TRENDS AND PERSPECTIVES
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Illustration by iStockphoto
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According to Abbott officials, in addition to the complexity of the transaction, the key issue was that even if the transaction closed, there were going to be in place a number of transition services agreements between the parties for many years to come. When Abbott initially signed the agreement to sell its businesses, the company expected that period of time could be limited to a reasonable length, such as a couple of years.
However, as the negotiations got farther along and closer to the close date, the number of the transition services agreements increased, and it became clear this would be an ongoing, long-term relationship and issue. That was not what Abbott intended; rather, Abbott wanted to sell the businesses if it could in a clean fashion, which was not the way it worked out.
“What it got down to in the final days is that there was a realization by both parties of what was going to be required through these transition services agreements and the ongoing relationship,” says Edward L. Michael, executive vice president of diagnostics at Abbott. “So there was a negotiation because Abbott was concerned about what services it would have to provide. GE was concerned about getting those services. And the parties couldn’t come to a final agreement on the terms that would surround the provision of those services.”
Previously vice president of medical products at Abbott, Michael was recently appointed to his new position. He is responsible for overseeing the three diagnostics divisions at Abbott: Abbott Diagnostics, Point-of-Care, and Molecular. He also serves as the president of Abbott Diagnostics.
During the past few years, Abbott has had to deal with regulatory actions by FDA regarding various quality and compliance issues. In November 1999, Abbott signed a consent decree in which it agreed to pay a fine of $100 million because of its violations of FDA’s quality system regulation. Last March, FDA sent Abbott a warning letter about the lack of conformance with the good manufacturing practice requirements at the company’s facilities in Dallas.
Industry analysts believe that GE may have been concerned about Abbott’s regulatory issues with FDA, which may have contributed to the termination of the merger agreement. Meanwhile, Abbott officials do not believe such issues with FDA affected the negotiations with GE.
“Clearly we have this warning letter that came in for Dallas,” says Michael. “That did result in our paying for a third-party audit of the site, and in fact all the sites, which was completed. From our perspective, that wasn’t the key issue. But I can’t speak to whether that played a role in GE’s decision and final negotiations, or whether it was an issue from GE’s standpoint.”
GE officials declined to comment on the termination of the deal with Abbott. However, according to Brian McKaig, communications director at GE Healthcare, “There’s no change regarding GE Healthcare’s strategy, and we will continue to evaluate IVD opportunities that fit our strategy.”
When Abbott announced the merger in January, officials said that the company had decided to sell the business units because of perceived changes in the IVD market, and that such changes caused the company to reexamine its goals and objectives regarding IVDs. With the termination of the deal, Abbott officials said that the company has no plans to sell its diagnostics businesses and that it is fully committed to the IVD market.
“The diagnostic businesses are going to play an increasingly important role as we move forward in working with our pharmaceutical division in enhancing personalized medicine,” says Michael.
