During early 2002, the biggest news on the mergers and acquisitions front almost certainly was a major deal that didn't happen. The acquisition of C.R. Bard (Murray Hill, New Jersey) by manufacturing Goliath Tyco (Pembroke, Bermuda) was first proposed in May 2001 and valued at about $3.2 billion. But because merger talks continued to drag on over weeks and then months, collapse of its consummation early last month came as little surprise to industry watchers. In an announcement of that collapse, Bard said that termination of the proposed merger was mutual and that "each party will bear its own costs and expenses" related to the decision. But in an earlier conference call, Tyco Chairman and CEO Dennis Kozlowski had said in response to a question that Tyco had no breakup fee due Bard if the deal didn't close, but "there is a breakup fee [due] us from Bard if it doesn't close."
A variety of factors appeared to block the deal. Tyco's stock price had plunged by more than 50% in the weeks prior to the Bard announcement, the apparent fallout from investor concern over the conglomerate's accounting practice — a concern perhaps receiving some halo effect from the difficulties of fallen energy giant Enron (Houston, Texas). Additionally, Tyco had recently announced a plan to split into four companies, one of them being Tyco Healthcare.
At the time the deal was announced last year, William Longfield, chairman and chief executive officer of Bard, had promoted the merger as benefiting company shareholders, primarily through the broader distribution of Bard's products that Tyco's marketing and distribution clout would give it. But after the deal was aborted, Longfield said that "the best course of action for our shareholders, as well as our employees, is for Bard to remain an independent company. Our business is healthy and viable. Bard's management team remains intact. Our recent financial performance has been excellent and our outlook is positive."
One med-tech analyst, David Lothson of UBS Warburg (New York), supported the move by Bard, raising his rating of the company from "hold" to "buy" and estimating that the firm's shares were undervalued by at least 20%. Bard's products are used primarily in the vascular, urology, oncology and surgical specialty areas.
Symbol cutbacks come as shock
Wireless telemetry vendor Symbol Technologies (Holtsville, New York) delivered a quiet shock to the industry by cutting more than 200 employees, coincident with the annual Healthcare Information and Management Systems Society (HIMSS) meeting in Atlanta, Georgia, in late January. The terminations, which included it medical vertical market channel reps, became known after the company's then-president and CEO Tomo Razmilovic had assured company employees two weeks earlier that their jobs "were secure."
Once again, securities problems may have been partly responsible, with an ongoing Securities and Exchange Commission investigation of the firm considered by many to be at the core of Symbol's troubles. Former employees said recently that Symbol has traditionally pushed its distributors to take inventory that they didn't always need so the company could make its quarterly numbers. According to those sources, unsold inventory ended up being returned to the company for credit, creating revenue shortfalls.
KPMG, a well-known accounting firm, is reviewing Symbol's accounting. While there were no warnings of the $340 million drop in revenues in 2Q01 from $450 million in the first quarter, there have been no public accusations of irregularities in Symbol's accounting practices. The company said that KPMG is reviewing the company's processes for order generation, price quoting and order placing.
Whether it is a result of this or not, company founder Jerry Schwartz re-entered the picture as CEO following the HIMSS meeting, relieving Razmilovic of day-to-day responsibilities, which now will be put back under firm family control in the form of Schwartz's son-in-law, Rich Bravman, a longtime company employee who was serving as senior vice president and general manager of the firm's Integrated Systems Division prior to being elevated to president and chief operating officer.
Arthur Gasch, president of Medical Strategic Planning (Lincroft, New Jersey), who follows the health care IT sector for The BBI Newsletter, said Symbol's problems are distressing to its many health care partners. Those include heavyweights such as McKesson HBOC (Alpharetta, Georgia) and Picis (Arlington, Virginia), as well as such firms as Welch Allyn Protocol (Beaverton, Oregon), which has based foundational new products such as its innovative MicroPaq, on IEEE-802.11 frequency-hopping spread spectrum ISB band technology, for which Symbol is one of the few remaining suppliers. Gasch said, "These vendors are nervous when they see Symbol, without any warning or consultation, eliminating its vertical market application specialists."
For 4Q01 ended Dec. 31, Symbol reported a falloff in both revenues and net income. For the year as a whole, revenues of $1.453 million were up slightly from $1.450 million in 2000, with a net loss of $53.9 million vs. the net loss of $68.9 million in the prior year. The 2001 figure included nonrecurring charges for "reorganization of the company's manufacturing facilities and an inventory writedown," while the 2000 figure included substantial nonrecurring charges related to restructuring, merger integration and in-process R&D related to the company's Telxon acquisition.
Sulzer offers $1 billion settlement
Making yet another move on the class action and liability chess board, Sulzer Medica (Winterthur, Switzerland) in early February reported garnering broad-based support for a new term sheet offering to settle liability suits filed against it as a result of defective hip and knee implant products made by its U.S. subsidiary Sulzer Orthopedics (Austin, Texas). Payments offered, in what the company called "an enhanced and definite term sheet," would total nearly $1 billion and should result in offering payouts of about $200,000 to those who remain in the class action. May 14 has been set by U.S. District Court Judge Kathleen O'Malley as the date of a final fairness hearing on the proposed payout plan.
Stephan Rietiker, Sulzer Medica CEO, called the new offer "a decisive milestone on the path to resolving the U.S. litigation against Sulzer Orthopedics." The company said that it delivered the settlement term sheet to O'Malley in Cleveland, Ohio, after it was signed "by all parties involved." He said that the proposal was developed as "the result of intense negotiations that included the plaintiffs' attorneys, resulting in significant advantages to all." The company said that as of Feb. 1, a total of 2,786 individuals had undergone revision of their hip implant procedures and there were 561 patients who had undergone revised knee implants. The number of those receiving hip revisions had originally been projected by the company to be about 4,000.
Sulzer Medica will contribute $725 million to the settlement fund, a figure comprised of $425 million in cash and $300 million in financial instruments, described as callable convertible instruments (CCIs). Inclusion of the CCIs "requires no dilution of the company's stock and allows existing shareholders to further benefit from the positive development of the company's share price," Sulzer Medica said. Additional funds estimated at about $200 million will be made by Sulzer AG, the former parent company of Sulzer Medica, and the company's insurance carrier, according to a Sulzer Medica spokesperson. The amounts to be paid by the insurance carrier are still being negotiated, the company said.
In a statement, the company said that the support for the plan shown by plaintiffs' attorneys "gives Sulzer Medica a great deal of confidence that the number of opt-outs will remain minimal."
Two die in J&J stent trial
Johnson & Johnson (New Brunswick, New Jersey) confirmed last month that two participants in a clinical trial to test a drug-coated stent in Europe had died, though the cause of death remained undetermined at press time. The deaths were related to the In-Stent Euro trial, being carried out in the Netherlands, and described as a pilot study. Sources at J&J said that there had "protocol violations" in the study and that the deceased patients had been in relatively serious condition. The protocol violations stated included previous brachytherapy treatments received by both of the patients. The trial in question is a 40-patient pilot study investigating the use of J&J's rapamycin-coated stent. The two patients who died were part of a 15-patient arm of the study, with the other 25 patients treated in Brazil.
Analysts commenting on the deaths tended to agree that adverse events in these trials is not unexpected as more patients are treated and more of those patients have more seriously compromised health. Kevin Kotler, med-tech analyst with ABN Amro (New York), noted the possibility of "less-than-perfect" data could result from the many in-stent restenosis trials over the next year "as more 'real-world' patients are treated, rather than the 'easy' patients already presented." He said that many physicians would wait for long-term safety data before adopting this new technology, a trend that "could benefit the stent companies who are behind in the clinical stage of their drug-coated stent programs." Kotler said he "continues to view drug-coated stents as the next major revolution in vascular intervention," putting that market at nearly $6 billion by 2005.
Larry Haimovitch, president of Haimovitch Medical Technology Consultants (San Francisco, California), said, "This is important news because the whole theme of drug-coated stents has been that 'we're getting perfect results,' and in interventional cardiology, there's no such thing as perfect results." Haimovitch, who covers the cardiovascular sector for BBI and its sister publication, Cardiovascular Device Daily, said the likelihood of problems coming out of the various coated-stent trials now under way was predictable. "We knew that sooner or later there was going to be some pushback on this. There was too much euphoria involving drug-coated stents."
He said "it will be interesting to see how [this news] affects Novoste (Norcross, Georgia)." That company, the leader in the brachytherapy sector for radiation treatment of in-stent restenosis, has seen its market valuation suffer, in some measure because of the belief by some investors that the arrival of drug-coated stents on the market over the next two years may sound the death knell for Novoste's Beta-Cath device. "I think the pessimism on Novoste was way overdone," Haimovitch said.