In a move designed to allow it to focus on what it termed "higher-growth platforms," particularly in the growing area of medical devices, Abbott Laboratories (Abbott Park, Illinois) said last month that it plans to create one of the largest manufacturers of hospital products in the U.S. by spinning off much of its core global hospital products business into a separate company. Abbott said that the proposed spin-off will create one of the largest makers of hospital products in the U.S., with businesses that include medication-delivery systems, generic pharmaceuticals and contract manufacturing. The new company's operations will represent about 10% of Abbott's current net income, the company said.

The spin-off is designed to allow Abbott to focus on higher-growth segments and proprietary products, it said. The company plans to retain its hospital operating-room drugs, proprietary hospital drugs and pain-management products, as well as portions of the international hospital business, all of which will become part of its global pharmaceuticals division. The move allows Abbott to raise its long-term growth rate and focus its resources on its faster-growing segments, such as pharmaceuticals, vascular and orthopedics.

The new, independent hospital products company will have about 14,000 employees worldwide, more than 5,000 customers and a large portion of Abbott's core hospital products business, including the related international hospital business.

Specifically, the new company's business will include medication delivery systems, such as electronic drug-delivery systems, infusion therapy and critical care products; generic pharmaceuticals, including acute-care injectables and other generic anesthetics; and other businesses, including intensive-care pharmaceuticals, as well as contract manufacturing. The new company, yet to be named, will be headquartered in Lake Forest, Illinois.

Abbott said it also would retain Abbott Vascular Devices, including the Perclose, Biocompatibles and Jomed assets, and the recently acquired Spinal Concepts (Austin, Texas), which will continue to be operated through Abbott's Medical Products Group.

"The creation of the new hospital products company will provide greater value for Abbott shareholders in the coming years because it will enable Abbott to increase its focus and investment on higher-growth segments in our medical products business and sustain a technologically advanced, higher-growth medical and pharmaceutical products portfolio," said Miles White, chairman and chief executive officer, during a conference call. A primary motive for the spin-off, according to White, was to focus more resources on potential high-growth areas, particularly in the medical device field. He said that while many of the device companies in Abbott's arsenal currently contribute relatively small sales to Abbott today, they have attractive margin profiles and high sales growth potential. "In fact," he said, "each has the potential to become a $1 billion business."

Christopher Begley, the current president of Abbott's U.S. hospital business, will become chief executive officer of the new company. Begley, who had spent the majority of his 30-year career in the hospital products business, is a 17-year veteran of Abbott, and has served in numerous management positions in the company's hospital and health systems businesses. David Jones, co-founder and chairman of Humana (Louisville, Kentucky) and a retired Abbott board member, will serve as the new company's chairman of the board.

Tom Freyman, Abbott's senior vice president of financing and chief financial officer, said that the pure-play hospital products group's annual sales "as they exist within Abbott today, are approximately $2.5 billion, with less than 15% of those sales coming from outside the U.S." He said that the entities' net income is about $300 million, with operating cash flow after expenditures also of about $300 million.

Begley said, "we will be the largest company focused solely on the hospital." He noted that the new company holds No. 1 market positions in many products, including electronic drug delivery systems, generic pharmaceuticals, high volume sterile contract manufacturing and patient-controlled analgesia. Begley added that it can use its domestic market leadership to take advantage of the growing international market for hospital products and contract manufacturing. "Worldwide, the hospital products market is roughly twice the size of the U.S. market," he said.

Edwards cutting staff by 130

Cardiovascular device manufacturer Edwards Lifesciences (Irvine, California) reported last month that it is reducing its staff by 2.5% about 130 of a total of 5,000 employees worldwide and as a result will record an after-tax charge in the third quarter of $8 million to $10 million. Kelly Dane, a spokesperson for Edwards, said that the cuts are being made primarily in corporate and administrative areas and across the company's worldwide locations. She said that there will be reductions of 10 people in Asia, 30 in Europe and 90 in the U.S. Dane noted that the company had added 500 people at its Irvine location since its spin-off from Baxter International (Deerfield, Illinois) in 2000.

Michael Mussallem, chairman and chief executive officer, said that the cutbacks were not made as a reaction to the company's recent 2Q02 report that showed a 26% increase in sales but a fairly sharp drop in income from the year-ago quarter $21.1 million vs. $30.6 million for the comparable period. "We're [making staff cuts] to enhance our ability to meet our near-term earnings goals and to position us for the revenue growth we have planned in the future," Mussallem told BBI.

He also noted the projected release of a variety of new products and that the company is "looking forward to that." The new products include Tricentrix, a mitral valve implantation aid; the Perimount Magna pericardial heart valve; the Optimaze cardiac ablation system; an ischemic mitral valve repair system; and Embol-X, an embolic protection device. Overall, these products will boost the year's sales growth by 10%, the company said in its recent quarterly report.

In another development last month, Edwards filed patent infringement lawsuits against Medtronic (Minneapolis, Minnesota) and Medtronic AVE (Santa Rosa, California); Cook (Bloomington, Indiana); and W. L. Gore & Associates (Sunnyvale, California) in U.S. District Court for the Northern District of California. Edwards is seeking injunctive relief and damages for infringement of a patent that relates to modular or multi-part endovascular grafts especially suited for treatment of various types of aneurysms, including abdominal aortic aneurysms (AAAs).

Edwards said it filed the lawsuit because it believes the other companies are infringing a patent owned by an Australian company formed by the inventors, Dr. Geoffrey White and Dr. Weiyun Yu, and exclusively licensed to Edwards. The products named in the suit include Medtronic's AneuRx Stent Graft and Talent Stent Graft Systems, Cook's Zenith Endovascular Graft and Gore's Excluder Bifurcated Endoprothesis.

More workforce cuts at Novoste

Novoste (Norcross, Georgia), a specialist in brachytherapy technology for the prevention of in-stent restenosis, last month reported that it is laying off 50 employees, mostly at its Norcross location, in ongoing moves to cut costs and restructure operations. Besides reporting the staff cuts, the company said that it is suspending enrollment in its MOBILE (MOre Patency with Beta In the Lower Extremity) trial, initiated in 2001, to test the use of vascular brachytherapy for the treatment of failed stents in the peripheral arteries.

In a statement, company management said that it "has determined that the current rate of enrollment in the trial would likely not result in the possibility of commercial approval of the product for at least three years." Realigning priorities in its research and clinical trial areas, it said, "will provide cost savings and a greater opportunity for growth by deploying resources elsewhere." Novoste said that it will continue to follow the patients already enrolled in the MOBILE trial and that it will publish the clinical data once it is compiled.

The new staff reductions constitute about 20% of the company current workforce. In January, the company reported a 12% reduction in its workforce. The new cutbacks result in a total of about 30% in staff cutbacks for the year. The company now has about 210 employees. The January cuts were estimated to produce $3 million in annual savings, and Novoste took a one-time charge of $400,000 for severance costs.

The company estimates that the new reductions will produce costs savings of about $4.6 million annually. It will record about $600,000 in one-time severance costs in the third quarter of this year. Among those largely affected are the company's field clinical sales trainers, with the company saying that with the launch of its various vascular brachytherapy devices, it has reduced needs for extensive field training activities. "Therefore, most of its field clinical sales trainers have been released or reassigned to other positions with the company," said Novoste.

Profitability for Digene

Digene (Gaithersburg, Maryland), maker of DNA and RNA testing systems for screening, monitoring and diagnosing diseases, particularly in the cervical cancer area, reached profitability for the first time in the fourth quarter of fiscal 2003, which ended June 30. It reported net income of $260,000 or 1 cent a share vs. a net loss of $4.47 million or 25 cents a share in the prior-year period. Revenues increased by 50% in the quarter, totaling $19.1 million compared to $12.7 million in 4Q02. The revenue gains were driven by strong growth in demand for the firm's HPV Test, which recorded $16 million in sales in the quarter, up from $9.5 million a year earlier.

For the year as a whole, the net loss was more than halved to $4.32 million or 24 cents a share from the year-earlier loss of $9.4 million or 54 cents a share. Revenues grew by 29% to $63.1 million from $48.85 million in fiscal 2002.

Evan Jones, chairman and chief executive officer, said during a conference call that the gains made by Digene during fiscal 2003, particularly the rapid growth in HPV Test sales and movement toward U.S. commercialization of its DNAwithPap Test, set the stage for its "transition from a molecular diagnostics company to a world-class cancer screening company." He added, "During 2004, we expect to see continued [revenue] growth and our first full year of profitable operations as we commercialize the DNAwithPap Test," a milestone step Digene will be taking this month.