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BAUSCH & LOMB ACQUISITION AGREEMENTS HELP SUSTAIN STOCK AS INVESTORS RETREAT FROM MEDICAL SECTOR ISSUES IN FIRST QUARTER OF 1993; INDEX IS DOWN 13.4%

This article was originally published in The Gray Sheet

Executive Summary

Bausch & Lomb stock held its own in the first three months of the year with news of two acquisitions: Golden Valley, Minnesota- based hearing aid manufacturer Dahlberg and dental implant maker Steri-Oss. In a quarter marked by a broad retreat from medical technology stocks, the issue was off only 0.5%, or 1/4, to 54-1/4. The proposed Dahlberg buy, announced Feb. 2, will give B&L over 1,000 audiology franchises through which to sell its SoundChoice hearing aid, as well as Dahlberg's Miracle Ear brand hearing aid ("The Gray Sheet" Feb. 8, p. 14). Dahlberg's annualized revenues, based on figures for the quarter ending in October, are approximately $84 mil. Steri-Oss, based in Anaheim, California, will provide B&L with an entry into the burgeoning dental implant market; the firm generates annual sales of about $13 mil. ("The Gray Sheet" Feb. 22, p. 14). During the three months, B&L also announced the appointment of Ronald Zarrella to the position of president and chief operating officer ("The Gray Sheet" Feb. 1, p. 10). The firm's stock may also have benefited from a January report of robust sales and earnings results for the year and quarter ended Dec. 26. B&L was one of only a handful of M-D-D-I Index issues to show any resiliency during a period when increased uncertainty over healthcare reform efforts cast a pall over most medical device stocks. Only four of the 30 NYSE/AMEX-traded device and diagnostic companies followed quarterly by "The Gray Sheet" advanced, all on gains of a point or less, while 26 declined, taking the Index composite down 13.4%. Among the companies that evaded the general movement away from medical device stocks, Gelman Sciences was up 1, or 8%, to 13-1/2; National Patent added 3/8, or 14.3%, to 3; Owens & Minor was ahead 1/4, or 1.7%, to 15; and Enzo Biochem advanced 1/8, or 1.7%, to 7- 1/2. Gelman Sciences was helped by its report that earnings for the first half of fiscal 1993 (period ended Jan. 31) were up 128.9% to $1.1 mil. on sales of $41.1 mil., ahead 4.9% ("The Gray Sheet" March 15, p. 12). Owens & Minor also benefited from a report of strong earnings increases: for the quarter and year ended Dec. 31, income from continuing operations was up 62.6% to $4.8 mil. and 59.6% to $15.4 mil., respectively, on sales of $305.1 mil. (up 11.4%) and $1,177.3 mil. (up 15.3%), respectively ("The Gray Sheet" Feb. 15, p. 9). Biotechnology and diagnostics company Enzo Biochem's stock gain follows the issue's 96.7% advance in 1992, the largest on the Index, and a 76.5% increase in 1991. Bard, one of five Index companies to lose more than 20% over the three months, was down 7-3/8, or 22.3%, to 25-3/4. On March 1, Alex. Brown & Sons analyst Jonathan Osgood lowered his first quarter earnings per share estimate for the firm by 2 cents due to "unexpected sales sluggishness" in the first two months of the year. As with many device firms, the company's stock also may be suffering as a result of its backlog of products awaiting approval at FDA. However, Bard recently received an approvable letter for the Contigen Bard urinary stress incontinence product it developed with Collagen Corp., indicating that final approval for that device may not be far off ("The Gray Sheet" March 29, In Brief). Boston Scientific (down 4-7/8, or 23.4%, to 16) and Medtronic (down 19-3/4, or 20.7%, to 75-1/2) were both among the hardest hit issues despite strong new product introductions during the period. Boston Scientific rolled out its Synergy rapid exchange/over-the- wire PTCA catheter on Jan. 21 ("The Gray Sheet" Jan. 25, p. 8), and Medtronic launched its PCD pacer-cardioverter-defibrillator in the U.S. following FDA approval Feb. 11 ("The Gray Sheet" Feb. 15, p. 3). On April 1, Boston Scientific reported that revenue growth for the three months ended March 31 was likely to be 22%, falling below expectations. The firm cited "continued delays in product approvals at the FDA, an inability to ship against backlog in certain product categories, and a slower than expected start-up of the company's UK subsidiary." Imcera, down 8-1/4, or 24.1%, to 25-5/8 announced on March 9 that it expects to take a "significant restructuring charge" in the fourth quarter ending in June and that it anticipates earnings per share for the third quarter ended March 31 to be "several cents below" the 42 cents from continuing operations seen in the same period last year ("The Gray Sheet" March 29, p. 13). The bleak outlook is primarily a result of the lagging performance of the firm's Pitman-Moore animal health care unit. U.S. Surgical's stock performed in line with many other device companies during the quarter, dropping 11-1/4, or 16.4%, to 57- 1/2. The issue dove, however, to 31-3/8 on April 8 following the company's announcement that sales and earnings in the second quarter would be "significantly reduced" as a result of a "just- in-time" distribution program adopted by the company at the end of its first quarter ended March 31 (see story, I&W-8). Hospitals using the program will be supplied by distributors on "a daily basis." Initiation of the program is resulting in lower sales as participating hospitals reduce their existing inventory levels. Sales and earnings also will be affected by the reduced margins realized through the use of distributors. At 31- 3/8, U.S. Surgical is trading at less than half its 1992 close of 68-3/4. Among the big diversified businesses, the spectre of drug price controls contributed to investor angst. Lilly plunged 19.8%, or 12, to 48-3/4; Johnson & Johnson sank 15.6%, or 7-7/8, to 42- 5/8; Abbott was down 15.2%, or 4-5/8, to 25-3/4; and Pfizer was off 14.1%, or 10-1/4, to 62-1/4. Part of Lilly's stock decline followed the company's March 15 announcement that first quarter 1993 earnings per share would be well below those of the first quarter of 1992 due to lackluster sales of anti-infectives and a slowdown in medical device and diagnostics sales ("The Gray Sheet" March 22, p. 21). The first quarter M-D-D-I Index does not include the previously tracked companies Mediq, Everest & Jennings and Cooper Companies. Newly public Boston Scientific, a Watertown, Massachusetts-based manufacturer of catheters and other interventional devices, joins the Index for the first time.

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