Amersham Little Help to GE Healthcare in This Down Market

Article preview reprinted from IN VIVO - February 2009

As befits this struggling economy, each of the Big Three in diagnostic imaging sounded downbeat in their 2008 year-end financial assessments.

Amersham Little Help to GE Healthcare in This Down Market

Article preview reprinted from IN VIVO - February 2009

Siemens AG saw declining orders for imaging equipment in the US; Philips NV experienced a 6% reduction in new order revenue in the fourth quarter, "largely if not totally driven by North America"; and GE Healthcare , a division of General Electric Co., reported that domestic order revenue was down nearly 30% in the quarter. As reported in The Gray Sheet, those cautionary comments "closely coincided with the release of multiple reports detailing hospitals' reluctance to fund expensive capital projects." (See "Diagnostics Imaging Sector Hit By Hospitals' Dwindling Access to Capital," The Gray Sheet, February 2, 2009.)

But the problem for GE may lie deeper than a fall-off in instrument placements and downward pressures on reimbursement over all. More so than the other two, in addition to hardware, GE Healthcare focuses on the development of new imaging agents, owing to its acquisition of Amersham PLC in late 2003: Amersham's contrast agent and medical isotopes businesses formed the basis for a new GE Healthcare division, Medical Diagnostics. And unlike device-like diagnostic imaging generally, according to current Medical Diagnostics president & CEO John Chiminski, "the things that are limiting the growth of the molecular imaging area are not going to be reimbursement and machine-driven [innovation] as much as it's going to be the ability to come up with new agents."

After more than five years, however, there's little evidence that the Amersham deal has been a boost to GE Healthcare in that respect. Ask most clinicians and thought leaders in the molecular imaging area about GE, and they say the company is all but invisible. Indeed, despite Chiminski's claim that GE Healthcare "has a competitive advantage in the acquisition of Amersham and the medical diagnostics business," he also acknowledges that GE didn't fully appreciate the substantial differences between a pharma- and clinical trials-based business and a device company. "It is a culture change," for a device business, he says. And that change has been slow.

Two years ago, GE narrowly avoided a second culture-rattling big deal. As the Amersham integration was proceeding, in early 2007, it made a play for the immunoassay, clinical chemistry, hematology, and point-of-care businesses of Abbott Laboratories Inc., which would have hurled GE headlong into the in vitro diagnostics arena, the direction competitor Siemens was rapidly moving towards with a series of purchases the year before, notably Bayer Diagnostics and Diagnostic Products Corp. The Abbott transaction broke down in the summer when GE and Abbott could not settle on terms—apparently, in large part because the cultures did not mesh and GE was still in the throes of absorbing Amersham. (See "What's Next for Abbott in IVD?" IN VIVO, July 2007.) Chiminski, a near 20-year veteran of GE Healthcare at the time, was asked to run the Abbott integration and become CEO of what would have been a new clinical diagnostics division. When that fell through, he was asked to run Medical Diagnostics. He says Medical Diagnostics will be less inclined to make the periodic large acquisition that GE Healthcare often makes for many of its units. "Building out a molecular diagnostics business now will probably entail smaller acquisitions," he says. Translation: it's already behind the curve, and now is not the time to play catch-up.

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Companies mentioned in this article:

Abbott Laboratories Inc.

General Electric Co.

GE Healthcare

GE Healthcare Bio-Sciences Inc.

Amersham Life Science Ltd.

Lantheus Medical Imaging Inc.

Royal Philips Electronics NV

Siemens AG

Siemens Medical Solutions USA Inc.

Siemens Medical Solutions Diagnostics

Bayer Diagnostics

Diagnostic Products Corp.

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