Kodak to sell Sterling Winthrop; reaffirms commitment to health care

May 18, 1994

Film and electronic imaging products part of core strategyEastmanKodak placed one of the leading U.S. contrast agent supplierson the block this month following the medical film giant's decisionto sell its Sterling Winthrop pharmaceutical

Film and electronic imaging products part of core strategy

EastmanKodak placed one of the leading U.S. contrast agent supplierson the block this month following the medical film giant's decisionto sell its Sterling Winthrop pharmaceutical subsidiary. The movewill not have radical implications for Kodak's health-care customers.Kodak's Health Sciences division will continue as a core businessof the Rochester, NY, company, providing both medical film andelectronic imaging products to hospitals worldwide, accordingto Carl Kohrt, vice president and general manager of Health Sciences.

"We (Health Sciences) are remaining as part of the EastmanKodak company because we are an imaging business," Kohrttold SCAN. "The imaging company and the imaging group willbecome one and the same after the divestitures have been completed."

In addition to Sterling Winthrop, Kodak will divest businessesinvolved in in vitro clinical diagnostics, personal care and householdproducts. Sterling itself offers a wide range of consumer health-careproducts as well as contrast agents and other pharmaceuticals.

Although Health Sciences was a part of Kodak's Health Groupalong with Sterling Winthrop, the two medical imaging businesseshad not merged organizational structures in the six years sincethe giant film company bought Sterling Drug (SCAN 2/3/88). Contrastand medical imaging products, however, were often presented tohealth-care customers in a unified fashion through lumped salescontracts.

"Clinically, there is really not (synergy)," Kohrtsaid. "I would love to have found a coupling device betweencontrast and film, but we didn't. These (medical products) wereoffered to the same buyers -- and often the same clinicians --but they were sold by two separate sales forces. Even in the marketplace,they were not coupled strongly."

All of the business elements of Sterling Winthrop are currentlybeing valued by Kodak, both separately and together, and are forsale, he said. The Sterling business has been profitable and performedrelatively well, considering the depressed state of the U.S. health-caremarket, he said.

"They (the units to be divested) are healthy businesses.They will be able to be supported even further with new owners.This is a win/win situation for both sides," Kohrt said.

Sterling Winthrop's worldwide sales increased 7% in 1993, whichwas a significant slowing from about a 13% growth in 1992, accordingto the 1993 Sterling Winthrop annual review. However, the companydid perform better under stress of U.S. health-care uncertaintythan the pharmaceutical industry in general. Worldwide industrypharmaceutical sales dropped from a 10% sales growth rate in 1992to 4%, which was the slowest expansion for the industry in overa decade.

Most executives involved in U.S. health care would agree thatthe market has been in a slump for the past year and a half, Kohrtsaid. Over the long run, however, U.S. demographics, includingan aging population, point to healthy medical imaging productdemand. At the same time, innovations, such as electronic medicalimaging, will lower health-care costs and spur product demand.

Just prior to Kodak making its planned divestitures public,the film company reported first quarter (end-March) results thatshowed Health Group revenues sagging 3%. However, the companysaid that x-ray products gained in volume for the period. Overallcompany revenues were up 1%.

The impact of market uncertainty in the U.S. caused by impendinghealth-care reform was reflected in the fact that internationalrevenues for the Health Group actually rose 5%, while revenuein the U.S. dropped 9% (SCAN 5/4/94).

Kodak is keeping a foot in both the hard-copy and electronicsides of medical imaging. Chances are that both businesses willoffer good revenue and profit opportunities for the foreseeablefuture. With the planned divestiture of nonimaging businesses,Kodak strengthened its commitment to core photographic and medicalfilm businesses.

"Our growth strategies must apply equally to our traditionalsilver-halide film business as well as to digital imaging opportunities,"said Kodak chairman George Fischer during his news conferenceannouncing the Sterling divestiture plans. "I see a longfuture for the silver-halide business."

Kodak's medical film business has been growing strongly, Kohrtsaid, although the strongest growth has been in internationalmarkets. Kodak's electronic medical imaging business, includingfilm for laser cameras, is growing faster than sales of traditionalx-ray film.

Health Sciences recently dedicated a new worldwide headquartersfor its Kodak Health Imaging Systems subsidiary in the Dallasarea, he said. The subsidiary combined staff and technical resourcesfrom Vortech Data, a picture archiving and communications systemscompany acquired by Kodak, and some employees transferred fromRochester.

Electronic imaging manufacturing is split between Dallas andRochester. Health Sciences maintains a joint sales force to approachhospital and other customers with both film and electronic imagingproducts. Health Imaging Systems provides technical expertiseand support for electronically intensive accounts.

Contrast agent development takes up a large part of the overallSterling Winthrop research and development budget. As of the startof last year, four out of seven Sterling pharmaceutical agentseither in process or planned for release through 1997 were contrastagents (SCAN 12/30/92).

Pharmaceutical companies and drug prices have come under increasedscrutiny as the U.S. searches for ways to slow health-care inflation.Drug suppliers counter that lower anticipated prices could puta damper on often lengthy and expensive pharmaceutical developmentprojects. Some new imaging pharmaceuticals, such as Cytogen'smonoclonal antibody nuclear imaging agent OncoScint, have beenhampered in their launch in part because of their high cost perprocedure.

While Sterling Winthrop is developing contrast agents on itsown, much of the firm's current and future business involves manufacturingagents under license. Nycomed of Norway supplies the firm's mostprofitable contrast product, the nonionic radiographic agent Omnipaque,as well as the new Omniscan MRI agent. Sterling Winthrop has alsoobtained marketing rights for Advanced Magnetic's Feridex MRIagent in North America and Australia (SCAN 10/6/93).