An expanded product line and a synergy fueled by a larger company's distribution network would appear to be the primary drivers behind Tyco's (Pembroke, Bermuda) proposed purchase of Mallinckrodt (St. Louis, Missouri), a deal valued at $4.2 billion in stock and debt reduction.
The addition of Mallinckrodt's monitoring, instrumentation and drug sales lines will serve to expand the overall percentage of revenue currently brought into Tyco's coffers by its health care unit. With revenue of $4.5 billion last year, Tyco Healthcare last year produced 20% of the company's $22.5 billion in total revenue, said Judith Czelusniak, senior vice president, corporate relations, for Tyco. Mallinckrodt's annual revenues of $2.6 billion will boost that percent to nearly a third of the total.
The deal also could be expected to boost Mallinckrodt's stock, which has been slumping in recent quarters, with the smaller company to get recharged via Tyco's large network of international distributors, Czelusniak told The BBI Newsletter. "Our distribution network fits in nicely with the businesses that Mallinckrodt is in," she said. And the merger "brings us some new product areas where we have good distribution. And we might have some products they don't have where they have strong distribution."
Tyco's strength in distribution has been fueled by assimilating a number of smaller fish in the sector. As an acquiring juggernaut, the company has made more than 100 purchases since L. Dennis Kozlowski took over its reins as chairman and CEO. Contrary to speculation fueled by the Mallinckrodt purchase, that deal should not be seen as the forerunner of a new acquisitions wave by the company in 2000, Czelusniak said. "We grow in [the health care] market through acquisitions," she said, adding, however, that before launching another buying spree, "I think we've got to digest this [purchase] first."
If approved, the deal is far and away the largest of the year in the medical device sector, which has been, thus far, relatively quiet. But the deal for Mallinckrodt does continue a stream of consolidations in the instrumentation/diagnostics area. Mallinckrodt is focused on these areas, as well as in the respiratory care field, its newest product, the OxiFirst fetal oxygen monitor, combining expertise from both areas. Less well known is Mallinckrodt's strength in contrast agents, radiopharmaceuticals and a leading position in analgesics.
Sector busy on legal front
While large consolidations in medical technology have been few and far between this year, this has not been the case in terms of legal activity. Following is a summary of major actions filed.
Baxter International's (Deerfield, Illinois) Baxter Healthcare unit has challenged the $48 million price tag on the medical device assets it has purchased from Sabratek (Deerfield, Illinois). Baxter is seeking a 73% reduction, from $48 million to $13 million, in the price of Sabratek's infusion pump businesses. Baxter cited issues related to accounts receivables and is asking the U.S. bankruptcy court in Wilmington, Delaware, to compel Sabratek to go to arbitration in the price dispute. Sabratek has countered the move, saying it is a ploy to avoid producing documents as part of due diligence showing that Baxter knew the value of Sabratek before signing a purchase agreement. U.S. Bankruptcy Judge Mary Walrath is expected to order Baxter to produce that documentation, following a hearing in the court, according to Reuters. The disputed purchase includes Sabratek's 3030 Stationary Infusion Pump, 6060 Ambulatory Infusion Pump, and related products and accessories.
Cardiovascular devices maker Edwards LifeSciences (Irvine, California) has filed two patent infringement suits, one against Medtronic (Minneapolis, Minnesota) in the U.S. District Court of Delaware, and another against St. Jude Medical (St. Paul, Minnesota) in the U.S. District Court for the Central District of California. In the suit against Medtronic, Edwards alleges infringement of two patents, one relating to its Duran flexible annuloplasty rings, bands and holders; the other, to the Hancock II and Mosaic aortic heart valves. In the St. Jude suit, Edwards charges infringement of three of its patents, two relating to the SJM Tailor annuloplasty rings, bands and holders and the SJM Seguin annuloplasty rings; and another relating to manufacturing methods used to make its Toronto SPV stentless porcine valve.
Laser Analytics and Acculase, subsidiaries of PhotoMedex (Radnor, Pennsylvania), have brought suit against SurgiLight (SRGL; Orlando, Florida) in an Orange County, Florida, court charging that a former employee of Laser Photonics (now PhotoMedex) disclosed trade secrets and confidential information to SurgiLight. It also alleges that SurgiLight used Laser Photonics' proprietary information to develop an excimer laser for treating psoriasis and prepare an FDA application for its approval. Laser Analytics and Acculase are seeking monetary damages and other relief against SurgiLight and the former employee, identified as a SurgiLight officer and director. SurgiLight responded with a statement terming the charges "completely without merit," its legal counsel saying that the SurgiLight technology in question "was developed and shipped for clinical testing long before the employee in question was hired." PhotoMedex calls its laser system "the first FDA-approved laser treatment for psoriasis."
QLT (Vancouver, Canada) reported that it has filed an answer and counterclaims against Massachusetts Eye and Ear Infirmary (MEEI; Boston) in the U.S. District Court for the District of Massachusetts regarding a dispute over an issued U.S. method patent co-owned by QLT, Massachusetts General Hospital (MGH; Boston, Massachusetts) and MEEI. QLT says that in 1998 it concluded an agreement to pay MGH royalties in the license for the patent, but that MEEI has "refused an offer from QLT on terms comparable to the MGH license."
St. Jude Medical (St. Paul, Minnesota) has filed suit in the U.S. District Court for the District of Minnesota, charging that the Duett sealing device made by Vascular Solutions (Minneapolis, Minnesota) infringes certain of St. Jude's patents. St. Jude is the distribution partner for the Angio-Seal vascular sealing device, which competes with the Vascular Solutions Duett device. Vascular Solutions began marketing the Duett following FDA approval of its PMA application June 22, and the company said in a statement that U.S. launch of the Duett "is ongoing and unaffected by this litigation. Howard Root, CEO of Vascular Solutions, said that it has closely analyzed the patents and that the Duett "relies on its own six issued and five pending U.S. patents, dating back to 1993, and is vastly different from the Angio-Seal product." Root added that owners of the Angio-Seal product "have now brought patent infringement lawsuits against all three of their competitors in vascular sealing, whether the device is a suture, a collagen plug or a flowable procoagulant." The Duett combines a balloon catheter delivery mechanism with a biological procoagulant for rapid sealing following procedures such as angiography, angioplasty and stenting.
Medjet (Edison, New Jersey) reported that the U.S. District court of New Jersey has dismissed a lawsuit brought against it by the New Jersey Institute of Technology (NJIT; Newark, New Jersey) which alleged that two of its employees should be named co-inventors of a patent owned by Medjet. The company said that in a related state court action, NJIT had asserted an unspecified and undefined ownership interest in Medjet's basic patent for use of a waterjet for vision correction surgery and that its motion for summary judgment in this lawsuit was granted on May 22. On June 30, NJIT filed a notice of reconsideration of that ruling, arguing that the case should be heard in the U.S. District Court. Eugene Gordon, PhD, Medjet founder, chairman and CEO, said that the two rulings eliminate "the uncertainty over Medjet's ownership of its basic patent and remove a significant obstacle to the company's ability to raise money and proceed with its product development. Medjet is now preparing to make a damage claim against NJIT."
Alaris restructures manufacturing
Infusion therapy specialist Alaris Medical (San Diego, California) said last month that it will restructure operations at three of its manufacturing sites in an effort to save an estimated $6 million annually. The focus of the restructuring will be at the company's Creedmoor, North Carolina, plant, with additional reorganization at facilities in San Diego and Basingstoke, England. The Creedmore plant now will handle disposables engineering, automated manufacturing of selected products and distribution operations, with some operations outsourced. Manual assembly operations will be relocated to a Tijuana, Mexico, facility, according to a company statement. Additionally, the Basingstoke and San Diego operations "will be matched to the mix of requirements resulting from current and future product line rationalization efforts," according to a statement.
"While we have continually looked for ways to improve our performance, our first quarter results indicated to us that additional actions are necessary now," said David Schlotterbeck, company president and CEO. Alaris said that laid-off employees will receive severance packages, but it did not specify the number to be released. The company will take pretax charges in 3Q00 and 4Q00. "Pretax savings from these actions are estimated at $1.1 million for the remainder of 2000, $5 million in 2001 and $6 million in 2002 and beyond," according to the Alaris statement. Through its subsidiaries, Alaris develops the IMED and IVAC intravenous infusion therapy systems and Instromedix cardiac event recorders and pacemaker follow-up systems.
New grant awards announced
Applied Spectral Imaging (ASI; Migdal Ha'Emek, Israel) and Welch Allyn (Skaneateles Falls, New York) have received a $750,000 grant from the Israel-U.S. Binational Industrial Research and Development Foundation (BIRD-F) to develop portable retinal imaging diagnostic products. The products will employ ASI's proprietary SpectraCube spectral imaging technology to identify and track the progression of retinal eye diseases that may lead to blindness. Welch Allyn will make product development investments in ASI and, in turn, will provides Welch Allyn with marketing rights for the products to be jointly developed. SpectraCube is a technology that separates the spectral content of light reacting with retinal tissue to provide a multi-dimensional database for image enhancement and analysis.
BioLife (Ewing, New Jersey), a unit of Cryomedical Sciences (Ewing, New Jersey), has received a Phase I grant from the Small Business Innovation Research Program (SBIR) to explore gene regulated cell death (apoptosis) and how apoptotic-inducing anticancer drugs enhance the efficacy of cryoablation. The grant is based on BioLife's research concerning chemo/cryo combination therapies to increase patient survival following cryosurgical treatments. The company will later apply for funding for Phase II research work. The studies are designed for development of "cryoprobe devices that will potentially enhance the overall efficacy of a cryosurgical procedure," Reinhart said.
Cepheid (Sunnyvale, California) reported receiving a $1.8 million contract from the Department of the Army to develop an automated, portable biological agent detection system providing real-time analysis of environmental contaminants. The company's MIDAS II (Microfluidic DNA Analysis System) will be used for rapid, on-site testing of pathogens from environmental samples, such as air, automatically extracting the nucleic acid for testing. The system then transfers the sample and polymerase chain reaction reagents to eight programmable reaction sites for real-time analysis. Cepheid applies microfluidic and microelectronic technologies to create miniaturized systems for analysis of complex biological samples.
STS Biopolymers (Henrietta, New York) has received a research grant from the National Institutes of Health (Bethesda, Maryland) to investigate the anti-clotting activity of heparin polymer coatings as an alternative to anticoagulants. STS has developed heparin Medi-Coat polymer coatings for use on implants and indwelling catheters for long-term hemocompatibility. Medi-Coat is an inert, polymer matrix used to entrap heparin complexes on the surface of medical devices by acting as a reservoir for the heparin complex, releasing the agent slowly over time upon exposure to blood. The research grant will allow STS to further investigate "long-term" antithrombogenic surface coatings
Location, name changes
Alberta Microelectronic (Edmonton, Alberta, Canada) has changed its name to Micralyne and moved into a new 40,000-square-foot headquarters facility. The company uses semiconductor microfabrication technology to design biotech and telecommunications systems.
Atairgin Technologies (Irvine, California) has moved to the University Research Park in Irvine. The headquarters and laboratory areas total 22,000 square feet, allowing for expansion of programs for its lead products focused on ovarian and breast cancer detection.
La Jolla Diagnostics (La Jolla, California) said its shareholders approved changing the company's name to NatureWell to reflect its increasing focus on an expanding line of personal health care products and its Internet site. The company's DiagnosTech subsidiary recently concluded an agreement with Meridian Diagnostics (Cincinnati, Ohio) for Meridian to market DiagnosTech's rapid test for active TB, being readied for international launch.
Perigon Medical Distribution (Foothill Ranch, California) recently moved its headquarters to Foothill Ranch from Laguna Hills, California. Perigon distributes medical/surgical supplies and equipment to office-based physicians and other health care providers.