New Trex CEO employs strong medicine to bring x-ray company back to health

May 12, 1999

Trex to close two manufacturing sites, lay off 200It’s no secret that the past year has been a rocky one for Trex Medical. The Danbury, CT, firm has witnessed the failing of a key distributor contract and the departure of many of its top

Trex to close two manufacturing sites, lay off 200

It’s no secret that the past year has been a rocky one for Trex Medical. The Danbury, CT, firm has witnessed the failing of a key distributor contract and the departure of many of its top executives. It has watched its revenues plummet, and has seen its 510(k) application for a full-field digital mammography system bounced back by the Food and Drug Administration.

For many, the question has been how Trex will weather these setbacks. In a conference call this month, CEO William Webb provided the first comprehensive accounting of Trex’s businesses since he took over leadership of the company from former chief executive Hal Kirshner (SCAN 1/13/99). Webb outlined an aggressive plan to get Trex back on track, which includes shutting down redundant manufacturing plants and establishing new distributor relationships.

In the most significant of Webb’s moves, Trex has begun a company-wide restructuring program that will include the closing of two of its four U.S. manufacturing facilities. Trex plans to close its Bennett facility in Copiague, NY, and its Continental site in Broadview, IL. Manufacturing and R&D of mammography and general-purpose x-ray systems from these sites will be moved to Trex’s factories in Danbury, CT, and Littleton, MA, respectively.

The closures will result in pretax restructuring charges of approximately $11 million, the bulk of which Trex expects to take in its third quarter (end-July). The closures will also include staff layoffs of approximately 15%, or 200 people. Bennett’s and Continental’s sales and marketing offices will be maintained at the New York and Illinois locations. Trex hopes that these measures will save the company about $4 million in operating costs.

Trex’s consolidation is a response to the sluggish financial performance that has plagued the company since its distribution deal with U.S. Surgical for breast biopsy tables began to fail in June 1998 (SCAN 6/10/98). Trex has been taking over sales of the tables on its own, but almost a year later has not made up for the loss of the U.S. Surgical contract, according to Webb.

“That’s part of our profit decline,” he said. “We have had some growth in the mammography segment this quarter, but that has not been enough to offset the loss of that very substantial contract. We’re working on picking up the distribution of biopsy tables through our regular dealer network, but don’t expect (sales) to return to the same level for quite some time.”

That’s evident from a look at Trex’s financial results for the second quarter (end-April), which were released concurrently with the restructuring announcement. Trex posted second-quarter revenues of $60 million, down from last year’s $67 million. The company saw dismal biopsy system sales of only $3 million for the first six months of fiscal 1999, compared with $22.5 million in the first half of 1998. Trex posted a net loss for the quarter of $4.2 million, compared with net income of $5.2 million in 1998.

In addition to reduced sales of Lorad breast biopsy tables, Webb attributed the decrease in revenue to a decline in XRE’s cardiac cath lab sales. And Continental’s bookings decreased for the quarter, due to what the company referred to as “lingering product quality issues.”

There was some good news in Trex’s financial picture: The company saw its overall bookings climb 25% from the first quarter (end-January), and Lorad and Bennett broke company records for bookings and sales of mammography products.

In addition, help could be on the horizon in the form of sharply expanded distribution channels. On April 30, Trex announced an expanded distribution agreement with PSS World Medical subsidiary Diagnostic Imaging. DI will distribute Trex’s full line of Bennett systems across the U.S., and will conduct more limited distribution of Trex’s Lorad and Continental product lines. The deal is exclusive on DI’s end—the Jacksonville, FL, company will terminate its relationships with companies that provide competing products—although Trex will continue its relationships with other dealers.

“We are building renewed interest in the breast biopsy table program,” Webb said. “As we continue our efforts to rebuild the distribution channels for this highly regarded technology, we should experience some continued growth.”

As Trex tries to boost its bottom line with dramatic action, the company continues to work on the regulatory application for Trex Digital Mammography System, its full-field digital mammography unit. In December, the company received a letter from the Food and Drug Administration that rejected the company’s 510(k) application, citing concern that Trex’s clinical data did not establish equivalence between TDMS and screen-film mammography systems (SCAN 1/13/99).

In August, the agency had said it would publish revised guidelines for full-field digital mammography systems, but the document has not been forthcoming. In the interim, the FDA has instructed manufacturers to work individually with the agency on full-field mammography 510(k) applications, which Trex has been doing. The company is careful to point out that its 510(k) application for TDMS is still active with the agency.

“We’ve gathered more data and reconstructed our present data,” he said. “We’ve submitted the data to them and once again requested clearance. We’re already anticipating another filing for new claims, and, when appropriate, will initiate the studies to prove those claims.”