The new year offers a time to pause, reassess –and restructure. That was the keynote for several companies in late January and February as they reported reorganizing efforts intended to streamline operations and reduce costs.
Perhaps the most far-reaching reorganization will be that of C.R. Bard (Murray Hill, New Jersey), which unveiled a three-year plan of restructuring. Bard said it will begin to reduce the number of its 24 manufacturing facilities around the world in a three-step process over the next three years. Additionally, it will consolidate all of its non-manufacturing operations into one facility in New Jersey and is "exploring alternatives" to consolidate administrative functions outside the U.S.
The cost savings for the three initiatives will range "from $50 million to $70 million, pretax, by 2004," according to Holly Glass, Bard spokesperson, who said those savings will be directed to pumping up efforts in product discovery. The R&D figure will be pushed from 6% to 8% of sales, she told BBI's sister publication, Medical Device Daily. Overall, she called the goals of the realignment, "very specific – we took a long, hard look at what we're spending in research and development. We pride ourselves on being the market leader in our product areas and the way to stay a market leader is through new products."
Glass said that the company is not yet ready to release details concerning the cutbacks in manufacturing, but will do so in the fall. The reductions, she said, should have no impact on any of Bard's product lines, which are focused on developing instruments for the urology, oncology, vascular and general surgical sectors.
As to the administrative changes, she said that the company is looking at sites in west and central New Jersey and will consolidate non-manufacturing personnel currently working from eight locations. The new site will have 300,000 to 400,000 square feet of space, Glass said.
Consolidation of facilities outside the U.S. could include "partial outsourcing or partnering with another company," according to a company statement. The non-marketing changes "seek to optimize our efficiency at the administrative and support level through the use of a shared service model," said William Longfield, chairman and CEO. While the changes will produce long-term annual savings, Bard will spend from $140 million to $150 million over the next three years to make them. The company will take a one-time charge of about $21 million in 2001 for the first phase of the realignment, it said. Bard has not said how the changes will impact staffing.
In other restructuring activities:
Hanger Orthopedic Group (Bethesda, Maryland) said it will make several cost-cutting moves, bundling its announcement with its report of an expected 4Q00 revenue shortfall of $5 million, about 5% of revenue. The company said it is working with Jay Alix & Associates to carry out several cost-saving efforts. These include better use of support services, such as claims processing; streamlining materials purchasing and distribution services; and revising its marketing and billing processes. Another key change included the resignation of CFO Richard Stein, with the company saying that Stein left the company to pursue other opportunities.
In late January, Edwards Lifesciences (Irvine, California) – spun off last year from Baxter (Deerfield, Illinois) – said it is creating a new structure "that aligns more closely" with its strategic focus on treatments for late-stage cardiovascular diseases. Edwards has created four new units, called functions, which Chairman and CEO Michael Mussallem said will help the company "identify new ways to apply technology to unmet clinical needs [and] enrich our product pipeline." Scott Nelson, head of corporate communications for Edwards, said that while the new alignment highlights regional activities, the more important change is improved emphasis on the company's activities in discovery.
"We weren't scattershot before, but this better aligns the discovery function of the company," Nelson told BBI. He said that Edwards will continue activities around key product lines, but that the new units will "get us growing faster. More importantly we're shifting resources to strengthen R&D and our product development pipeline," with that shift to move the firm's research budget, over time, from 6% per year to 10% annually. He said the company is fully aware of the rapid development of products in cardiology.
Somnus Medical Technologies (Sunnyvale, California) will reduce staff by 10% in the current quarter in order to save up to $4 million annually and reduce its burn rate. Somnus is the developer of the Somnoplasty System, an FDA-cleared, temperature-controlled radiofrequency-based technology for treatment of sleep disorders. John Schulte, president and CEO, said the restructuring will reduce the company's break-even revenue target by 30% "to a revenue rate of approximately $6 million per quarter." Somnus will take a one-time restructuring charge of from $500,000 to $600,000. The company also will close its European office and transfer its European distributors to the U.S. to run its global sales and marketing efforts from this country. During 4Q00, Somnus began outsourcing the manufacture of its control units, and the company will consolidate its manufacturing operations.
Spectranetics (Colorado Springs, Colorado), a developer of laser technology for cardiovascular applications, said that as of Jan. 1 it began disbanding its German sales organization and restructuring its European operations to reduce overhead by more than $1 million annually. The company has established a long-term distribution relationship with Krauth Medical KG in which Krauth will be the exclusive marketer of Spectranetics' products throughout Germany. The company said its European sales activities outside of Germany are unaffected, and Spectranetics BV, headquartered in the Netherlands, remains the company's European headquarters. Stefan Widensohler, Krauth CEO, said that the use of excimer lasers "to clear blockages in the cardiovascular system – both in the heart and in the legs – is an important and growing market in Germany, as it is in the United States."
In the diagnostics sector, Orasure (Bethlehem, Pennsylvania) said it will save up to $1.5 million per year by eliminating manufacturing of its OraQuick product line, a system for oral testing for the HIV virus, in its Beaverton, Oregon, facility. Additionally, it will expand OraQuick production by means of automation at its Bethlehem site and it plans to add production capacity for OraQuick in Thailand. Separately, Orasure reported the "indefinite suspension" of production of its Serum Western blot confirmatory test for HIV-1, manufactured at Beaverton. The Serum Western Blot product accounted for approximately 5% of 2000 revenues, the company said, but added that it "has been consistently unprofitable because of low production yields and the high cost of insuring the quality of the end product," it said.
With movement of OraQuick manufacturing to Bethlehem and Thailand, staffing in the Beaverton office will be cut by 33% to 35. Longer term, the company says it should see savings in 2002 and these will be added to the $2 million in savings achieved through last year's merger of its predecessor firms, Epitope and STC Technologies, according to Orasure's statement.
In the e-health sector, drugstore.com (Bellevue, Washington) announced steps to reduce projected 2001 operating expenses by more than $20 million. The moves include a cutback of 125 jobs through layoffs and attrition "as well as reductions in planned marketing expenses," according to a company statement. The company ended 2000 with a balance sheet showing about $130 million in cash, which it said is enough "to reach operating cash flow break-even," and provide "staying power" as a dot-com business.
Hopkins gets $58.5M for stem-cell work
Scientists at Johns Hopkins University School of Medicine (Baltimore, Maryland) have received an anonymous gift of $58.5 million and will use the funds to advance stem cell research program focusing on selecting, modifying and reprogramming human cells. The cells will be moded into therapeutic transplants for everything from Parkinson's diabetes, ALS and diabetes to heart failure, stroke and spinal cord injury. The funding will be directed to the university's Institute for Cell Engineering, which received $23.8 million toward the cost of a new research building from the state of Maryland, guaranteeing space for the research. Johns Hopkins officials said the state grant attracted the attention of the anonymous donor. While the institute will advance Johns Hopkins' already strong program of embryonic stem cell research, scientists will extend that work into adult stem cells as a source of tissue.
"In science, very few things have happened that have had as much significance as what we are trying to do today," Elias Zerhouni, executive vice dean, said. "Two years ago Dr. [John] Gearhart and others isolated stem cells which have the potential of curing many diseases. That discovery, thought to be impossible five years ago, has led us to create an initiative to understand the fundamental ways by which these cells can in fact reprogram themselves and help cure diseases today that are incurable."
As part of the research project, the institute will have a section for basic research and will include scientists from various departments who will conduct translational research. One of the boldest areas of research will be cellular reprogramming experiments in which parts of the DNA of several cells can be modified to create novel cells with highly specialized and controlled functions, he said.
Zerhouni acknowledged the controversies associated with research that manipulates human cells, notably stem cells, "but it is in the best interest of the public to have not-for-profit, science-based institutions like Hopkins take a leading role."
In other grant award news:
Aphios (Woburn, Massachusetts) has won an SBIR grant entitled "Development of a Controlled Release HIV Vaccine Adjuvant" from the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health. Aphios has developed controlled release technology for nano-encapsulating potent HIV antigens using supercritical and near-critical fluids with or without polar co-solvents, known as SuperFluids which are gases that, when compressed, have enhanced solvation, penetration and expansion properties. Their use reduces exposure of the HIV antigens to potentially denaturing organic solvents such as methylene chloride and ethyl acetate and improves the stability of protein antigens in the body at ambient temperature for long periods.
Genetronics Biomedical (San Diego, California) has entered into three R&D agreements with two U.S. Navy medical centers to further assess the feasibility of using electroporation for in vivo gene delivery. Electroporation is the use of brief, intense, pulsed electric fields to temporarily permeabilize cell membranes, thus allowing various types of molecules such as DNA and proteins to enter the cell. The results of two of these agreements, signed with the San Diego Naval Medical Center, are expected to expand Genetronics' evaluation of electrically-assisted delivery of genes to large animals. The third, with the Navy Medical Research Center in Maryland, which has experience constructing DNA vaccines, combines the malaria vaccine knowledge of the NMRC and Genetronics' expertise in in vivo electroporation to develop an improved malaria DNA vaccine.
Sonic Innovations (Salt Lake City, Utah), marketer of Natura, Altair and Conforma digital hearing aids, reported that its Danish distributor, OMNI-Denmark, has obtained an order from the Danish Public Sector Hearing Health Care System for the company's Natura 2 Behind-The-Ear and In-The-Ear products. The Natura 2 SE hearing aids contain Sonic's programmable Noise Reduction feature, which reduces many background noises.
Advanced Medical Electronics (Minneapolis, Minnesota) has received a $100,000 Phase I SBIR grant from the National Heart, Lung and Blood Institute titled "A Self-Discovering Wireless Network for Medical Devices." The company uses Bluetooth, a new short-range wireless connectivity system to develop a small portable battery-powered, 12-lead ECG to allow the instant transfer of time-critical pre-hospital data during patient transport. The data will be viewable locally through Bluetooth-capable hand-held and wearable computers used by EMTs and over a wide area network using cellular communications. The system is a self-discovering network enabling devices to find each other and communicate automatically when they are turned on in range. AME plans to develop Bluetooth technology as enhancements to its current products.
Moore Medical makes $5.2M settlement
Moore Medical (New Britain, Connecticut) last month agreed to pay $5.2 million to settle a lawsuit alleging it overcharged the federal government for medical supplies. According to federal authorities, the company knowingly failed to give the Department of Veterans Affairs the same or better prices that it gave its most favored customers in the 1990s.
Stephen Robinson, U.S. attorney for Connecticut, said the company violated government regulations by failing to submit accurate pricing information to the government and failing to notify the VA of price reductions.
The company entered into the agreement in 1991 and in 1997 voluntarily disclosed the error to the government. It then established a $3.8 million reserve fund. The settlement calls for it to make an initial payment of $500,000, with the remainder to be over the next five years. In 4Q00, it recorded an additional $2.5 million reserve for the liability and associated legal costs. In the company's recent 4Q00 report, the settlement was termed "a reasonable solution" by Linda Autore, company president and CEO. She said that Moore Medical now can put full attention on its strategy for growth.
In other legal activity:
PLC Systems (Franklin, Massachusetts), a developer of carbon dioxide (CO2) systems for performing transmyocardial revascularization (TMR), said that a U.S. district court in Massachusetts has approved its paying $1.5 million to settle a securities class-action suit against it. PLC said its insurance carriers will fund the entire $1.5 million. Mark Tauscher, president and CEO of PLC Systems, said that since the company's insurance carriers will fund the entire $1.5 million, the company sees no impact on its financial operations. PLC has developed what is known as CO2 TMR, and says that since 1990 its Heart Laser has been used to treat more than 6,500 patients.
Worldwide Medical (Lake Forest, California) said last month that it will fight charges made in an FDA complaint against it that it illegally sold an over-the-counter drugs-of-abuse test. The complaint alleges that the company was shipping its First Check tests for identifying drugs of abuse for OTC sale before the product was cleared last June for that type of distribution. The agency is seeking civil fines against the company's president and CEO, against a former president/CEO, against an interim president/CEO and the company itself of more than $3 million. The complaint says that the company marketed the test – previously approved for commercial use – before gaining OTC approval. And it listed 138 cases of what it termed illegal distribution in interstate commerce.
As part of a litigation settlement, Immucor and Gamma (Norcross, Georgia) have admitted the validity of patents held by Micro Typing Systems (MTS; Pompano Beach, Florida), in a case filed by MTS along with the Foundation for Diagnostic Research, a Swiss not-for-profit group. Additionally, they admitted infringing U.S. patent No. 6114179. Immucor and Gamma are enjoined from future infringement, production, marketing and sale of their gamma-ReACT system as of Feb. 28. Other details of the settlement were not released. Filed in 1998, the suit claimed that the Immucor/Gamma ReACT product violated several of the U.S. patents on the ID-MTS System. Micro Typing Systems said that the settlement was its third successful defense of the ID-MTS Gel Test patents.