FDA irregularities scuttle GE deal to buy Abbott diagnostics

July 12, 2007

Regulatory problems at Abbott sank the $8.1 billion deal under which GE Healthcare would acquire Abbott's in vitro and point-of-care diagnostics businesses, according to a source inside GE.

Regulatory problems at Abbott sank the $8.1 billion deal under which GE Healthcare would acquire Abbott's in vitro and point-of-care diagnostics businesses, according to a source inside GE.

The deal, which was announced in January, had been expected to close soon. Instead, the two companies have mutually agreed to withdraw from the deal, which would have been the largest healthcare acquisition by GE since its $9 billion merger with Amersham three years ago.

A warning letter from the FDA indicating noncompliance at an Abbott site in Irving, TX, exemplifies the problems that led to the collapse of the deal, a GE source told DI SCAN.

The letter, dated March 13, warned Abbott that clinical chemistry and immunoassay analyzers being manufactured at the plant did not conform to current Good Manufacturing Practice requirements and were "misbranded" because the company had been late in its required medical device reporting to the agency.

FDA investigators had uncovered these problems months earlier and held a meeting with Abbott in late January, during which the agency was assured that corrective actions were ongoing and "a more robust, comprehensive corrective action plan to correct compliance across the company's product lines" would be implemented.

The March warning letter, however, stated that "the Agency is not satisfied with the pace and the results of your firm's past corrective actions as they have not been effectively, timely, and globally implemented for your entire family of analyzers."

Executives are limited in what they can publicly say about the collapsed deal due to a nondisclosure agreement in force regarding the recent action by the two companies. DI SCAN has learned, however, that discussions to save the deal were going on just hours before the two companies issued a statement after market close July 11 that the deal was dead.

"GE and Abbott worked diligently to complete the transaction but were unable to reach agreement on final terms and conditions," the prepared statement said. "As a result, they agree it was in the best interests of both companies to mutually terminate their agreement and discussions."

GE will not be required to pay a fee because of the cancellation of the deal, as the two companies mutually agreed to withdraw. John Chiminski, who left his post as GE's vice president and general manager of global MR to run the in vitro diagnostics operations upon completion of the deal, is now in corporate limbo following its demise. Chiminski will likely be reassigned to another position within GE, according to the source.

More details may come July 13, when GE chairman and president Jeff Immelt hosts an analysts' call to discuss corporate earnings. Deutsche Bank is likely to ask probing questions. An alert to its clients late July 11 noted that the investment firm would have expected the companies to adjust the purchase price to reflect the heightened regulatory risk.

"To walk clean away, without any sort of break-up fee or threat of litigation, is highly unusual and intriguing," the alert said.