Acquisition of Amersham presents cornucopia of opportunities for GE

April 21, 2004

Vision, not competition, drove merger, says GE execWhat could be the most significant change yet in corporate radiology has come to pass. GE has completed its acquisition of life sciences giant Amersham Health in a $9.5 billion

Vision, not competition, drove merger, says GE exec

What could be the most significant change yet in corporate radiology has come to pass. GE has completed its acquisition of life sciences giant Amersham Health in a $9.5 billion stock swap.

GE Healthcare Technologies president and CEO Joe Hogan and Amersham acting COO Dan Peters announced the closure April 8 in a joint press conference. Hogan described the union as providing a unique collection of expertise: physics, engineering, and informatics from what used to be GE Medical Systems (GEMS) and biology and chemistry from Amersham.

"This is the first time in this industry that these core competencies have been combined in one company," he said.

Peters underscored the importance for GE of partnering with the makers of therapeutic drugs. The linkage between diagnostics and therapeutics will be a very valuable part of the business in the future, Peters said.

The merger is groundbreaking in other ways as well. The reorganized corporate structure will be run from headquarters in the U.K., the first time GE has located one of its major businesses outside the U.S.

"This will help us solidify our position in the European community," Hogan said. "It shows how committed GE overall is to the European marketplace."

It also offers a respite from the portfolio shuffling that has occurred in the wake of previous GE deals when acquired product lines clunked with GE's own. Unlike previous acquisitions in CT, MR, x-ray, ultrasound, and nuclear medicine, there is no product overlap between the two companies, no redundant distribution channels, no duplicative sales and marketing staffs. There are, however, some intriguing opportunities, Hogan said. GEMS has established a strong position in China, which the former Amersham business can now capitalize on, just as Amersham established a strong foundation for the sale of its products in Japan, which GE can now use to sell medical equipment.

Now combined, the two business units will support about 42,000 employees worldwide and spend about $1 billion in R&D. Analysts expect the combined company to generate up to $16 billion in revenues in 2005. Sir William Castell, formerly CEO of Amersham, will be president and CEO of GE Healthcare, running the company from global headquarters in Little Chalfont St. Giles, U.K.

Amersham, now called GE Healthcare BioSciences, will generate about $3 billion in 2004 revenues from the sale of medical diagnostics, protein separations, and discovery systems. The in vivo diagnostics segment is composed of imaging agents for CT, x-ray, MR, and ultrasound, as well as radiopharmaceuticals for nuclear medicine. Protein separations and discovery systems provide the tools pharmaceutical companies and academics use to develop drugs. These operations will be run from U.K. headquarters. GEMS, now known as GE Healthcare Technologies, will generate about $11 billion this year from diagnostic imaging, information technologies, interventional systems, patient monitoring, and healthcare services. Hogan, who has led GE's medical equipment business since 2000, will be president and CEO of GE Healthcare Technologies, which will operate from its traditional headquarters in Waukesha, WI. Hogan does not expect that the distance between the equipment and bioware divisions will present much of a problem.

Hogan is counting on cross-fertilization resulting from good communications and teamwork to drive innovation. Imaging technologies--both hardware and bioware--will be optimized to see these mechanisms and visualize the effects of therapy.

"Most of the synergies will be on the breakthrough side," he said. "That is where we will drive most of the cooperation--by bringing these technologies together on a single road map."

But there will be challenges other than the physical distance. The former Amersham and GEMS have distinct cultures. Product development is substantially longer for diagnostic pharmaceuticals, Hogan said, a fact underscored by the lengthy clinical review process for drugs in the U.S. versus the 90-day 510(k) process for medical equipment. This and differences in the manufacture, sale, and distribution of the products affect worker outlook, expectations, and, consequently, attitudes.

"We are cognizant of the differences in culture and will be very cautious as we merge them so we don't lose the best of both," he said.

Hogan is looking a long way into the future, at development times more in line with drugs than medical equipment. The newly unified GE Healthcare will seek breakthroughs that may take a decade or longer to achieve. But the company will not overlook near-term opportunities that might be addressed through derivatives of existing platforms.

The common thread binding the near and long terms will be the aggressive pursuit of molecular imaging, which--when fully realized--might lead to an era of personalized medicine. Hogan defines this as the logical evolutionary leap away from today's "see and treat" model to a kind of "predict and prevent" medicine. The goal will be to find diseases before they become clinically important, to choose a management scheme tailored specifically to curing or controlling this disease, and then verify that the therapy is indeed working--or provide the feedback needed to improve its efficacy.

"We really believe that if we can detect it early, the patient might never see it or feel it," he said. "This would truly shape a new age of medicine."

In the meantime, GE Healthcare will continue to work on improving existing platforms that see and treat. The firm will look to combine best practices to address near-term possibilities. First up will be an effort to revitalize interest in ultrasound contrast media by optimizing technologies, marketing, and distribution channels under a single control.

"Who is using ultrasound contrast, why is it being used, when is its use more efficient? Those kinds of questions can be better answered by a company that represents both ends of the equation," Hogan said.

Another synergy GE plans to pursue is the combination of Amersham's bioscience technologies with GE's preclinical imaging scanners, both of which have been marketed separately to academia and pharmaceutical companies to assist in their new drug R&D. The company also plans to capitalize on its strength in informatics and imaging technologies to more efficiently use the data being generated and applied by the biosciences division. Many of these data are interpreted and stored as images, Hogan said.

"We can use the kind of algorithms we put in place to manage clinical information to handle these other data," he said. "It's just a matter of going from the macro to the micro perspective--moving into the protein and DNA pieces and incorporating that kind of information with an EMR (electronic medical record)."

The acquisition of Amersham could also have ramifications outside the practice of medicine. In the past, competitors have responded to GE expansions into ultrasound and nuclear medicine with like measures, vastly expanding multimodality offerings and changing the corporate landscape by acquiring single-modality companies. If they respond again in the same way, companies that make imaging agents, and possibly even biotechnology/life sciences firms with resources useful in molecular imaging, might be gobbled up, radically reshaping the underlying character of the radiology industry.

Competing equipment vendors might try to keep pace with GE by acquiring companies that would provide them with capabilities similar to those of Amersham, just as the makers of contrast agents--Schering and Bracco--might consider such offers to keep pace in the increasingly competitive imaging-agents marketplace. Amersham's unique blend of biosciences and discovery systems might even lead to an interest by GE competitors in biotech companies focused on genomics and proteomics, which could prove critical to the development of molecular imaging agents.

Whether a new wave of mergers is in the offing, however, is anything but certain. The Amersham acquisition did not come from a desire to outmaneuver competitors but as the result of a strategic vision, Hogan said.

"We work with our customers to develop what we think the future of radiology in medicine will be like and what clinical processes will be in use," Hogan said. "Philips and Siemens and other competitors will have to determine whether (similar mergers) are right for them."

Even if these competitors ultimately take steps to counteract GE's acquisition of Amersham, there is no assurance that GE is done. Although Hogan said the company is committed to organic growth based on in-house R&D, acquisitions have played a major role in the firm's expansion over the last several years.

"We move to the inorganic side when we think we need speed or have to add a capability--as in the case of Amersham--where it would take too much time to develop it organically," he said.

GE's commitment to molecular imaging and a new era of medicine is clear. But there is no certainty that this grand gambit will pay off. Hogan and other architects of the Amersham deal are banking on the medical establishment's willingness to embrace an approach that runs counter to current medical thinking.

For the most part, modern medicine involves patients who seek help when they feel ill and doctors who treat patients for the illnesses they diagnose. The century-old practice of vaccination and more recent efforts to find disease at the earliest possible stages to improve the chance of successful therapy are encouraging signs that GE's grand vision of "predict and prevent" medicine is on the right track. Resistance to the introduction of new technologies, however, such as digital mammography to detect earlier signs of breast cancer, may indicate a bumpy road ahead.

Concerned that digital mammography might increase the number of biopsies and false positives, the FDA required that digital mammography systems be proven clinically equivalent to film-based products. Similar bureaucratically driven obstacles might be erected in the path of personalized medicine. The way around them will be incontrovertible proof that "predict and prevent" medicine improves the quality of life, extends longevity, or cuts medical costs. Getting that proof may be the greatest challenge GE will have to face.