GlaxoSmithKline, Pfizer and General Electric all made key announcements Wednesday signaling that health-care companies are shifting to focus their businesses on their greatest strengths and abandoning the diversification strategies that have characterized health care for the past two decades.
Under the new leadership of CEO Larry Culp, GE is also moving rapidly to focus its business as well. GE Health Care has long been a strength of the company, the unit where former CEOs Jeff Immelt and John Flannery proved their mettle that got them promoted to the top job.
For the leadership of GE Health Care under CEO Kieran Murphy, this separation is a welcome move that will enable it to invest more in research and development and on its own bolt-on acquisitions that can broaden its base in the rapidly advancing field of medical imaging.
Culp then can focus on reshaping the rest of GE’s combination of jet engines, power plants, energy and industrial —deciding whether to spin off some of those businesses as well as improve GE’s battered balance sheet by paying down more of its debt. GE shareholders immediately signaled their approval of Culp’s moves, increasing its stock price 5 percent in spite of broadly-based declines on Thursday in response to the Fed’s interest rate increase. GSK, whose stock had risen 7 percent in response to its announcements, wound up the day on the plus side of the ledger as well.
The question remains, will these announcements trigger further focus on the rest of the health care sector? Under the leadership of new CEO Vas Narasimhan, Novartis has already moved aggressively to focus on its biopharmaceutical business by spinning off Alcon, its eye care business, and the remainder of its GSK venture and acquiring three major new biopharma technologies — gene therapy, cell therapy and radioligand therapy.
The other majors are also continuing to examine their portfolios as well. Fewer divestitures are expected among the medical technology companies like Medtronic, Stryker and Boston Scientific that are already highly focused on their portfolios, but more consolidation may be anticipated within that industry.
The shift to greater focus in their strategies will enable these health care giants to concentrate on the rapidly advancing technological opportunities and to excel in their respective fields with increased market shares, more efficient use of assets, and increased returns to shareholders. Their investors have already signaled that this is precisely what they want.
Bill George is a senior fellow at Harvard Business School, former chairman & CEO of Medtronic and the author of “Discover Your True North.” George served on the board of Novartis until 2009, but he doesn’t currently hold any shares in the company or any of the other companies mentioned in this column. Follow him on Twitter @Bill_George .
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