Find out how Abbott's long-struggling core diagnostics business, which the company was at the brink of unloading just last year, has made a dramatic turnaround.
Full article reprinted from "The Gray Sheet" - August 4, 2008
Abbott’s Recommitment To Core Diagnostics Is Rewarded By Strong Returns
Full article reprinted from "The Gray Sheet" - August 4, 2008
Abbott has a newfound loyalty to its long-struggling core diagnostics business, which the company was at the brink of unloading just last year, and the division has responded with a dramatic turnaround.
Leaders of the lab tools unit say they have only recently been able to put products back on a competitive level since a 1999 consent decree devastated the company's assay sales in the United States.
The business has also re-engaged with customers and reformed the way it measures response to its products and services.
"There were aspects of our core diagnostics business, in particular, that were struggling, that were in difficulty and that had to be addressed," Abbott executive VP for diagnostics Edward L. Michael said during a July 29 press conference at the American Association of Clinical Chemistry (AACC) annual meeting in Washington, D.C.
"We spent the last 12 months doing a realistic assessment of where our business is and the things we have to do," he said. Based on early returns, "we have seen great improvement."
Turnaround From A Precarious Period
Last year about this time, Abbott's diagnostics unit was in an unsettled state.
As the firm made final preparations for its display at the 2007 AACC meeting in San Diego, word came that the planned $8.1 billion buyout by General Electric of Abbott's core (immunoassay and standard chemistry platforms and assays) and point-of-care diagnostics business had fallen through (1"The Gray Sheet" July 16, 2007, p. 3).
"It was a difficult time for Abbott [diagnostics] people," Michael said. "They had gone through a process of becoming accustomed to the idea of being a part of General Electric, and in late July of last year they were told that was not going to happen."
Also weighing heavily on diagnostics executives was the problem that had caused Abbott's top brass to plan the sale in the first place: the unit, particularly in the U.S., was considered a drag on overall sales.
In the second quarter of 2007, for instance, just before the GE sale was supposed to be finalized, the U.S. diagnostics division was the slowest growing domestic or international business in Abbott except for the U.S. nutritional business.
The 1999 consent decree, which resulted from serious quality systems deficiencies at Abbott's Lake County, Ill., facility, had blocked the company from selling its immunoassay, chemistry and blood screening assays for four years (2"The Gray Sheet" Dec. 22, 2003, p. 4). Beginning in 2003, the firm slowly began reintroducing products, but struggled to catch up with competitors. The diagnostics unit had become extremely reliant on its overseas business, which still accounts for about 80% of its sales.
"We struggled mightily with our ability to do things that we used to do better than anyone else in the industry, which is to deliver whatever the customer ordered all of the time," Michael said.
When Abbott and GE "mutually" decided to part ways, Abbott publicly signaled its intention to re-commit to its diagnostics business.
During last year's AACC meeting, Michael was appointed to take over the entire diagnostics business, including the multi-billion-dollar core business and the smaller but much faster-growing point-of-care and molecular diagnostics units (the latter of which was not part of the sale agreement with GE).
Michael announced at the time that the business was not for sale and that Abbott would remain in the core diagnostics space for the long term (3"The Gray Sheet" July 23, 2007, p. 7).
That commitment has stuck, he said at this year's meeting.
"We have had a lot of inquiries in the last 12 months about whether Abbott would sell these businesses," he said. "We have given a very consistent response. The answer is we are not going to sell the businesses.
"The reason for that is we have had the opportunity, having gone through the process with General Electric and over the last 12 months, to really reflect on the true value that the businesses can add."
Diagnostics Revenues Reflect Big Improvement
That value has already manifested itself in Abbott's top-line financial results. For each of the last two quarters, the diagnostics business was the fastest growing segment in the entire company.
In the 2008 second quarter, ended June 30, worldwide diagnostics sales were $936 million, up 17.2% from the prior year-period, according to results reported July 16. Pharmaceuticals, the next fastest growing unit, increased by 16.7% in the quarter.
The U.S. diagnostics business grew 10.6% in the quarter to $227 million - the largest percentage increase of any of Abbott's U.S. businesses in the quarter. Certainly, the 20%-plus quarterly growth in the point-of-care business (generating approximately $200 million in annual revenue) and molecular diagnostics business (generating approximately $250 million annual revenue) contributed to these results, but the core business also generated double-digit growth, according to Michael.
"Thinking of the history of the diagnostics franchise, it has been quite some time since we have been able to claim that position in the Abbott portfolio," said Gary Winer, divisional VP for the unit's U.S. operations, at AACC.
Driving the turnaround was Abbott finally launching enough assays for its newest Architect immunoassay/chemistry and Prism blood screening analyzer platforms to compete effectively with the leading systems from Siemens and Roche.
Abbott has released a suite of hepatitis A, B and C assays for its Prism blood screening platform since the system debuted in the U.S. in 2005 (after more than a decade on the market in Europe). Most recently, in January, the firm launched blood screening tests for human T-lymphotropic virus types I and II, which are associated with a type of leukemia and neurological disorders.
For Architect, between the immunoassay and clinical chemistry systems, there are more than 100 approved tests ranging from drugs of abuse to cardiac markers to hepatitis A, B and C antibody assays.
Michael acknowledges that there is still a "handful" of crucial assays, most notably an HIV combo test, missing from the Architect menu.
Re-engaging Customers, With Help From GE
The gains from these assay introductions are not only in increased test revenue, but in new sales of the capital equipment analyzers.
"We have a number of older platforms that have been on the market for, frankly, decades," Winer said. "Our customers have been reliant on those assays and those systems, partly because we have not had good alternatives for them.
"That has begun to change as our menu has expanded, and we now have the ability to go to customers and talk to them about moving from old technology to new technology."
As part of these interactions, Abbott is using new tools to evaluate customers' experience. In particular, it is using insights gained from its discussions with GE on how to get quantifiable feedback to gauge customer response to the company's processes and products, according to Winer.
"We have made tremendous improvements in our ability to do just the simple things, such as filling our customer's orders with the products they want and with the timeliness that they need," he said.
Michael admits that the diagnostics unit's success has been very short-term so far. "We have to sustain that because if we now take two steps backwards, customers are going to think that it was just a minor improvement, a blip, a temporary solution," he said. "That is one of the most important things our operations team is working on.
"If we can sustain it, people will realize that Abbott is back up to what it used to be in terms of a reliable supply of products."
- David Filmore
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