When General Electric last week said it would acquire Amersham, two thoughts began spreading like wildfire in medical and life science-technology circles: First, that GE, already the leading manufacturer and seller of medical imaging platforms, will now be untouchable in this sector. Second, what will happen with Amersham Biosciences?
In describing its plan to pay £5.7 billion ($9.5 billion) in stock to buy Amersham, GE made clear that a primary objective is to get its hands on the company’s imaging chemistries, sold through its Health division, which could be used with GE’s armada of imaging instruments such as magnetic resonance, computer tomography, and positron emission tomography. Notably less clear was what GE planned to do with the suite of core assets overseen by Amersham’s Biosciences arm — namely, platforms for gene sequencing, gene expression, protein separation and analysis, bioassays, and informatics.
Though the acquisition must still be approved by shareholders and regulators in the US and the UK, rivals have already been put en garde as they ponder whether GE, eager to enter fast-growing markets and rebuild slumping earnings, will shower Amersham with R&D and sales and marketing cash, or discard the company’s smaller holdings — or even the Biosciences arm altogether.
As some industry insiders see it, there may not be room at GE for Amersham Biosciences. GE became a $33 billion company by acquiring companies in stable, if staid, industries. Today, the conglomerate reaches into more than a dozen diverse markets, including aircraft engines, commercial finance, insurance, medical systems, and network television. Amersham, and especially Amersham Biosciences, occupies a much smaller, albeit faster-growing and more risky, space: Amersham Biosciences, with 4,650 employees, posted $1.1 billion in receipts last year, or 41 percent of the company’s total revenue; Amersham Health, with 5,300 staffers, recorded $1.5 billion in sales, or 59 percent of total revenue.
Broken into their component parts, Amersham Biosciences’ revenues have led some analysts to express doubt that holding onto the division will be worthwhile for GE: Amersham Biosciences’ discovery systems arm, which accounted for $657 million in revenue last year, or 24 percent of Amersham’s total sales, is home to the CodeLink and Lucidea gene chips; the MegaBase gene sequencer and TempliPhi DNA preparation kits; protein analysis technologies; and drug screening and informatics. Amersham Biosciences’ other wing, protein separation, generated $460 million, or just 17 percent of total revenue.
Comparatively modest revenues aside, Amersham Biosciences’ saving grace may be GE’s intent, however oblique, to broaden its foothold in personalized medicine. “Amersham ... will add new, high growth platforms to [GE’s] … diagnostic imaging, services and healthcare information technology businesses,” GE chairman and CEO Jeffrey Immelt said last week. “The combination of [Amersham’s] technological and market knowledge will allow GE to accelerate the development of molecular imaging and personalized medicine. … “
William Castell, Amersham’s chairman and CEO, added that the acquisition will enable Amersham “to accelerate the realization of our vision of personalized medicine. We will have the competencies, the marketing reach, and the financial resources to bring disease prediction, diagnosis, and personalized treatment into the mainstream of medical practice.”
This is pretty ambitious considering that, beside the diagnostic applicability of its imaging technologies, Amersham’s only personalized medicine play comprises a suite of CodeLink products sold only to the research community. In fact, the company doesn’t expect that CodeLink will soon enter the emerging $100 million molecular-diagnostics market that comprises analyte-specific reagents, multi-ASRs, and gene chip-based tests [see 8/14/03 SNPtech Reporter].
Furthermore, CodeLink, which Amersham bought from Motorola in 2002 for $20 million, has yet to generate a profit. Andrew Carr, who oversees Amersham Biosciences’ discovery systems segment, conceded that second-quarter sales of the product line have been “disappointing,” and that 70 percent of the $10 million in operating loss through the end of the second quarter for the discovery systems segment were net expenditures for CodeLink. Trevor Hawkins, vice president of development at Amersham Biosciences, in August said the CodeLink line can be profitable in 12 to 18 months.
Consequently, some analysts believe that GE, desperate to revive battered earnings, will likely not wait for CodeLink to mature into a molecular-diagnostics product — even if the market it covets is growing at least 20 percent annually.
“GE’s mantra has, for a long time, been, if they can’t enjoy No. 1 or maybe No. 2 market share, then they don’t want to be in the business,” said David Parker, vice president and head of economic strategies at Covance, a Princeton, NJ-based consultancy and drug development-services company. And Amersham Biosciences, he said, “is by no means No. 1.”
To be sure, the opinion that GE will divest some or all of Amersham Biosciences is a minority view. A majority of industry watchers interviewed for this article speculated that GE can wait for CodeLink to develop — indeed, they suspect GE will help nurture the platform — and will retain substantially all of Biosciences’ assets. They also questioned why GE, after paying a 45-percent premium to buy Amersham, would split the company in half.
Scientists at Amersham Biosciences’ Piscataway, NJ, headquarters, for example, were optimistic that GE would nourish the technologies in their unit. “Amersham has been touting personalized medicine. And you know that personalized medicine is going to involve molecular biology,” a senior scientist-manager on the research side told SNPtech Reporter on the condition of anonymity. “So my only prediction ... is that nothing is going to happen to us.” He stressed that Amersham CEO Castell, who will end up heading a newly formed division at GE called Healthcare Technologies, has been “very active over the past several years within the Biosciences division saying, ‘Think about personalized medicine.’” Now, the scientist said, “everyone is trying to put a definition to what the words ‘personalized medicine’ mean.”
Ian Mehr, president of pharmacogenomics consulting firm Dianoetica, of Research Triangle Park, NC, said GE officials with whom he’s spoken said the company has been discussing ways of expanding its footprint in predictive medicine. “I think GE will try to capitalize on the research technologies that are available at Amersham Biosciences,” he said, referring to CodeLink. “It’s a fast-growing marketplace, and the ability of [GE] to position the assets they’re acquiring into the molecular diagnostics marketplace is very appealing” to GE.
“Much of what Amersham Biosciences produces today isn’t directly applicable to the molecular diagnostics market, [but] eventually it could be,” he added. “And with GE’s reputation and experience in pinpointing those diamonds in the rough — and saying, ‘This product has been underdeveloped, and we’re going to put all of our developmental force behind it’ — should make some competitors out there perk up and pay attention.” He described potential rivals as companies such as Roche Diagnostics.
Traditionally, said Mehr, Amersham Biosciences has been considered a “secondary player” in the molecular-diagnostics field. In fact, the company is the No. 3 industrial-scale microarray maker in the world behind Affymetrix and Agilent. However, he said, GE “could substantially change [that perception] to, ‘Now we have to pay attention to Amersham Biosciences because even if they don’t have major [market] penetration, they now have a huge marketing force behind it in the form of GE.’” (In a conference call last week, Immelt said the company has already invested all it will internally in pharmacogenomics-related R&D. He did not mention sales or marketing strategies. According to Amersham’s web site, the Biosciences division spent $147 million on R&D in 2002. Amersham Health spent $159 million.)
However, Mehr, who is a former official at Lab Corp and Paradigm Genetics, said GE may divest some of Biosciences’ smaller assets. “I think you’re going to see stuff that could be easily transferred to other players that don’t add a lot to GE’s bottom line, and that isn’t a high-growth business,” he said. If GE does decide to off-load Amersham’s smaller fries, or at least those that don’t jibe with its personalized medicine plan, possible suitors would likely be Applied Biosystems and Invitrogen. The former would seek to remove a competitor, while the latter would seek to bolster existing offerings and enter new markets. (Coincidentally, Invitrogen’s CEO, Greg Lucier, and GE’s Immelt both at one time ran GE’s Medical business, which will be combined into the Healthcare Technologies arm that Castell will head.)
Mehr also suggested that GE, by holding onto Amersham Biosciences, could expand the definition of personalized medicine to include imaging technologies, and bolster its own bottom line. “What GE executives are probably doing is asking, ‘How could we better position our products in the marketplace?’” Mehr said.
“If they can demonstrate that one of their [imaging] units in a particular study was able to demonstrate using a particular algorithm that they developed to differentiate patients’ response rates to a [hypothetic] schizophrenia drug, then they have a very strong value proposition to promote their instruments,” he said.
Officials from GE and Amersham did not return telephone calls seeking comment.