Brian A. Pounds/Hearst Connecticut Media via AP
A ventilator supplier that so far has not been bought out by Covidien
First Response
It was 2010 and Newport Medical Instruments, a small medical device company in Costa Mesa, California, was excited. They had just signed a federal contract to design and build up to 40,000 mobile ventilators, which would be placed into the national stockpile in the interest of pandemic preparedness. After SARS and bird flu and swine flu, the government needed to steel itself should a deadly infectious disease go viral.
Newport agreed to deliver the devices at a low-cost, not only to maximize federal purchases but also to build a reputation that could increase sales to other countries and the private sector. The company sent prototypes within a year, and was on track for market approval by 2013.
But before that could happen, Covidien, a larger firm, announced a bid to purchase Newport for $108 million in March 2012. The Federal Trade Commission didn’t even give it a second look; the deal closed in May. And Covidien sold its own ventilators. They weren’t interested in developing a new model that could cut into its existing profits. Covidien immediately asked for more money from the government, and by 2014 they called off the deal because “it was not sufficiently profitable for the company.” The government started over, found another little company to make the ventilators, and they were just about to start delivering them—in mid-2020, too late to assist the immediate COVID-19 crisis.
Amazingly, this maneuver, where a large company buys out an upstart making an innovative product that could outcompete their tried-and-true model, is relatively common. In a 2018 paper called Killer Acquisitions, researchers at Yale and the London Business School found an average of 45 instances per year of pharmaceutical firms buying out competitors developing rival drugs that could cut into their profits, and subsequently putting the new therapeutic on ice. Last October, Roche purchased a small firm called Spark Therapeutics, which was successfully testing a one-time hemophilia A treatment. Roche’s hemophilia drug Hemlibra requires a dosage every four weeks, so they had plenty of incentive to put the one-time drug, or in other words the cure, on the shelf.
But in addition to the business play being familiar, the name Covidien rang a bell for me too. In June 2014, around the time Covidien dissolved the government ventilator deal, Medtronic, an even bigger medical device firm, decided to buy it out. That was notable because Medtronic, then based in the United States, took over Covidien’s corporate headquarters and based itself in Ireland. This “corporate inversion” allowed Medtronic to sweep at least $1 billion in Covidien profits into the U.S. without a tax penalty. Covidien itself was only “based in Ireland” as a legal fiction—really it was run out of Mansfield, Massachusetts—but locating in a low-tax country had its advantages. Covidien, incidentally, had been shopping around for a tax haven to call home since 1997, when it was part of Tyco International, an accounting violation disguised as a company whose CEO Dennis Kozlowski eventually went to jail. Covidien spent some time in Bermuda before landing in Ireland. Of course, its employees toiled in Massachusetts; the on-paper domicile was just a tax avoidance strategy.
Oh yeah, and Medtronic/Covidien led to $850 million in “synergies,” mostly through consolidating its supply chain, the very activity now causing havoc in the distribution of medical supplies around the world.
So let’s review: Covidien, a longtime corporate tax cheat and serial acquirer of competitors, scooped up a rival and scotched its most promising project, which if allowed to go forward would have significantly boosted our ability to cope with pandemics. Then it merged with an even bigger rival and lent it the same tax avoidance and corporate consolidation tactics, making the medical supply chain even more fragile.
I didn’t think you could find all of the numerous problems with corporate America’s drive for short-term profits and monopoly power, and the tragic consequences of this orientation, in one company. But that’s the Covidien difference.
Vital Stats
As of this morning, the New York Times shows 141,995 U.S. cases (123,617 yesterday) and 2,486 deaths (2,133). Johns Hopkins University shows 143,055 cases (124,686) and 2,513 deaths (2,191). Dr. Anthony Fauci now predicts between 100,000 and 200,000 deaths in the United States from COVID-19, and “millions” of cases. We’re still at the beginning. Meanwhile, the Wuhan, China death toll is now estimated between 42,000 and 46,000, far above the 2,500 claimed. This is a much deadlier disease than the current data show.
The COVID-19 Tracker shows 142,232 cases (121,468) and 2,447 deaths (2,045), with better news on testing: 851,578 tests completed (762,015 yesterday). More tests is good but no test-and-trace system makes that less meaningful.
Dissent on the Front Lines
Today Instacart workers go on strike over the lack of protective equipment and hazard pay for their gig work. Shopping for other able-bodied people was a strange job in normal times, but in a time of coronavirus, it’s like a food taster for the king, taking the risk of infection in exchange for a pittance.
Amazon workers at a facility in Staten Island are also walking out today, after an employee tested positive last week and no meaningful updates to safety policy were taken. One rabble-rouser has been quarantined by the company, seemingly for speaking out about the conditions. Clearly Amazon facilities have become a breeding ground for COVID-19, with at least seventeen warehouses containing workers who have been infected. Amazon announced last night they would begin taking temperature checks of employees. On a call last week, I heard workers fuming about the substandard physical distancing (Amazon recommends 3 feet, half of the CDC benchmark of 6), lack of hand wipes or masks, and continued accelerated workflow that puts people into close contact. “I’ll probably be fired for speaking out,” said one irate woman from a warehouse in Indiana. “I don’t care.”
You might be noticing a pattern among low-wage workforces forced into duty out of necessity at businesses deemed essential. A package handler at FedEx reached out to me; their facility is processing packages at a Christmas season level, without increased pay or “any type of protective equipment like gloves or masks, even though we personally handle hundreds of packages each day while working in close proximity to other employees.” Meatpacking employees are starting to take ill. My neighborhood Costco announced its first employee to test positive. We don’t have enough protective equipment for front-line medical personnel; grocery and warehouse and food production and gig workers certainly aren’t going to get any. And as more get sick, the unrest will grow.
Easton Hospital Update
In Saturday’s Unsanitized I pointed out the ways in which lobbyists were capitalizing on the crisis to cash in. We still don’t know exactly who will “earn” the bailout; companies are jockeying for position. But we do have our first example of a successful blackmail attempt.
As I mentioned on Saturday, Easton Hospital, a provider to mostly low-income patients in eastern Pennsylvania, had threatened a couple months ago that it would soon close or be sold off. As coronavirus cases intensified, it gave a number to Pennsylvania Governor Tom Wolf as a tribute to stay open: $40 million. Losing capacity during the crisis would be a tragedy.
Wolf announced on Saturday that Easton would get $8 million to keep it alive until June. The money would come from the hospital portion of the federal bailout. Easton Hospital is part of Steward Health Care, a private equity-owned conglomerate that has never made money while continuing to roll up hospitals. Eileen Appelbaum told the whole sordid story in the Prospect last year. Cerberus Capital Management created Steward in 2010, split the operations from the real estate and forced hospitals to pay rent, loaded the hospitals down with debt, and extracted enough income to make back its investment. Easton is struggling by design, and the $40 million bailout is more for its business model than anything coronavirus-related. Cerberus has $42 billion in assets but isn’t rushing to the aid of its portfolio company when there’s a federal feeding trough to tap.
This is a stick-up, in other words. And with private equity deeply invested in health care, it will only continue.
Today I Learned
- Isaac Chotiner goes to town on the Hoover Institution economist who influenced the White House by downplaying COVID-19’s impact. (The New Yorker)
- Justice Department now reviewing Richard Burr and other potentially illegal pre-outbreak stock trades. (CNN)
- Rent due in just two days. (Wall Street Journal)
- Liberty University’s premature return to campus leads to mass sickness. (New York Times)
- Horrible story with slightly happy ending about a disabled person stranded at LAX, with his identity and savings stolen, and unable to get help after coronavirus hit. (Los Angeles Times)
- Airfares running as low as $13 cross-country. (View from the Wing)
- We have a jigsaw puzzle shortage. (Wall Street Journal)
