Fresenius' new CEO signals 'reset' as activist investor Elliott reportedly angles for change

With the former leader of the company’s pharmaceutical branch now steering Fresenius overall, new CEO Michael Sen is being frank about the need for a “reset.” The move could give the German drugmaker and healthcare services outfit a shot at redemption as activist investor Elliott Management reportedly angles for a shakeup.

“Everyone at Fresenius knows we must improve on what we do,” Sen—who took over as CEO from Stephan Sturm in October—said in a statement accompanying Fresenius’ third-quarter earnings update. Sen promised to “reset the company” with a “top-to-bottom review of every business activity,” which will put a microscope on the “entire corporate portfolio.”

“The focus is on returns. This will not happen overnight, but we will move at a faster pace and more decisively than ever before,” the CEO added.

Before succeeding Sturm at the start of the month, Sen helmed Fresenius’ pharma division Fresenius Kabi since April 2021. Sen was tapped to lead Fresenius' business overall—while maintaining his post at the head of Fresenius Kabi—back in August. 

Now, all eyes are on the company’s potential new trajectory, with the pressure intensifying after Elliott reportedly snapped up a “substantial” stake in Fresenius two weeks back, according to Bloomberg News. Elliot, known for its activist stance in biopharma and other industries, has made headlines in recent months by agitating for change at GSK.

Fresenius, for its part, consists of four main branches. Aside from Fresenius Kabi, there is Fresenius Medical Care (FMC), which provides dialysis and other offerings for kidney disease patients; plus hospital project developer, Vamed and private hospital operator, Helios.

While solid growth among Fresenius Kabi and Fresenius Helios in the third quarter helped drive overall sales 5% to about €10.46 billion ($10.36 billion), Vamed and FMC suffered in the face of a “challenging overall economic environment,” the company said in a release.

Aside from squeezes driven by the COVID-19 pandemic and the war in Ukraine, Fresenius singled out inflation-related cost spikes, staff shortages, supply chain disruptions and surging energy costs, noting these elements have a “direct impact on customer and patient behavior” too.

FMC specifically lowered its income expectations for the remainder of the year, citing new expectations for a decline in the “high teens to mid-twenties percentage range.”

Faced with a tough present environment and “likely headwinds for 2023,” FMC’s management laid out its own “broad turnaround plan,” with specific goals to “address performance issues in North American Health Care Services, the structural cost base of Health Care Products and an extended cost saving program.”

Fresenius’s medical care arm pointed to an “unprecedented” labor landscape in the U.S., as well, which led to “staff shortages, high turnover rates and meaningfully higher costs.” The company noted that the predicament has taken a toll on dialysis services as well as downstream assets.

In light of those pressures and more, Fresenius overall now expects group net income to slip some 10% this year, while group sales from the company’s four branches are expected to grow in a “low-to-mid single-digit percentage range,” the company said in its earnings release.

Fresenius warned the torrent of “macro-economic headwinds” won’t abate anytime soon, either.

“In particular, the general cost inflation, labor shortages, meaningful uncertainty with regard to the future development of energy prices, burdens from supply chain disruptions and ongoing impacts of the COVID-19 pandemic are expected to continue,” the company said in its release.

Fresenius is far from the only company suffering from a dreary 2022, and many of the concerns it’s laid out echo those earlier raised by the likes of Merck KGaA and a slew of European generic makers.

Late last month, lobbying group Medicines for Europe penned an open letter to the European Union’s energy and health ministers warning that aside from economic pressures inherent to the bloc’s generic drugs business, the COVID-19 pandemic and Russia's war in Ukraine presented “dramatically increased” inflation, soaring raw material and transportation costs and record-high energy prices. The group asked officials from the bloc to roll out measures to lower energy costs for the generic medicines sector, “which cannot legally increase prices anywhere in Europe due to reference pricing.”

Elsewhere, Germany’s Merck KGaA in May cautioned that the war in Ukraine and then-fresh COVID-19 lockdowns in China could expose its financial forecast for the year to “increased uncertainty and volatility.”

Editor's note: This story has been updated to correctly state that Michael Sen took over as CEO of Fresenius from Stephan Sturm on October 1.