Dealmaking in the device sector during year 2000 has been marked largely by small acquisitions and a variety of restructuring efforts. However, that general trend was punctuated at summer's end by two somewhat larger consolidations. Siemens Medical Engineering Group (Erlangen, Germany) said it will pay $700 million in stock to purchase U.S. ultrasound provider Acuson (Mountain View, California). And in another stock-swap deal worth about $571.5 million, Thoratec Laboratories (Pleasanton, California), a producer of circulatory support products and vascular grafts, will acquire Thermo Cardiosystems (Woburn, Massachusetts), which makes cardiac assist, blood coagulation and skin incision devices.
Siemens Medical and Acuson said their merger will create a market leader in the ultrasound arena but would not stifle competition in that sector. In a conference call following announcement of the proposed merger, Acuson CEO and founder Sam Maslak, ScD, and Erich Reinhardt, PhD, president and CEO of Siemens Medical Engineering, discounted any possibility that the combined presence would cause the deal to be quashed by either U.S. or German regulators. "In fact, there are many, many competitors in ultrasound – GE, Agilent, Toshiba, Phillips, just to name a few, Maslak said. "The ultrasound market has many, many different kinds of needs. The attorneys have looked at market shares in all kinds of different ways and believe there won't be a problem." Maslak and Reinhardt emphasized both the complementary nature of their companies' product lines and the good fit between their U.S. and international marketing efforts. Acuson, Maslak said, has a 60% ultrasound market share in the U.S., while Siemens has a similar share in Europe. If regulatory approvals are granted, the deal is set for completion later this year.
Once that is accomplished, sector watchers will be looking at Siemens' ability to carry out one of its other stated strategies: integrating its existing and new ultrasound products into a total Internet strategy. Reinhardt estimated a growth path of 6% yearly for ultrasound, and he said the company wants to develop web-based solutions "in both areas of diagnostic and therapeutic equipment, as well as information technology." That will be promoted by Siemens' recent acquisition of Shared Medical Systems (SMS; Malvern, Pennsylvania). Acuson has its own offerings to support that strategy, according to Philip Drew, PhD, of Concord Consulting Group (Concord, Massachusetts), who covers the imaging sector for The BBI Newsletter and its sister publications, Cardiovascular Device Update, Diagnostics Update and Medical Device Week. "Acuson has been reasonably successful selling a PACs system dedicated to ultrasound," Drew said. "Ultrasound-dedicated PACs have certain unique properties, first color and, secondly, the images are dynamic. Those two features make an ultrasound PACs different from the rest."
He said that a key issue will be Siemens' ability to integrate the smaller firm into its operations, citing a "not invented here" attitude by the German company which has led to its being dismissive of non-German technologies. But he said that Siemens has more recently gotten away from that attitude, "noticeably in PACs." Drew said that the large imaging companies "have all fumbled the ball in ultrasound from time to time," citing differences between ultrasound markets and other imaging sectors. Ultrasound systems are more often sold to physicians' offices, he said, thus requiring a larger, dedicated sales force. The lack of a large force may have hampered the growth of Acuson, a problem that Siemens could serve to correct, Drew said. As to the $700 million price tag for Acuson, Drew termed it "a fairly high price to pay, especially for a mature market like this, but it's within the realm of possibility."
Maslak and Reinhardt agreed that Siemens will continue to support and develop all product lines of the two companies and that Siemens will actively continue development work at its ultrasound division in Issaquah, Washington, headed by John Pavlidis.
The merger of Thoratec and Thermo Cardiosystems will result in creation of Thoratec Corp., the new firm to be headquartered in Pleasanton and focused on strategies for becoming a powerhouse in the cardiovascular sector. In a conference call, D. Keith Grossman, president and CEO of Thoratec, said the combined company "will create a new and much larger presence within the medical tech marketplace" and its market capitalization and valuation "will place us among the largest public cardiovascular companies. We will be a leader in cardiac surgery and treatments for congestive heart failure, which is where we want to be." He added that the combination of expertise will create a "platform for new technology based solutions for end-stage heart failure patients. We'll be able to offer more products to more non-transplant open heart centers, get to more cardiologist, put our products in more centers and treat more patients."
Thermo Electron (Waltham, Massachusetts), Thermo Cardiosystems' parent company and majority shareholder, said it will vote its shares in favor of the transaction, and the deal is expected to close early next year.
A key focus of synergy between the two companies is in heart-assist devices. Thoratec reports that its Ventricular Assist Device System is now used by more than 150 hospitals around the world as a bridge to transplant and for recovery of the natural heart following open-heart surgery. The company also produces vascular graft devices being used in a number of countries and in clinical trials.
Thermo Cardiosystems has commercialized two versions of its HeartMate LVAS, an air-driven and electric system. The company reports that more than 2,400 patients have been supported by HeartMate systems and implantation by 168 leading cardiac centers throughout the world. In addition, the company is developing two advanced HeartMate systems.
Terms of the deal call for each Thermo Cardiosystems share to be exchanged for 0.835 shares of newly issued Thoratec stock.
Gliatech hit with class actions
Several class-action suits have been filed against Gliatech (Cleveland, Ohio), charging that the company misrepresented information related to its Adcon-L product – a polymer gel used to prevent scarring following surgery – and the status of the product with FDA regulators. And the validity of charges made in those actions was strengthened with the company's acknowledgment that there were problems with its clinical data collection.
The suits were filed on behalf of investors who purchased the company's stock between May 28, 1998, and Aug. 29, 2000. The suits all note that the FDA granted clearance for Adcon-L in May of 1998 but that Gliatech, this past August, revealed that the agency had issued a report questioning the integrity of Gliatech's clinical data. The report, according to charges in one of the suits, "detailed numerous ways in which the data ... had been altered or modified so as to portray the efficacy of Adcon-L to be greater than the unmodified data suggested." Besides activating the class actions, the problems with Adcon-L resulted in scrapping the company's planned merger with Guilford Pharmaceuticals (Baltimore, Maryland).
In a statement issued late September, Gliatech said that as the result of its own internal investigation of the clinical trials, it had determined "that certain aspects of the company's post-approval U.S. clinical study of Adcon-L were not conducted in accordance with good clinical practices." The company went on to state that the investigation had found "insufficient supervisory oversight" of the trials, but that the problems did not constitute "intentional misconduct." In conjunction with these statements, the company announced major changes in leadership. Thomas Oesterling, PhD, announced his retirement as president and CEO, positions he held since 1989, and the company accepted the resignation of two other executives.