Medical Device Daily

Hospira (Lake Forest, Illinois) yesterday reported that it would expand on its offerings to the hospital sector, primarily the operating room, through the purchase of Physiometrix (North Billerica, Massachusetts), a firm developing systems for monitoring the consciousness of patients during surgery.

Hospira, a major U.S. hospital products manufacturer spun off from Abbott Laboratories (Abbott Park, Illinois) in 2003, said it would make the acquisition with $23 million in cash, plus the assumption of Physiometrix debt of about $1 million.

While some following the patient monitoring sector said the $24 million price tag puts a high premium on the deal, Hospira with the acquisition will lay claim to one product already marketed, another to be marketed later this year and the intellectual property of Physiometrix, on which it is likely to build.

Physiometrix is focused on “brain-state” monitoring, a sector where it has attempted to go head-to-head with Aspect Medical Systems (Newton, Massachusetts), developer of the Bispectral Index (BIS) system for more accurately measuring the precise level of consciousness of a patient undergoing surgery.

The goal of this type of monitoring is to avoid, on the one had, over-sedating patients – which slows their recovery and release from the hospital – and, on the other, under-sedating them so that they actually may be awake during the surgery – a condition known as surgical consciousness. This condition, not unexpectedly, has a rather magnetic way of attracting lawsuits.

Aspect has established a 90%-plus dominant foothold in this arena, with Physiometrix attempting to play catch-up with a monitoring system that features more electrodes. But the lack of uptake suggests that it has failed to convince hospitals, and primarily anesthesiologists and surgeons, that it offers a substantial improvement over BIS monitoring.

Physiometrix describes its PSA 4000, already commercialized, as a real-time electroencephalogram (EEG), or brain- state monitor, featuring disposable sensors and a proprietary measurement parameter – called the Patient State Index – that aids in monitoring the effects of anesthesia agents.

The distributor of the PSA 4000 monitor to date has been Baxter International (Deerfield, Illinois), and Physiometrix in March reported "a fourth-quarter market share of 20% of all shipments of level of sedation monitors in the U.S."

Physiometrix has received FDA 510(k) approval for its next-generation PSA 5000 monitor, and plans call for rollout later this year of the PSA 5000, bannered by the company as having an ergonomic design that improves on the PSA 4000, and having more power.

Assuming completion of the proposed deal, Hospira will market the current PSA 4000 system and the PSA 5000 system, Physiometrix said.

The contest between Aspect and Hospira will be an interesting one to follow.

Besides having the advantage of a large head start in the consciousness-monitoring sector, Aspect’s BIS technology is incorporated into the modules of various large players in the monitoring industry.

Arthur Gasch, who follows the patient monitoring sector for Medical Device Daily and its sister publication, The BBI Newsletter, told MDD that the American Society of Anesthesiologists (Park Ridge, Illinois) is expected to release new guidance sometime later this year concerning the management of consciousness monitoring and potentially provide much-expanded use of “standard-of-care” technologies in the sector. Whether or not this guidance will give Aspect an even tighter grip on this market is yet to be seen.

But establishment of a standard which presumes the use of consciousness monitoring during surgery is likely to give a boost to both companies, with the model employed by both based on an ongoing cash flow stream from sale of disposables. According to the ASA, anesthesia is used in about 40 million procedures annually.

Aspect last month established its own relationship with a big-player medical device firm, receiving $25 million in R&D support from Boston Scientific (Natick, Massachusetts) (MDD, May 24, 2005). Aspect said these funds would go to develop new devices for monitoring the impact of psychotropic drugs and the management of neurological conditions, using the BIS platform.

Physiometrix has struggled to be profitable and currently is attempting to avoid delisting from the Nasdaq (MDD, June 1, 2005).

For the first quarter ended March 31, its net loss was a bit more than $1.5 million, compared to a net loss of nearly $2.5 million for the year-ago quarter. For the 12 months of 2004, the net loss was more than $6.3 million, compared to a 2003 net loss of $8 million.

Despite these downsides, the acquisition of Physiometrix will broaden its portfolio for both the operating room and the intensive care unit, Hospira said.

Physiometrix employs about 40; the announcement of the proposed sale did not address possible staff cutbacks. The purchase is set for completion in the third quarter, assuming approval by Physiometrix shareholders and customary closing conditions. It already has been approved by the board of Physiometrix.

Hospira said that the transaction is not expected to impact any financial projections previously provided.

John Arnott, senior vice president, Global Commercial Operations, for Hospira, said that the products and devices made by Physiometrix provide the company “with an entry into the fast-growing sedation monitoring market and a core technology that could be further expanded over the long term.”

“Hospira is the ideal company to advance Physiometrix’s goal of improving patient outcomes,” said John Williams, president and CEO of Physiometrix. “The increasing importance of sedation monitoring in clinical settings, combined with Hospira’s focus on serving the hospital customer, will expand access to our technologies.” He added that linkup with Hospira “is the best platform to move our technology toward standard of care. It will allow the continuation of the Physiometrix product line and enable us to continue to address the expanded needs of our clinical partners.”

The products being developed by Physiometrix are based on advanced gel materials, signal-processing electronics and proprietary software. The company generated about $1.9 million in 2004 sales at the wholesale level primarily through a distribution agreement.

Under the merger terms, Physiometrix shareholders will receive payment of $1.59 in cash for each share of common stock held. In addition, holders of options and warrants for common stock of Physiometrix will receive a cash payment equal to this amount, less the applicable exercise price and applicable withholding taxes. Options and warrants with an exercise price that exceeds the per-share cash payment will be terminated in connection with the closing.

Hospira’s care products include solutions for medication management and infusion therapy and generic acute-care injectables; and it operates a U.S. injectable contract manufacturing business. Employing about 13,000, Hospira operates 14 manufacturing facilities worldwide.