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GE Answers Siemens' Challenge With Abbott Dx Buy, But Remains Quiet on Molecular Strategy

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
By inking a deal last week to acquire two of Abbott’s diagnostics businesses for $8.13 billion in cash, General Electric has taken a major step in its goal to reposition its Healthcare unit’s focus on an “early health model” that fuses in vitro and in vivo diagnostic technologies.
While the acquisition of Abbott’s in vitro diagnostics and point-of-care divisions will provide GE with one of the biggest diagnostic businesses in the world with an enormous sales force, the deal does not include Abbott’s molecular diagnostics unit. Neither GE nor Abbott would say whether the molecular diagnostics unit was for sale, and GE officials remain mum on the firm’s strategy for that fast-growing market.
The acquisition, which is expected to close during the first half of 2007, will immediately transform GE Healthcare from a firm with no in vitro diagnostics component to the world’s second-biggest in vitro diagnostics player behind Roche. It also will enable the company to more effectively compete with long-time rival Siemens, which completed its acquisition of Bayer Diagnostics for roughly $5.25 billion just a few weeks ago (see BioCommerce Week 7/5/2006).
GE CEO Jeffrey Immelt said the purchase is “consistent with GE’s strategy” and that Abbott’s foothold in the “growing diagnostics field is aligned with our objective to deliver a comprehensive array of diagnostic products around the world.”
According to GE Healthcare officials, the unit had been eyeing the in vitro diagnostic space even before it acquired Amersham for more than $9 billion in 2004 — a deal that provided GE Healthcare with a vast portfolio of imaging agents and marked its entry into the bioscience research field.
“We’ve been looking at this for five years,” said Joe Hogan, president and CEO of GE Healthcare, during the firm’s fourth-quarter conference call last week. “I feel strongly now with the integration [of Amersham] over the last three years [that] we had a much more solid platform to bring this on.”
Abbott is expected to report 2006 revenues of around $2.7 billion for its in vitro and point-of-care diagnostics business when it releases its financial results this week. According to GE Healthcare, the businesses it is acquiring have an annual growth rate of 8 percent to 10 percent.
Abbott’s diagnostics business, though, had a cloud hanging over it for several years beginning in 1999, when the firm reached a consent decree with the US Food and Drug Administration due to deficiencies in quality control at a manufacturing plant. Hogan said during the call that Abbott worked on those quality processes, and the firm has been working over the past two years on launching new products.
He estimated the in vitro diagnostics market at roughly $24 billion, and growing 6 percent to 8 percent annually. “All we have to do is execute the way we do around our current imaging marketplace and then be able to gain a little more synergy from the standpoint of overseas and capturing back some of the US share that’s been affected by the consent decree,” said Hogan.
He also said that one of the other key assets GE Healthcare gains through the acquisition is the service component of the diagnostics business. “Merging this with our services business and combining both installed bases offers tremendous opportunity for growth,” he said.
Hogan noted that in addition to the service contracts providing a predictable revenue stream, the diagnostics businesses bring a constant revenue stream from reagents.
“I think it’s important to remember testing represents just 1 percent of the spend in healthcare out there in the United States, but it trips off about two-thirds of the therapeutic,” said Hogan. “It’s really the front end, and with more and more clinical specificity as the tests get more specific you’re finding more things — and, again, that drives more therapeutics and it drives more diagnostic testing.”
While the deal is still subject to standard conditions and regulatory approval, both companies’ boards have approved the acquisition.
Answering Siemens’ Salvo, But Mum on Molecular Dx
Undoubtedly, the timing of the Abbott deal was influenced by Siemens’ recent acquisition of Bayer Diagnostics, which provided Siemens with a broad portfolio of in vitro diagnostic products to go with its imaging offerings. That deal, which came only a couple of months after Siemens acquired Diagnostic Products Corp. for nearly $2 billion, also propelled Siemens into a top-three position in the molecular diagnostics field, according to industry estimates.
Bayer Diagnostics had 2005 sales of roughly $1.75 billion, of which approximately $120 million came from molecular diagnostic products. Siemens believes the combination of DPC's and Bayer Diagnostics' product lines makes the firm the third largest player in the overall diagnostics market with a 13-percent market share, trailing Roche, which it estimates holds 20 percent of the market, and Abbott, which has 14 percent of the market.
Roche leads the molecular diagnostics market with an estimated $500 million in revenue from such products in 2005.
While the acquisition of Abbott’s in vitro diagnostics businesses will place GE as one of the world’s top players in that sector, the fact that the deal does not include Abbott’s molecular business — combined with GE’s plan to abandon its CodeLink microarray line in the spring — raises questions about the firm’s molecular diagnostics plans.
A little over a year ago GE Healthcare named Gene Cartwright as president of molecular diagnostics. He joined GE from Abbott, where he had served as vice president of strategic programs for the firm’s molecular diagnostics business. And though GE has a variety of technologies that could be employed in that market, company officials have remained mum on their plans.
“We are continually evaluating technologies which we believe will be critical to our early health strategy,” a GE Healthcare spokesperson said this week when asked by BioCommerce Week about the company’s plans for the molecular diagnostics market. “We will make decisions on these technologies as deemed appropriate and necessary by the business.”
Abbott’s Intentions
“We have been building a global portfolio focused on higher growth, higher margin, innovation, and technology-driven products and businesses,” Abbott Chairman and CEO Miles White said during a conference call last week. “So when we considered the dynamics of the core laboratory diagnostics market against the backdrop of our strategic goals, it was clear to us that a large capital equipment manufacturer would be a better fit to take this business to the next level.”

“All we have to do is execute the way we do around our current imaging marketplace and then be able to gain a little more synergy from the standpoint of overseas and capturing back some of the US share that’s been affected by the consent decree.”

He noted that the playing field for lab diagnostics has “changed considerably in the last decade,” and said that he expects that the in vitro and point-of-care businesses will help GE Healthcare position itself in a field that is “increasingly driven by automation, system integration, and a host of skills that GE can offer.”

White said that throughout the 1980s and part of the 1990s, the most advanced assays were run on lower-cost, benchtop instruments. However, “today, it is a market driven by automated capital-intensive mainframe systems that are integrated with institutional IT systems,” he said. “These capital-intensive technologies require a financing, sales, and service infrastructure more suitable for large capital equipment manufacturers such as GE.”
For Abbott, which will also retain its diabetes care segment, the divestitures underscore the firm’s intention to streamline and maintain an emphasis on its molecular brand in the diagnostics field.
For example, last month, Abbott said it intends to launch new tests in Europe based on fluorescent in situ hybridization that will identify chromosomal abnormalities linked to leukemia. These CE-marked DNA probe diagnostics could in the future be used in a variety of applications in cancer and genetic testing, the company said.
“The molecular business fits quite nicely” with the firm’s criteria for its product portfolio, Rick Gonzales, president and COO of Abbott, said during Abbott’s conference call. “It participates in a great market, it’s highly profitable, [and] has an opportunity to drive significant growth. The integration between our pharmaceutical business and our molecular business is one we continue to leverage as we look for opportunities to bring biomarkers out.”
He added, “We think this [molecular diagnostics] business has great growth prospects as we move out into the infectious disease area with real-time PCR assays on our automated platform. We have seen significant growth in every country [in which] we rolled that platform out and as we expand the menu.”
Abbott has been growing its molecular diagnostics business since it acquired Vysis in 2001 for roughly $355 million. It followed that acquisition a year later with a molecular diagnostics alliance with Celera, under which the firms expect to soon launch an avian influenza virus test that would run on Abbott’s m2000 real-time PCR-based platform. The m2000 is currently available in Europe with CE Mark certification and is pending 510(k) clearance with the US Food and Drug Administration.
The Abbott deal was not the only acquisition for GE last week. The diversified products behemoth also agreed to acquire the aerospace division of Smiths Group for $4.8 billion in cash. In addition, a week earlier GE said that it would buy Vetco International’s oil and natural gas operations for $1.9 billion.

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