, Livanova strengthens innovation through strategic investments, which are mainly focused on innovation opportunities in three major areas: mitral valve, obstructive sleep apnea, and heart failure.
Second, to achieve sustained revenue growth. Livanova will continue to increase revenue and profit by leveraging its dominant market position, launching innovative products and expanding its market footprint. "We will enhance our margins, increase our revenue and earnings per share, and build long-term shareholder value. Damien McDonald said.
Again, improve the financial situation. The company will simplify the business model and improve profitability; Maintaining financial discipline, efficient use of resources, and controlling expenses will enable Livanova to maintain a healthy cash flow and financial position for the future.
Finally, make the company a "mecca for work". According to Damien McDonald, in order to stay ahead of the market, companies must attract, retain and develop talent. Therefore, the company will continue to improve the management system, promote teamwork, and instill the company culture to produce positive results.
It can be seen that the above two development strategies are obviously different, and the key development areas are also different, at least the degree of importance of the heart rhythm management business is different. With the departure of André-Michel Ballester, his strategic intent was extinguished. And Damien McDonald began to move towards the blueprint he had sketched.
In July 2016, André-Michel Ballester had already confirmed his departure from Livanova. In September 2016, Livanova announced that it would not have the option to purchase outstanding shares of Respicardia, as the investment no longer aligned with the company's objectives. Previously, André-Michel Ballester's Sorin Group invested $20 million in Respicardia in October 2014.
It is reported that the Remedē system developed by Respicardia is an implantable device that stimulates nerves to cause diaphragm movement, producing changes in carbon dioxide concentration and tidal volume similar to normal breathing. Also in September 2016, the Remedē System** Central Sleep Apnea was published in The Lancet for its safety and efficacy. Subsequently, Zall Medical acquired Respicardia in April 2021.
After Damien McDonald took over as CEO in 2017, Livanova made even bolder changes. From 2015 to June 2017, Livanova's heart rhythm management business revenue continued to decline, which put great pressure on financial data. For example, its heart rhythm management business decreased by 2. year-over-year in the first quarter of 20179%, down 3. year-over-year in the second quarter6%。
In response to this, Livanova announced in September 2017 that it would explore the strategic option of a cardiac rhythm management business (CRM), and in November it changed the cardiac rhythm management business to 1US$900 million** to MicroPort to focus on neuromodulation and cardiac surgery to ensure its portfolio is optimally positioned to deliver long-term value.
Since then, Livanova has focused on cardiovascular and neuromodulation. At the same time, Livanova also focuses on three major areas: transcatheter mitral valve replacement (TMVR), obstructive sleep apnea and heart failure, and strengthens its presence in these areas through the acquisition of innovative companies.
For example, in May 2017, Livanova announced the acquisition of the remaining 51% stake in Caisson. It is understood that Caisson is one of the earliest companies in the world to study interventional valve replacement technology, and its transcatheter mitral valve replacement implantation device (TMVR) is considered by the industry to be twice the market of T**R, and the prospect is extremely broad.
In January 2018, Livanova acquired Imthera Medical, a company focused on obstructive sleep apnea, which developed an implantable hypoglossal nerve stimulator that stimulates the hypoglossal neuromuscles to enlarge the pharyngeal cavity during sleep, reduce the collapse of the upper airway, and achieve normal breathing.
Another key node for Livanova is 2019. 6In the month, it acquired Miami Instruments, a business related to minimally invasive cardiac surgery instruments, and integrated it into the heart valve business segment. But by November,Livanova abruptly announced the termination of the TMVR project, the closure of the valve device factory, and the adjustment of the valve R&D team.
Damien McDonald said, "We have made the difficult decision to terminate the Transcatheter Mitral Valve Replacement (TMVR) program. We are disappointed to discontinue the TMVR project after we had been optimizing the design of the product for a long time to address safety and efficacy issues. However, there are huge technical difficulties in product design, coupled with recent changes in market dynamics, which increase the time and money required to bring a product to market. However, the revenue of our valve business continues to decline, which is difficult to support TMVR's R&D investment. ”
In early December 2020, Livanova announced that the Board of Directors had approved the divestiture of the heart valve business, acquired by an entity controlled by Gyrus. The transaction closed in June 2021. Livanova's Board believes this will allow the Company to focus more on neuromodulation and cardiovascular and dedicate more resources to its other promising product lines.
Through a series of acquisitions and divestitures, Livanova's core business has changed from cardiopulmonary and heart valves, heart rhythm management, and neuromodulation to cardiovascular and neuromodulation. Among them, the cardiovascular business includes the heart and lung department and the advanced circulatory support department.
Broadly speaking, it seems that businesses that affect financial statements and profitability will be shut down by Livanova**. In fact, a careful analysis will show that Livanova has chosen two key markets of cardiovascular and neuromodulation after Damien McDonald took over, and the heart rhythm management business is its key strategic initiative.
The shutdown of the TMVR project shows even more strategic judgment. As of the beginning of 2024, only one TMVR product has been approved in the global market, which shows the difficulty of developing this product. At the same time, the commercialization of this TMVR product is still in the early stages.
In the new year of intensified market competition, domestic enterprises can consider learning from Livanova, breaking the wrist of the strong man, temporarily stopping the research and development of long-term projects, and seeking projects that can obtain revenue and profits earlier.
On January 8, 2024, Livanova announced the gradual closure of its Advanced Circular Support (ACS) business unit. Judging from the history of the advanced circular support business, it is not surprising that it will be shut down.
In April 2018, Livanova acquired Cardiacassist, Inc. for $200 million and started its business under the name Tandemlife. According to the annual report, TandemLife belongs to the cardiovascular division of Livanova and is known as the advanced circulatory support business, with products including pumps, oxygenators, intubations, etc. Its Cardiovascular segment also includes the Heart-Lung Business and the Heart Valve Business.
Later, based on the LifeSPARC platform, TandemLife developed the Tandem LUNG and series of intubation, which realized the functional modes of right heart function assistance and VV-ECMO and VA-ECMO through the change of intubation method and the combination with artificial membrane lung, and broadened the application scenarios.
It is worth mentioning that the Tandemheart system developed by TandemLife (formerly Cardiacassist) is a world-renowned percutaneous mechanical circulatory support device. However, the commercial value of this product has not been fully released. Another well-known percutaneous mechanical circulatory support device, Imella, has supported the valuation of Abiomed in the billions of yuan. In November 2022, Johnson & Johnson acquired AbioMed for $16.6 billion (about 115 billion yuan), and more than 95% of AbioMed's revenue comes from Impella.
In the first quarter of 2020, Livanova invested in Alung Technologies, a respiratory medical device company, and acquired 100% of Alung Technologies in May 2022. It is reported that the hemolung respiratory assistance system developed by the company is the only FDA-approved product specifically for low-flow extracorporeal carbon dioxide removal from acute respiratory failure**, which was subsequently incorporated into the advanced circulatory support business unit.
According to Livanova's previous annual reports, its advanced recycling business generated revenue of $19.46 million in 2018, $31.92 million in 2019 and $42.32 million in 2020.
In 2021, Livanova changed the sector statistics in the annual report, changing the previous two sections of cardiovascular and neuromodulation to three sections: the advanced circulatory support business, the upgrade of the cardiopulmonary business and the neuromodulation business were juxtaposed. For the year, its advanced circular support business generated revenue of $55.46 million. This is the fourth consecutive year of double-digit growth in the Advanced Circular business.
This growth is driven by the COVID-19 pandemic, which has driven the global demand for cardiopulmonary support products such as ECMO, which in turn has increased the use of Livanova's advanced circulatory support products. In addition, Livanova has strengthened its sales force to enhance its profitability.
In 2022, as the pandemic eased, Livanova's advanced circular business also faced challenges. Due to the decrease in new crown pneumonia patients, the overall revenue of its advanced recycling business also decreased significantly. Although the number of advanced circulatory support products for non-COVID patients is growing, it is still difficult to stop the decline in revenue of this business.
In response, Livanova will focus more commercially on driving high-volume ECMO penetration in 2023. However, the revenue performance of the Advanced Cycle Support business in 2023 is still not satisfactory. In the first nine months of 2023, revenue from the Advanced Circular Support business accounted for only 4% of the company's total revenue. Meanwhile, the senior circular support segment's quarterly revenue increased 27% year-over-year due to backorder clearance and one-time adjustments to European purchases. "In the earnings report, the advanced cycle support business has become a loss-making business.
In this regard, Livanova's decision is to transition profitable products such as intubations and related accessories to the cardiopulmonary business unit in the first quarter of 2024; Shut down products and services such as Lifesparc and the Hemolung system by the end of 2024.
Standing at the starting point of 2024, Livanova made this decision, which means that it is more focused on profit and cash flow, and has become more cautious in spending. It also means that it remains cautious about 2024.
For Chinese healthcare companies, this view is instructive. As for whether to rise from the contrarian trend or develop steadily, it is up to the entrepreneur to make the final decision.