Kicking off the new year in a big way, General Electric (Little Chalfont, UK) in mid-January unveiled its plan to buy the in vitro diagnostics businesses and Abbott Point-of-Care diagnostics business (formerly known as i-STAT) of Abbott Laboratories (Abbott Park, Illinois) for $8.3 million, in what could turn ou to be the largest deal of the year in monetary terms.
GE Healthcare said that the addition of the core laboratory diagnostics businesses of Abbott will broaden its diagnostic offerings and complement its existing positions in in vivo diagnostic imaging systems), as well as its molecular imaging, information technology, and patient monitoring capabilities across the complete healthcare continuum. (In vivo imaging uses X-ray, magnetic resonance, ultrasound or other imaging procedures to look at what is in the body to diagnose disease.)
Abbott's Molecular Diagnostics and Diabetes Care businesses are not part of the transaction and will remain part of Abbott, the companies said.
The divestiture was probably a surprise to many since Abbott is a leader in this $24 billion market that grows 6% to 8% a year, and its in vitro diagnostics business, including point-of-care, is expected to generate net sales of about $2.7 billion in 2006, according to GE Healthcare.
Thus, in a conference call, Miles White, Abbott's CEO and chairman, provided a rationale for the move in terms of its recent changes.
In the 1980s and 1990s, White said, the core laboratories and diagnostics market was one where the most advanced assays were run on low-cost bench-top instrumentation. But over the past decade Abbott has seen fundamental changes in the nature of this market.
"Today, it's a market driven by automated, capital-intensive, mainframe systems that are integrated with institutional IT systems," according to White. "These capital-intensive technologies require a financing, sales and service infrastructure more suitable for large capital equipment manufacturers such as GE."
White said that Abbott also considered its five strategic objectives — strategic fit, ability to generate high growth, capability for innovation and differentiation, ability for high profit and high returns, and potential to generate strong cash flow, White said. "And so when we considered the evolving dynamics of the core laboratory diagnostics market against the backdrop of our strategic goals it was clear to us that a large capital equipment manufacturer would be a better fit to take this business to the next level," White said.
White said Abbott did not make the decision lightly. "It was a decision that we carefully considered, given our long-standing legacy and commitment to this market. We would only consider this divestiture if it was the right situation for this business and we found that ideal situation with GE, one of the world's largest and most respected companies with a leading imaging and healthcare systems [business] that made for a compelling strategic fit."
In a separate teleconference, GE said it sees the acquisition as an unusally strong complementary fit. "This is an amazing amount of technology," said Joe Hogan, president/CEO of GE Healthcare. "That's why it fits so much better in a GE portfolio because we have that capability. We have 4,000 software engineers . . . as this business evolved within the Abbott portfolio it wasn't in their core competency because they had more biochemistry and organic sciences capability."
Hogan said GE actually had been eyeing the possibility of acquiring Abbott's core diagnostics offerings for about five years.
The transaction, which is subject to regulatory approvals and other customary conditions, has been approved by the boards of both companies and is targeted to close in the first half of this year.
‘Going concern notice addsto growing list ofCyberonics’ ills
Cyberonics (Houston), developer of vagus nerve stimulation technology to treat epilepsy and depression, already pummeled by criticisms of its technology and challenges to its management — including the recent ouster of its CEO Skip Cummins and other top executives — reported still more difficulties last month. The company acknowledged that its financial statements for the fiscal year ended April 28, 2006, included in its annual report, contain a “going concern” modification to the audit opinion from its independent accounting firm, KPMG. The result was a slump in the company’s share value of about 3%.
The going concern notice, the company said in a statement, is the result of recurring losses from operations, a notice of alleged acceleration of its $125 million senior subordinated convertible notes, and a potential default of its $40 million line of credit based on the alleged acceleration, the company acknowledged.
Because of errors in the company’s stock option practices, Cummins and CFO Pam Westbrook resigned in November. A review by the company’s audit committee discovered those errors, and the company must restate results for the fiscal years 2000 through 2005.
In late December, the company also reported receiving a third letter from the NASDAQ indicating that it fails to comply with the filing requirement for continued listing as a result of the delay in filing its report for its fiscal quarter ended Oct. 27, 2006, and that its securities are subject to delisting. Still another problem is the filing of shareholder lawsuits related to its stock option problems and the impact on its share price. Additionally, Cyberonics is fending off attempts to replace some of its board members at its Feb. 1 annual meeting, an effort fueled by criticisms of the company’s management over the past year.
The dissidents, according to Cyberonics “present no plan or vision”; they “have chosen to wage this proxy contest and have even made it clear that, if elected, they plan to force our stockholders to cover the entire expense of their proxy solicitation, without ever seeking your approval. The dissidents would probably like you to think that it can’t hurt to elect their nominees to the board, but we believe that the election of a self-serving slate of unqualified nominees who want to spend your money to get elected is directly harmful to your interests.”
Kodak hones focus viaspin of Health Groupto Onex
Following through on a plan rolled out in mid-2006, Eastman Kodak (Rochester, New York) last month divested its Health Group to sharpen on its focus on consumer and professional imaging and the graphic communications industry. The company said it will sell the group to Onex Healthcare Holdings (Toronto), a subsidiary of Onex Corporation in a deal that could roll up the price to about $2.55 billion. The price is composed of $2.35 billion in cash at closing, plus up to $200 million in additional future payments if Onex achieves certain returns with respect to its investment. And if Onex Healthcare investors realize an internal rate of return in excess of 25% on their investment, Kodak will receive payment equal to 25% of the excess return, up to $200 million.
Last May — on the heels of its sixth consecutive quarterly loss — Kodak said it was exploring strategic alternatives for its Health Group, including possible sell-off. Robert Salmon, a spokesman for Kodak told Biomedical Business & Technology that the company had decided that “in order to be truly successful and realize growth and really take the business to a whole [new level] would require an investment of resources it didn’t have.”
Onex, Salmon said, has a track record of being able to develop and grow its business acquisitions. “We joined forces with an organization that has the resources to grow the business.” He said that with deal close the Health Group will operate as a stand-alone company. The companies said the sale will close in the first half of this year.
Because of tax-loss carry forwards, Kodak said it expects to retain the majority of the initial $2.35 billion cash payment, using most of the proceeds to fully repay its roughly $1.15 billion in secured term debt. It said that other possible uses are under review and was to be discussed during an investor meeting, scheduled for Feb. 8.
The Health Group — with revenue of $2.54 billion for the last 12 months, through Sept. 30, 2006 — develops information technology, molecular imaging systems, medical and dental imaging, including digital X-ray capture, medical printers, and X-ray film.
Kodak said the deal does include the area of the business that sells X-ray film and digital X-ray machines into the non-destructive testing market, the molecular imaging systems business, and the dental business.
Onex is one of Canada’s largest corporations, with annual revenues of about C$20 billion and consolidated assets of roughly C$20 billion. It has global operations in healthcare, service, manufacturing and technology industries.
AED shipment delayswill put off spin ofPhysio-Control
Another major divestiture — the proposed spin-off of its AED business, Physio-Control (Redmond, Washington) by Medtronic (Minneapolis) — will not be happening on any sort of near-term timeline. The spin-off -- unveiled by Medtronic late last year -- will be delayed indefinitely by the halt of shipments of automated external defibrillator (AED) products made by Physio-Control
Medtronic had said that the spin of its AED unit would take place in the first half of the company’s FY08 period, between May and October 2007. The move, it said, was being made because the AED technology did not match well with its focus on implantable defibrillators, especially on the marketing side.
Physio-Control, which provides AEDs and other emergency response products to hospitals, emergency response organizations and various public and private enterprises, said the decision to suspend U.S. product shipments was made to “address quality system issues” in the company’s Redmond facility.
The company said the action was not related to a specific product, does not affect Physio-Control products currently in use worldwide — and thus is not cause for a recall — and does not impact any other Medtronic products. In addition, the company said it will continue to service and repair its installed base of products. Physio-Control and Medtronic said they intend to work “expeditiously with FDA” to address open issues in order to resume shipments to the U.S. market.
“The product shipment suspension affects all the products that are manufactured through that [Redmond] facility,” company spokesperson Rob Clark, company spokesman, told BB&T that the suspension of shipments related to “essentially all of our major [AED] platforms. That’s our singular manufacturing and distribution center for these products.”
While Clark noted that the shipment suspension will delay the spin-off, he said that Medtronic still intends to go forward with the transaction “as soon as these matters are resolved” but predicted no timetable for lifting the shipping embargo.
Physio-Control was acquired by the firm for $538 million in stock in June of 1998. The company has about 1,200 employees and a currently has a market share of about 45% to 50% for defibrillator monitors and roughly 35% for AEDs.
Business bought from Baxter now to benamed Fenwal
Texas Pacific Group (TPG; San Francisco/London) and Maverick Capital reported that the transfusion therapies business that they are acquiring from Baxter International (Deerfield, Illinois) will be named Fenwal, Inc. when the transaction closes later this quarter. Fenwal was the original name of the business when it was established in 1949. The deal to sell the business to TPG and Maverick for $540 million was unveiled late last year.
The purchase included a global product portfolio of manual and automated blood-collection products and storage equipment, as well as five manufacturing facilities located in Haina, Dominican Republic; La Chatre, France; Maricao and San German, Puerto Rico; and Nabeul, Tunisia.
Fenwal, TPG said, will be one of the world’s largest suppliers of products and services to the blood banking industry. For nearly 60 years the business has developed technologies for “transfusion medicine” that support blood collection and blood therapy a reality.
In 1949, a medical student named Carl Walter, with a $2,000 investment from entrepreneur T. Legare Fenn, founded Fenwal Laboratories. Walter had developed the first flexible, disposable blood-collection container.
In addition to eliminating complications associated with blood collected in glass bottles — such as air embolism, contamination and breakage — Fenwal’s Blood-Pack system enabled the separation of whole blood into its components through a series of connected disposable containers, creating a shift from whole-blood transfusion to blood component therapy, and enabling the administration of only that component of blood needed.
Ron Labrum, incoming CEO, said, “The Fenwal brand is recognized around the world as being synonymous with innovation in transfusion medicine. The name signals a renewed vigor to bring about new and better technologies, backed by the service and support expected from an industry leader.”
Current development is focused on technologies that automate the process of cell separation and other processes.
GE signs consent decree related to its X-ray imaging systems
The FDA reported that GE OEC Medical Systems (Salt Lake City), its parent company, General Electric (Little Chalfont, UK) doing business as GE Healthcare (Waukesha, Wisconsin), and two of their top executives have signed a consent decree of permanent injunction related to X-ray surgical imaging systems manufactured by GE OEC Medical Systems.
The consent decree prohibits the manufacturing and distribution of specified GE OEC Medical Systems X-ray surgical imaging systems at facilities in Salt Lake City, and Lawrence, Massachusetts, until the devices and facilities have been shown to be in compliance with FDA’s current good manufacturing practice (CGMP) requirements as set forth in the Quality System (QS) regulation for devices.
The decree was filed in the U.S. District Court for the District of Utah and is subject to court approval.
The X-ray surgical imaging systems subject to the decree are manufactured and designed at GE OEC Medical Systems’ facilities in Salt Lake City, and Lawrence, and include the 9900 Elite C-Arm system, 9900 Elite NAV C-Arm system, 9800 C-Arm system, 2800 UroView system, 6800 MiniView system, Insta-Trak 3500 NAV system, and ENTrak 2500 NAV system, as well as their components and accessories. These are radiological image processing and image-intensified fluoroscopic X-ray systems that are used during diagnostic, surgical, and interventional procedures, such as orthopedic, cardiac, critical-care, emergency room procedures, and other imaging applications.
“These devices are used on thousands of patients, and their dependability and accuracy are critical for the successful outcomes of important medical procedures,” said Daniel Schultz, MD, director of the FDA’s Center for Devices and Radiological Health. “When FDA’s August 2006 inspection found ongoing CGMP deficiencies at the Utah facility, GE voluntarily stopped distributing devices from that facility and is working with the FDA to ensure that necessary corrective actions are fully implemented.”
The FDA previously inspected the Utah facility between Nov. 15 and Dec. 1, 2004. Following that inspection, FDA issued a warning letter on March 31, 2005, citing violations of the CGMP requirements. The government brought this enforcement action when FDA’s 2006 inspections showed inadequate responses to FDA’s requests for corrections in the 2005 Warning Letter.
Under the terms of the consent decree, signed by Joseph Hogan, senior VP, GE and president/CEO, GE Healthcare, and Peter McCabe, president/CEO of GE OEC Medical Systems and GE Healthcare Surgery, the companies have agreed to ensure that the X-ray surgical imaging systems manufactured and designed at the Utah and Massachusetts facilities comply with CGMP requirements, as well as FDA regulations for reporting adverse events and malfunctions and device corrections and removals.
The decree also requires that the companies hire an independent expert to conduct inspections of GE OEC Medical Systems facilities in Utah and Massachusetts and certify to FDA that corrections have been made.
Beckman Coulter planningto relocate Palo Altofunctions
Beckman Coulter (Fullerton, California) reported that it will close its Palo Alto, California, operations by the end of 2008, relocating those functions, it said, “to other Beckman Coulter facilities or areas near by” but primarily to the Indianapolis area.
The greater Indianapolis area is home to other Beckman Coulter Discovery and Automation products.
The majority of activities in Palo Alto are associated with development and manufacturing of centrifuges, a key product line in the company’s Discovery and Automation product area. About 220 are employed in Palo Alto. The company did not specify the employment alternatives available to these workers.
Pam Miller, senior VP of supply chain management, called the closing “difficult . . . because the people there have always done excellent work and we have a long history in the area. By relocating our operations to the Indianapolis area, we can work aggressively to manage our costs and maintain our leadership position in centrifugation, an important asset of the company. Also, we’re able to take a longer-term view of workforce planning.”
Beckman Coulter manufactures biomedical testing instrument systems, reagents and supplies for laboratory processes.
Caliper creates new in vitro-to-in vivo drug service
Caliper Life Sciences (Hopkinton, Massachusetts) has unveiled the formation of Caliper Discovery Alliances & Services (CDAS), created from the integration of two acquisitions: NovaScreen Biosciences (Hanover, Maryland), a provider of in vitro discovery services acquired by Caliper in October 2005; and Xenogen Biosciences (Alameda, California), a provider of in vivo discovery services, acquired in August 2006.
Caliper said that through these acquisitions it has assembled various in vitro and in vivo products and services enabling pharma companies to reduce costs while increasing the pace of drug research by building “An In Vitro-In Vivo Bridge” [I-I Bridge] to find new drugs while minimizing the risk of adverse effects of those drugs.
“The launch of CDAS is one in a series of practical solutions that Caliper is offering the pharmaceutical industry, with the goal of reducing attrition of drug candidates as they move from in vitro to in vivo experiments,” said Kevin Hrusovsky, president/CEO of Caliper.
CDAS said that it will be able to offer more than 700 in vitro assay types, including receptor, enzyme and ion channel screening and profiling assays, side effect and ADME-tox panels, and cellular models for immunology, oncology, and other fields.
In vivo offerings include more than 85 pharmacological assays that measure more than 400 different parameters for applications such as in vivo compound profiling and phenotyping, and target validation studies.
HealthSouth set to pursueclaims vs. Scrushyand auditors
HealthSouth (Birmingham, Alabama) last month said that it was readying to pursue its claims against its former CEO, Richard Scrushy, its auditors and others, during the period that its books were inflated by millions of dollars. HealthSouth said that it received final court approval of agreements with the lead plaintiffs in the federal securities class actions and the derivative actions, as well as certain of its insurance carriers, to settle litigation filed against it, certain of its former directors and officers and certain other parties in the U.S. District Court for the Northern District of Alabama and the Circuit Court in Jefferson County, Alabama. The claims relate to financial reporting and related activity that occurred at the company during periods ended in March 2003.
The settlement brought in the class action against HealthSouth and certain of its former directors and officers via payment of HealthSouth stock and warrants valued at $215 million and cash payments of $230 million.
In addition, the federal securities class will receive 25% of any net recoveries from future judgments obtained by or on behalf of HealthSouth with respect to certain claims against Scrushy, Ernst & Young, the company’s former auditors, and UBS, the company’s former primary investment bank. The agreements were previously reported Sept. 27, 2006 (Medical Device Daily, 2006).
Jay Grinney, president/CEO of HealthSouth, said, “We now can focus our legal resources on asserting our claims against the company’s former chief executive officer; former auditors, Ernst & Young; and former primary investment bank, UBS, for the role each of them played in the fraud perpetrated against HealthSouth and its shareholders.”
HealthSouth is a large provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services.