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 * Reading Now As Illumina’s deSouza departs, will Grail go next? By: Susan
   Kelly
 * Reading Now EPA to limit ethylene oxide emissions from medical device
   sterilizers By: Elise Reuter
 * Reading Now Globus’ planned purchase of NuVasive haunted by specter of past
   spine deals By: Elise Reuter
 * Reading Now Baxter, Abbott, Thermo Fisher among medtech firms cutting jobs on
   supply issues, slide in testing By: Susan Kelly
 * Reading Now AdvaMed calls Europe’s MDR extension a ‘strong step forward,’ but
   warns challenges remain By: Susan Kelly



Trendline


TOP 5 STORIES FROM MEDTECH DIVE


Johnny Greig via Getty Images

 * Reading Now As Illumina’s deSouza departs, will Grail go next? By: Susan
   Kelly
   
 * Reading Now EPA to limit ethylene oxide emissions from medical device
   sterilizers By: Elise Reuter
   
 * Reading Now Globus’ planned purchase of NuVasive haunted by specter of past
   spine deals By: Elise Reuter
   
 * Reading Now Baxter, Abbott, Thermo Fisher among medtech firms cutting jobs on
   supply issues, slide in testing By: Susan Kelly
   
 * Reading Now AdvaMed calls Europe’s MDR extension a ‘strong step forward,’ but
   warns challenges remain By: Susan Kelly
   




AS ILLUMINA’S DESOUZA DEPARTS, WILL GRAIL GO NEXT?

The CEO’s resignation could signal a change of direction, as anti-trust
regulators order Illumina to divest the liquid biopsy unit.

By: Susan Kelly • Published June 12, 2023

The abrupt resignation of Illumina CEO Francis deSouza, less than a month after
a proxy battle led by activist investor Carl Icahn helped persuade shareholders
to oust the company’s chairman, signals a change of direction at the gene
sequencing pioneer. 

Could that include a reversal of deSouza’s resistance to orders from U.S. and
European anti-trust regulators to divest cancer test maker Grail?

Until the end, DeSouza remained a staunch defender of the company’s decision to
acquire Grail, telling Illumina employees in a letter disclosing his resignation
that his belief in the merger of the two businesses “remains unshakeable.”

Illumina has been appealing orders from both the European Commission and U.S.
Federal Trade Commission to unwind its purchase of Grail, which it bought for $8
billion two years ago without regulators’ approval. 

Before stepping down on June 11 as CEO of Illumina, deSouza had held onto his
board seat, with 71% of shareholders voting in favor of retaining him. 

“With the loudest proponent of GRAIL not at the table anymore, the potential for
a GRAIL divestiture rises meaningfully,” SVB Securities analyst Puneet Souda
wrote in a note to clients.

Icahn candidate Andrew Teno won a seat on the board, and shareholders voted out
Illumina’s former board chair John Thompson. Stephen MacMillan, who is CEO of
Hologic and the former CEO of Stryker, joined the company’s board a week later
as non-executive chair. Edward Lifesciences CFO Scott Ullem also joined the
board, after Illumina expanded it to 11 seats from nine. 

“Under a new CEO (who was not involved in the decision to close Grail ahead of
regulatory approval), the potential for a quicker resolution on Grail is
possible,” Evercore ISI analyst Vijay Kumar wrote in a research note.

Illumina has installed Charles Dadswell, its senior vice president and general
counsel, as interim CEO while it searches for a permanent replacement for
deSouza.

“We had suspected that the board would only consider more significant changes if
financial results did not improve quickly or if U.S. or EU regulators maintained
their unwinding orders following the appeals processes, which are scheduled to
complete in late 2023 or early 2024. With this CEO change though, more
significant strategic changes may happen quicker than anticipated,” Morningstar
analyst Julie Utterback wrote in a research note.

Icahn launched a battle to oust deSouza, board chair John Thompson and a third
board member, and replace them with his own nominees. He blamed them for a
nearly 50% drop in the company’s share price, and for digging their heels in
against regulators. 

“For the sake of both Illumina and GRAIL, these companies should be separated
immediately to protect the long term growth prospects and viability of each
entity,” Icahn wrote in an April 5 letter to Illumina shareholders. “We believe
the board of directors should dismiss Mr. deSouza immediately and bring back Jay
Flatley [a former Illumina CEO] (or someone else on his level) as CEO,” wrote
Icahn.

“Overall, we continue to hope Illumina will be able to strike a balance with
Grail, which looks like a promising long-term opportunity but is draining
Illumina’s resources and earnings potential now with its $670 million expected
operating loss in 2023,” wrote Morningstar’s Utterback. She added that a
tax-free spinoff of Grail to Illumina shareholders, would leave investors a
stake in Grail, which she called a “promising but nascent asset,” while boosting
the value of Illumina’s core genomic sequencing business, which she said is
“currently operating below its long-term profit potential.”

Canaccord Genuity analyst Kyle Mikson said he hopes deSouza’s resignation will
help investors focus on the company’s promising long-term growth potential.

“In our view, ILMN should emphasize its NovaSeq X rollout and utilization, while
increasing its participation in population genomics projects, clinical
sequencing applications and advance monetization of its extensive dataset,”
Mikson said.

Updates with additional comment from analysts.

Article top image credit: Kevin Dietsch via Getty Images



EPA TO LIMIT ETHYLENE OXIDE EMISSIONS FROM MEDICAL DEVICE STERILIZERS

By: Elise Reuter • Published April 11, 2023


DIVE BRIEF:

 * Medical device sterilizers will face new limits on ethylene oxide emissions
   and new requirements for worker protection, according to a pair of proposals
   issued by the Environmental Protection Agency on April 11. 
 * The new limits are part of a broader series of actions by the agency to
   reduce exposure to the chemical, which it said can increase cancer risks over
   the course of a career or a lifetime.  
 * Companies will have 18 months to install the required pollution controls
   after the EPA issues a final rule. Medical device trade groups have claimed
   that too-stringent requirements could limit patients’ access to medical
   devices. 


DIVE INSIGHT:

Ethylene oxide (EtO) is a clear gas used to sterilize medical devices. Long-term
exposure to the chemical is linked to health problems, including increased
cancer risks, according to the EPA. The agency issued a pair of proposals that
it expects will reduce EtO emissions from commercial sterilization facilities by
80% per year. 

One proposed rule would seek to bring the concentration of EtO used to sterilize
medical devices down to 500 milligrams per liter for each cycle. Some facilities
have reduced their emissions, but others use up to twice as much as needed for
sterility assurance, said Anita Pease, director of the EPA’s Antimicrobials
Division, in a press briefing.

The goal is to ensure all 86 commercial sterilizers meet the new requirements.
Pease did not say how many facilities would still need to come into compliance.
Facilities will be required to use advanced monitoring to ensure pollution
controls are working and report their results to the EPA twice a year. 

The agency also issued a proposed interim decision to increase protections for
people working in these facilities and living in nearby communities. Those
measures include engineering controls, such as emissions capture technology, to
reduce worker exposure, and requiring that staff wear protective equipment when
EtO is detected. It would also reduce the amount of EtO that may be applied for
medical device sterilization while meeting standards for sterility assurance.

The EPA has been preparing to ramp up regulation of EtO. Last year, the
regulator implemented new reporting requirements for 31 facilities that use EtO
to sterilize medical devices, and it published a list of higher-risk
sterilization facilities based on a person’s lifetime cancer risk in residential
areas near these facilities. 

On April 6, the agency also proposed tougher standards for chemical plants that
make ethylene oxide. 

Trade groups representing medical devices have pushed back on new requirements.
In January, Advamed wrote to President Joe Biden, warning that “the closure of
even a small percentage of facilities could harm patient access to health care.”

About 20 billion medical devices are sterilized each year using EtO at about 100
facilities, the trade group wrote. 

Medical device sterilizers have also faced lawsuits related to EtO exposure. In
January, Sterigenics agreed to pay $408 million to settle more than 870 ethylene
oxide cases related to alleged emissions from its former facility in
Willowbrook, Illinois.

Article top image credit: Brian Tucker


GLOBUS’ PLANNED PURCHASE OF NUVASIVE HAUNTED BY SPECTER OF PAST SPINE DEALS

Past combinations of competing spinal care companies “historically have tended
to be messy,” one analyst wrote. Globus’ leaders claim this deal will be
different.

By: Elise Reuter • Published Feb. 14, 2023

Globus Medical’s planned purchase of San Diego-based spine company NuVasive
opened to a chilly reception from investors, reflecting the challenges of past
orthopedics acquisitions.

The companies said on Feb. 9 they expect the transaction to close in mid-2023,
with Globus buying a 72% stake in NuVasive in an all-stock deal valued at $3.1
billion. The move values NuVasive’s shares at a 26% premium to their closing
price on Feb. 8.

“Spine mergers historically have tended to be messy and often involve more
disruption than parties originally anticipate. It’s possible ‘this time will be
different,’ but we are not ready to make that call…” Truist analyst Richard
Newitter wrote in a research note. 

In an investor call on Feb. 9, Globus’ leadership tried to alleviate concerns
based on past orthopedics mergers, saying the two companies have little overlap.
Still, Globus’ share price decreased by more than 20% between when it announced
the merger and Feb. 14.

One of the reasons why merging spine companies is difficult is because of their
distribution channels, Newitter said in a phone interview. With a mix of
indirect and direct sales organizations, the combined company will have to pick
what to keep.

 “In the process of making those changes, you’re going to ultimately have
disruption,” Newitter said.

There’s also the possibility that sales representatives could leave due to
uncertainty about their role in the combined company. 

“There’s definitely a bad taste in a lot of people’s mouths from spine deals,”
BTIG analyst Ryan Zimmerman said in an interview, noting that as companies cut
costs, sometimes sales reps leave. And since medical device firms offer
relatively similar spinal products, doctors can switch from one company’s screw
system to another. 

“There are a lot of relationships driven by reps. Physicians use products driven
by reps. They can move around, go to another company,” Zimmerman said. 

Differences in corporate culture can also impede a smooth transition, say
analysts. 

“Given the stark difference in cultures (GMED is a disciplined engineering
company while NUVA is a marketing company), we believe there could be meaningful
culture clash,” Needham analyst David Saxon wrote in a research note. “While
this is admittedly hard to quantify, we’d point to Zimmer’s acquisition of
Biomet and Boston Scientific’s acquisition of Guidant as examples of divergent
cultures impacting the success of a deal,” he added. 

 

Antitrust

Yet another hurdle for the acquisition is a potential antitrust review. Although
Globus Chairman and founder David Paul said the company didn’t see any
“anti-competitive” issues in the merger, it’s still a possibility given that the
combined firm would have the second-largest market share in spinal surgery
products. 

“I think the regulators will still have to look at it, only because the numbers
three and five players become the number two,” said BTIG’s Zimmerman. 

Most of the products the companies offer, including surgical robots and cervical
discs, have other competitors, meaning customers won’t only be left with one
option if the firms combine, he added. 

Needham’s Saxon does not expect an antitrust challenge, given the precedent set
when Zimmer acquired Biomet, giving it a 35% market share in joint
reconstruction, larger than the mid-teens share that a Globus-NuVasive
combination would hold in spine. There’s still a risk that the deal could take
longer to close than mid-2023, he wrote. Past deals in orthopedics have taken
longer to close: Stryker’s acquisition of Wright Medical took one year, and
Zimmer’s merger with Biomet took 13 months, Zimmerman wrote. 

 

Why now? 

Given these challenges, why try to acquire NuVasive now? 

“A lot of people are asking that question, including us,” Newitter said. “I
think they saw an opportunity, potentially an opportunity at the right price for
NuVasive. …Globus is clearly indicating they need scale to succeed and execute
on their strategy going forward.” 

“I didn’t think this would happen,” Zimmerman added. “They’re so different in
terms of their DNA. But here we are.” 

The biggest risk to the deal closing at this point is if a competing offer for
NuVasive comes through at a higher valuation, Newitter wrote.

“However, we don’t see any obvious strategic acquirers at the moment, nor a big
appetite to do scale spine acquisitions,” he added. 

It’s unlikely that competitors Johnson & Johnson or Medtronic would buy
NuVasive, and if they try, they would be less likely to pass regulatory
scrutiny, Zimmerman said. 

The acquisition still needs to be approved by shareholders of both companies.
But even if Globus investors don’t approve of the deal, there’s “little chance”
that they would successfully vote against the transaction, as the company’s
founder and chairman owns all of Globus’ class B shares, which have 10 times the
voting power of class A shares, Zimmerman wrote.

“It’s certainly possible that NUVA shareholders could vote against the
transaction, but we believe this is in NUVA’s best interest despite the
challenges it will create for the combined company,” he added.

Article top image credit: HadelProductions via Getty Images



BAXTER, ABBOTT, THERMO FISHER AMONG MEDTECH FIRMS CUTTING JOBS ON SUPPLY ISSUES,
SLIDE IN TESTING

“What COVID gave to diagnostics companies, COVID taketh away now that the virus
is endemic,” said one analyst.

By: Susan Kelly • Published Feb. 13, 2023 • Updated Feb. 13, 2023

Layoff announcements rattled the medtech industry in February, tempering the
optimism on display just a month prior when device makers were forecasting
improved business conditions and rising procedure volumes.

While layoffs in medtech have been modest compared to the number of workers who
have lost jobs across the broader tech industry or in biotech, the latest
workforce reductions show companies in the sector are still wrestling with the
pandemic’s fallout.

“Across all industries, businesses are trying to right size their cost
structures for the current post-COVID environment and U.S. economy,” Stifel
analyst Rick Wise said in an emailed note. “Also, we are seeing individual
companies like Abbott, for instance, reduce their point-of-care testing
workforce in response to the continuing/expected decline in testing levels.

Others like Baxter are restructuring their workforce as they work to transform
both their portfolio mix and better adapt their operations to the ‘new’
economic/macro realities of supply chain, inflation, etc.”

Baxter International said on Feb. 9 it would cut less than 5% of its global
workforce, or about 3,000 jobs, as it expands a restructuring program aimed at
producing $300 million in cost savings in 2023. The maker of infusion pumps,
dialysis therapies and other medical devices said supply constraints created
order backlogs that hampered sales.

Abbott is laying off hundreds of temporary workers at a facility in Westbrook,
Maine, that assembled rapid COVID-19 tests during the pandemic, according to
local media reports. A spokesperson for Abbott, Scott Stoffel, wrote in an email
that as COVID becomes a more endemic, seasonal respiratory virus, testing will
decline significantly, and the company is “adjusting” its temporary workforce to
“align with market conditions.”

“We no longer need the vast majority of our temporary workforce in Westbrook.
There will be no changes at this time to our permanent workforce and the site
will continue producing COVID tests,” he added. Stoffel said he would not detail
the exact number of people being laid off.

Also in February, Thermo Fisher Scientific indicated in a Worker Adjustment and
Retraining Notification that it eliminated 230 positions in San Diego County due
to a drop in demand for COVID testing products and other economic and business
conditions. The move comes after the company cut 105 positions late last year.

Quest Diagnostics, citing declining COVID-19 testing volumes, said earlier that
month it would reduce its headcount by about 1.5%, saving $100 million this
year.

Surmodics, which is working with Abbott to develop a drug-coated balloon to
treat peripheral arterial disease, said it would lay off 13% of its workforce,
or about 60 employees, following a regulatory setback. Surgical robot developer
Titan Medical also announced it let go of 48 employees after failing to find a
buyer for its assets.

KeyBanc analyst Matthew Mishan said Baxter and other companies likely over-hired
to address increased demand as well as absenteeism during the pandemic. In the
case of Baxter, the company is also simplifying its reporting structure, which
probably created some redundancies, Mishan said in an email.

Many of the layoffs in medtech reflect company-specific challenges, said
Morningstar analyst Debbie Wang.

For example, Philips in late January said it would eliminate another 6,000 jobs
in a second round of layoffs driven by ongoing product recalls of its CPAP
machines, Wang noted. Baxter, she said, is likely “a bit bloated after its
acquisition of Hillrom, so we’re not surprised the firm is laying off some
people.” The company’s supply chain and inventory issues also could take several
quarters to iron out, she said.

“The rest of the medtech field seems to be divided into COVID haves and
have-nots. What COVID gave to diagnostics companies, COVID taketh away now that
the virus is endemic,” Wang said in an email. “We’re keeping our eyes on those
in vitro diagnostics firms that bulked up during the pandemic, but might not
need so many people now that COVID demand is dropping.”

As COVID-19 recedes, companies such as Zimmer Biomet, Stryker, Medtronic and
Boston Scientific that have been seeing procedure volumes return probably are
grateful that they didn’t lay off much of their sales forces during the
pandemic, Wang said.

Clarification: This article has been updated to reflect that Baxter is laying
off less than 5% of its global workforce.

Article top image credit:


ADVAMED CALLS EUROPE’S MDR EXTENSION A ‘STRONG STEP FORWARD,’ BUT WARNS
CHALLENGES REMAIN

By: Susan Kelly • Published March 7, 2023

Medtech trade group AdvaMed welcomed the EU Council’s decision on March 7 to
approve a longer transition period for the Medical Device Regulation (MDR) but
said the industry still faces challenges in adapting to the new rules.

As anticipated, the Council adopted legislation to extend the deadline for
certifying medical devices in Europe, a move prompted by concerns that
bottlenecks in the process to date could cause supply shortages.

“Today we have agreed on measures that will allow the industry to continue
bringing essential medical devices to the market and ensure that patients have
safe access,” Acko Ankarberg Johansson, Swedish minister for healthcare, said in
a statement.

Medical device makers now have until Dec. 31, 2027 for higher-risk devices and
Dec. 31, 2028 for medium- and lower-risk devices to be recertified for use in
the EU’s 27 member states. However, only devices for which manufacturers have
already started the certification procedure will benefit from the additional
time, the Council said.

The newly adopted measures also aim to reduce the risk of shortages by removing
the so-called “sell-off date” rule that called for the withdrawal of devices
already on the market but not yet with the final user. Only products that comply
with previous EU medical device laws can remain on the market longer, the
Council said.

AdvaMed CEO Scott Whitaker called the timeline extension for certifying devices
under the MDR’s more stringent conformity assessment system a “strong step
forward” for patients worldwide, but cautioned that challenges in the transition
to the new rules continue.

“We’re working to fully address several remaining issues, including a clearer
process for submitting applications to notified bodies, as well as greater
clarity on how certificate extensions can be demonstrated. We are also working
to address practical implementation issues, such as access to ‘orphan’ and niche
devices in the EU market,” Whitaker said in a statement.

The medtech industry trade group is coordinating with European association
MedTech Europe to address the concerns, he added.

The Council and European Parliament adopted the MDR in 2017, and companies that
operate in the European market were expected to have completed the transition by
May 2024, but a backlog of devices awaiting recertification and a shortage of
approved certification organizations, known as notified bodies, prompted the
European Commission to propose extending the time frame. The Parliament approved
the new timetable last month.

“The EU is one of the world’s preeminent markets for quality patient care, R&D,
and access, serving millions of patients annually, so it’s critical that MDR
implementation is done correctly,” said Whitaker. “AdvaMed will continue to
champion a robust EU regulatory scheme that fosters innovation and patient
access to treatment in a timely and predictable manner.”

Article top image credit: Flickr: Eoghan OLionnain



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