Thermo Electron seeks buyer for Trex Medical

February 16, 2000

After almost a decade of collecting an array of firms under the umbrella of its subsidiary, Trex Medical, measurement instruments company Thermo Electron has decided to leave the medical imaging market and seek a buyer for Trex and at least seven other

After almost a decade of collecting an array of firms under the umbrella of its subsidiary, Trex Medical, measurement instruments company Thermo Electron has decided to leave the medical imaging market and seek a buyer for Trex and at least seven other subsidiaries, which produce combined annual revenues of $1.2 billion. With these noncore businesses divested, Waltham, MA-based Thermo Electron will focus completely on its measurement and detection products businesses.

News of the planned sales prompted questions about how Trex would be affected. The company has faced a number of hurdles in the past 18 months, from the loss of a key breast biopsy table distributor contract with U.S. Surgical to the departure of many members of its top management, a decrease in its revenues, and, most crushingly, the rejection of its 510(k) application for TDMS, the company’s full-field digital mammography unit (SCAN 5/12/99). Trex posted first quarter 2000 (end-January) revenues of $43.9 million, compared to $64.9 million in 1999, and sustained net losses for the period of $6.9 million, compared to $1.5 million the year before.

Trex CEO William Webb acknowledged that Thermo Electron’s decision to sell Trex may prove challenging for the Danbury, CT, firm. But he emphasized the positive opportunity that could arise from the divestiture.

“If we can find the right buyer aligned in the diagnostic imaging market, that’s good for us,” Webb said. “Trex has technological and product strengths: We’re world leaders in mammography, and we have strong positions in general radiography and cardiac. We’ve spent the last nine months restructuring our company, and we’re beginning to see cost benefits from that. I believe we’re going to be very attractive.”

Thermo Electron’s decision to restructure came just months after it declared its intention to make Trex a direct subsidiary (SCAN 6/9/99). The company now plans to split into three independent firms: Thermo Electron, Thermo Fibertek, a recycling and water-management equipment company, and an as yet unnamed business that will provide nondiagnostic medical equipment and systems. The restructuring and divestitures should take approximately 12 months to complete. Thermo Electron’s move to divest itself of non-core ventures arose out of confusion in the marketplace about its primary business, rather than the state of its subsidiaries, according to Webb.

“Thermo Electron decided that if there was no potential to be number one or two in a market, it would exit that market. It’s not a matter of whether (its subsidiaries) are good companies, bad companies, healthy companies—it’s a matter of whether they have good strategic fit,” Webb said.

Thermo Electron built its stable of medical imaging firms through the 1990s. In 1992, Trex purchased Lorad; in 1995, Bennett X-Ray; in 1996, Continental X-Ray and XRE; and in 1998, Trophy Radiologie, a French manufacturer of both traditional and digital dental imaging and medical x-ray systems that Trex renamed TrexTrophy Dental.

The disintegration of the U.S. Surgical partnership contributed to a sluggish financial performance in 1998. In May of 1999, Webb announced a restructuring effort that closed two of the company’s four U.S. manufacturing facilities, including the Bennett and Continental sites in Copiague, NY, and Broadview, IL, respectively. Mammography and x-ray manufacturing and R&D from these facilities were moved to Trex’s factories in Danbury and Littleton, MA, and 200 people were laid off in an effort to save the firm roughly $4 million in operating costs.

On the mammography front, Trex has had more than its share of difficulty in its efforts to negotiate the Food and Drug Administration’s often contradictory regulatory process and bring its full-field digital unit to market. The company received the CE Mark for the Trex Digital Mammography System (TDMS) in October 1998, and has placed systems in Europe, but in August the firm received notice from the FDA that its 510(k) application had been rejected since it had not demonstrated substantial equivalence to screen-film mammography units (SCAN 10/14/98 and 8/19/99).

On Jan. 31, GE became the first company to win the right to commercialize a digital mammography unit (see story, page 5). But Trex remains confident about its digital mammography efforts, and expects to submit a PMA application for TDMS to the FDA later this year.

“It would have been nice if Trex had been first (to bring a digital unit to market), but it’s not the end of the world,” Webb said. “We will have a product, and it will be competitive, if not better. Meanwhile, GE will go out and develop the market for us.”