Fresenius is pursuing the biosimilar market, which looks like a relatively large intermediate to long-term opportunity

Business Strategy & Outlook

Fresenius SE’s prowess in dialysis and injectable therapies has created opportunities to vertically integrate into several medical service and technology businesses by organic and inorganic means. Through its partial ownership of Fresenius Medical Care, the company seeks to benefit from that unique entity’s position as the world’s top dialysis service and product provider. In the U.S., this segment operates a convenient network of dialysis clinics at a similar scale as key peer DaVita, with the two firms cumulatively serving about three fourths of the U.S. dialysis outpatient population. Fresenius has established a number of clinics in more fragmented international markets, too, where it has a relatively. long runway for growth by opening or acquiring new clinics. Fresenius leads the dialysis product market primarily by providing haemodialysis equipment and consumables to clinics globally but also sells at-home haemodialysis and peritoneal dialysis tools.

Fresenius focuses on being a reliable provider of injectable therapies in its Kabi segment. This strategy requires Fresenius to efficiently manufacture safe and high-quality solutions, and because of this core competency, Fresenius has been a net beneficiary of competitor shortages in recent years. Fresenius also provides the pumps to automatically administer injectable therapies. By integrating into a hospital’s workflow and systems, Fresenius aims to benefit from recurring consumable sales during the pump’s long working life. Fresenius is also pursuing the biosimilar market, which looks like a relatively large intermediate to long-term opportunity. Through its Helios and Vamed segments, Fresenius provides services related to healthcare facility operation, management, and construction. In its Helios segment, it aims to provide top-quality hospital services in Germany, Spain, and Latin America, and it continues to look for acquisition opportunities especially in the latter two geographies. In Vamed, it helps caregivers operate more efficiently by providing construction project management, ongoing operations management, and post-acute care services.

Financial Strengths

Fresenius SE operates with an investment-grade credit profile. On a consolidated basis as of September 2021, Fresenius owed about EUR 27 billion in debt and lease obligations, including EUR 13 billion of debt and leases owed by Fresenius Medical Care that is not guaranteed by Fresenius SE. With about EUR 2 billion of cash as of September 2021, the company’s net leverage stood around 3.6 times. While easily manageable, management has expressed a desire to deleverage further after taking the hit to profits in the dialysis business in 2021. However, refinancing and acquisition-related activities may make Fresenius a debt issuer once it hits its deleveraging goal. Beyond acquisitions, Fresenius’ capital allocation strategy regularly includes dividends with a payout ratio around 20% of net income. And while the company typically does not make large share repurchases, those activities could become more attractive for Fresenius in future periods if acquisition opportunities do not present themselves, which would welcome at recent prices.

Bulls Say

Underlying demographic trends—such as aging, obesity, and diabetes—and international expansion opportunities should keep Fresenius’ dialysis services and related medical product growth in positive territory after the pandemic recedes.
Kabi’s biosimilar pipeline targets AbbVie’s Humira and Amgen’s Neulasta products, which could lead to a relatively large new revenue stream in this segment in the intermediate term.
The company maintains a manageable balance sheet, which should give it financial flexibility during potential future shocks.

Company Description

Fresenius SE is a healthcare holding company based in Germany with four segments. The company owns a large stake in dialysis service provider and equipment manufacturer Fresenius Medical Care, which accounts for about half of its consolidated revenue. The Kabi segment manufactures intravenous drugs, nutrition products, infusion and transfusion therapies, and related pumps. The Helios segment operates private hospitals in Germany, Spain, and Latin America. Vamed provides a variety of services such as healthcare facility construction and operation management, including post-acute care rehabilitation.

(Source: Morningstar)

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