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Recently, Teleflex Incorporated (TFX - Snapshot Report), a global leader in medical devices used in critical care and surgery, was awarded a group purchasing agreement for its portfolio of respiratory products with Premier healthcare alliance. The multi-source agreement is effective from November 2012 and is binding through three years until October 31, 2015.
This group purchasing agreement will pool buyers for Teleflex as the company will gain access to Premier’s alliance of 2,600 hospitals as well as more than 86,000 healthcare sites. According to Teleflex, the agreement will enhance its supply chain as Premier has liaisons with roughly 40% of hospitals and healthcare systems in the U.S. while improving quality of care and clinical welfare.
Product categories included in the group purchasing agreement are the well regarded Hudson RCI, Gibeck, Rusch, ConchaTherm brands and other offerings providing aerosol therapy, medication delivery, oxygen therapy and ventilation management along with clinical education programs.
Per the agreement, Teleflex’s respiratory products will be made available to buyers at exclusive member rates. Thus, the agreement will also decrease the overhead costs for prospective buyers.
However, Teleflex may be unable to wend increasing costs owing to higher input prices to the vendors under the group purchasing agreement. The company is already facing rebate in output prices in certain European nations due to introduction of group purchasing organizations.
Limerick, Pennsylvania-based Teleflex might achieve supply continuum and gain competitive advantage, helped by the group purchasing agreement. Its move to divest OEM Orthopedic division along with its objective of portfolio expansion should help improve its financial performance in the long run.
The proceeds from the sale of the OEM Orthopedic business, coupled with Teleflex’s ability to generate sufficient cash flow from operations will allow it to exploit growth opportunities.
However, Covidien (COV - Analyst Report), C.R. Bard (BCR - Analyst Report) and CareFusion (CFN - Snapshot Report) which operate in similar business segments present a tough competitive landscape for Teleflex. The demand for its products is susceptible to healthcare reimbursement systems in the domestic as well as the international market. Additionally, the company operates in a stringent regulatory environment.
Teleflex currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.
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