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Teleflex Idea Proposal

Teleflex Idea Proposal
 

Will hospitals continue to accept price hikes for Teleflex’s vascular products when competitors are dropping prices?

Report Available: April 20, 2016

 

Blueshift’s initial research shows TFX has benefited from a broad healthcare/medical device product line, a deep product pipeline, and the ability to command higher prices than the competition. With the healthcare spending growth rate in decline and medical institutions and patients demanding higher value which is pressuring pricing, TFX’s vascular products could face challenges in maintaining its premium pricing.

 

Observations

  1. TFX reported strong Q4 earnings, beating Wall Street expectations. The company reported revenue growth of 1.8% year to year, up 7.4% on a constant currency basis. TFX’s Vascular North America segment accounted for 28% of total Q4 revenue and increased 9.6% year to year, now making up nearly 19% of company revenue. The increase came from new product sales, higher overall sales volume, and price increases. Management noted that Q4 core product pricing expanded 10 basis points and adjusted gross margins of 54.1% and operating margins of 23.7% were the highest since the company became a pure-play medical device company.
  2. During the quarter, TFX was awarded 22 agreements from group purchasing organizations (GPO), integrated delivery networks (IDN), and individual organizations. 13 were new customers and 9 were renewals. Management noted that several of the new contracts were Sole Source Awards in the Anesthesia and Vascular Access product areas.
  3. During TFX’s Q4 conference call, Benson F. Smith, Chairman, President & Chief Executive, addressed a question regarding competitive pricing pressure. He noted that 2016 guidance was prepared with only 10 to 20 basis points coming from pricing. He indicated that TFX was better protected against extreme pricing pressure because of the company’s goal to move as much of the product portfolio into less competitive product categories. Vidacare and Chorag+ard Technology were cited as examples because they have little or no competition.
  4. TFX’s higher pricing strategy could be challenged by the declining healthcare spending growth rate which is expected to be 6.5% in 2016 compared to 6.8% in 2015. Also, TFX recently announced a worldwide recall of its Arrow intra-aortic balloon catheter kits and percutaneous kits because of what the FDA defines as “a reasonable probability that the use of or exposure to a violative product will cause serious adverse health consequences or death.” It is unknown at this time what affect, if any, this will have on TFX’s ability to get a premium price for its products when compared to its competitors.

 

Can TFX continue to charge a higher prices for its vascular devices than its competitors? Are these products viewed as a commodity? If so, what does TFX have in its product line that allows it to successfully fetch a higher price? What will be the effect of its recent product recall? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Hospital and IDN purchasing professionals, Group purchasing organizations, Hospital supply sales channel, and Industry specialists.

 

Companies: Teleflex (TFX), CareFusion (CFN), CR Bard Inc. (BCR), Baxter International Inc. (BAX), Becton Dickinson and Co (BDX)

 

Research Begins: April 4, 2016