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GE Healthcare Restructures IT Unit as Immelt Promises 10- to 15-Percent 05 Earnings Growth

The information technology unit of General Electric Healthcare Technologies has laid off 50 workers from its 9,000 employees and is closing a Colorado manufacturing facility to consolidate some operations to Europe.

“There are lots of cost pressures in order to meet growth goals,” GE Healthcare spokeswoman Shannon Troughton told BioCommerce Week Tuesday. “The leadership of the information technologies team looked at the issues and ultimately decided to reorganize [the unit].”

The company’s facility in Louisville, Colo., will be closed and its work transferred to Europe, Troughton said.

The layoffs were announced to employees on Oct. 1.

On Friday, GE released its third-quarter financial results and said the Healthcare unit’s revenues grew by 15 percent compared to the third quarter of 2003. But the $3.4 billion in revenues and $503 million operating profit the unit earned reflected the first full-quarter contribution by Amersham, which GE acquired in April.

Overall, GE reported a net profit of $4.1 billion on total revenues of $38.3 billion, a 15-percent increase in sales over the $33 billion it had for the same period last year.

The molecular biology tools and services segment of GE that includes Amersham contributed $650 million in revenue and $81 million of operating profit toward GE’s Healthcare unit in the quarter, crediting the unit formerly known as General Electric Medical Systems with $2.7 billion in revenues, and an operating profit of $432 million.

Keith Sherin, GE’s chief financial officer, said Healthcare’s third-quarter revenues are historically “softer” due to seasonal fluctuations in sales.

But the emphasis at the company is double-digit earnings growth for businesses such as Healthcare, which it considers as growth engines.

“We have strong momentum going into the fourth quarter,” Jeffrey Immelt, GE’s chief executive officer, said in a statement. “We also remain confident that we will achieve 10 to 15 percent earnings-per-share growth in 2005.”

For GE, the quarter’s overall sales growth of 15 percent was the largest increase since Immelt, 48, succeeded Jack Welch in 2001. Since then, Immelt has made $60 billion in acquisitions and $14 billion in divestitures to reshape the company’s portfolio of businesses into cash-flow businesses and growth businesses.

For the year to date, cash flow is up 32 percent to $9.7 million compared to $7.4 billion one year ago. For the year, the company’s stock price has shadowed the S&P 500 index price, but not exceeded it.

The purchase of Amersham was constructed to inject growth into the Healthcare business through molecular biology tools like protein analysis, CodeLink microarrays, and cellular bioassays.

GE closed on the $11.4 billion stock-and-cash purchase of Amersham on April 8. In its integration into GE, the Amersham businesses of medical diagnostics, protein separations, and discovery systems are now called GE Healthcare Bio-Sciences and join General Electric’s legacy medical systems business, now called GE Healthcare Technologies.

Pleased With Integration

Overall, company officials said they are excited about the initial results of the integration.

“We love how the two businesses are coming together and performing,” Sherin, the CFO, told analysts in the conference call Friday. “[Bio-Science] just had a great quarter.”

Bio-Science’s operating profit for the third quarter reflected a charge of $40 million for the noncash amortization of intangibles. Additionally, GE said the Amersham integration yielded $20 million in savings in the quarter, and is “on track” for $100 million in savings over the year, and $200 million in 2005. GE also said it has paid off the $2 billion in debt it acquired with the acquisition of both Amersham and NBC Universal.

Sherin said the medical reagents business (formerly Amersham Medical Diagnostics) reported an 18-percent increase in the third quarter, while protein separations were up 2 percent, year-over-year.

The medical reagents business includes: the product lines of Myoview, a radiopharmaceutical heart diagnostic; Omnipaque, a second-generation X-ray; Omniscan, a line of magnetic resonance imaging tools; and Visipaque, an X-ray instrument; as well as seven products in Phase III clinical trials that are on track for launch in 2005-2006, according to Amersham’s 2003 annual report.

The protein separations unit sells chromatographic systems for the purifications of proteins.

The discovery systems product lines of Amersham — which include the growth engines of protein analysis, cellular bioassays, and CodeLink microarrays — is perhaps the most underperforming unit of the Amersham businesses. However, they are the most promising as they are sold to a variety of molecular biology tools that one GE executive told investors were at the root of the Amersham acquisition. (see BCW, 10/7/2004.)

GE declined to provide additional information on the financial performances of the Amersham units.

The former GEMS unit performance in the quarter was boosted by 45 percent growth in sales of Picture Archiving and Communication System units, a technology that captures and stores image data from the company’s PET, CT, and MRI systems, and enables physicians and other users to access those data from anywhere within a hospital network.

GE reported $1.8 billion in cash and securities at the end of the quarter, and $12.7 billion in receivables, compared to $11 billion a year ago.

The company reports borrowings of $11.3 billion, compared to $10.9 billion for the same period a year ago.

— Mo Krochmal ([email protected])

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