Warner-Lambert Will Sell Imed in San Diego, 2 Other Medical Units

Drug and packaged goods maker Warner-Lambert Co. said Tuesday that it will sell off three slow-growing medical products units, including 1,700-employee Imed Corp. of San Diego, as part of an effort to restructure the company around its most profitable businesses.

The restructuring will require a $550-million charge against fourth-quarter earnings and will mean that the company will report a loss of more than $300 million for the year. It also involves the repurchase of 8 million of Warner-Lambert’s 80 million outstanding shares and a retirement incentive program designed to thin management’s ranks, said officials of the Morris Plains, N.J.-based company.

Repurchasing Shares

Proceeds from the sale of the units will be used to repurchase the shares. Since mid-1984, Warner-Lambert has already purchased about 4.4 million company shares in an effort to bolster its per-share earnings and make its stock more attractive.

Speaking to securities analysts here, Chairman and Chief Executive Joseph D. Williams said that recent government efforts to slow the rise in health-care costs have sharply increased competition and hurt the profitability of the once-glamorous medical products field.

The medical products market grew 15% a year for 15 years, he said, but has slowed sharply since cost-containment efforts that began in 1983, and “we can’t find anything that suggests this situation will turn around.” In building a medical products division in the late 1970s, “I think our strategy was right--I think our timing was awful,” Williams added.

News of the moves drove Warner-Lambert stock up $2 a share to a close of $42 in heavy trading Tuesday on the New York Stock Exchange. In addition to its prescription drugs, Warner-Lambert markets a host of over-the-counter remedies, gums, mints and toiletries, including such well-known brands as Listerine, Schick, Rolaids, Efferdent and Trident.

Generate Small Profit

The three medical products units--Imed, Deseret Medical and Reichert Scientific Instruments--account for about 12% of Warner-Lambert’s sales but less than 1% of its profits, officials said. Warner-Lambert earned $224 million on revenue of $3.17 billion in 1984.

Analysts said the three units’ sales have, in recent years, grown 7% to 10% a year--significantly below the 10% to 15% rates realized in the company’s pharmaceutical and consumer products businesses.

Imed, which was acquired from its management in August, 1982, makes volumetric infusion pumps--precision instruments that pump nutrients and drugs through intravenous tubes for hospital patients. The company has annual sales of about $100 million, company officials said.

About 1,300 of its 1,700 employees are in the United States, with almost all of those in San Diego. Imed has research laboratories in San Diego and manufacturing facilities in both San Diego and Letterkenny, Ireland.

One analyst, Joseph Riccardo of Bear, Stearns & Co. in New York, noted that Warner-Lambert paid $465 million for Imed in 1982. “There were three competitors in the (infusion pump) business then, and now there are probably 43,” he said. “They’ll be lucky if they get a third of what they paid for it.”

A second medical products unit, 2,300-employee Deseret Medical, makes intravenous catheters and other disposable hospital products. The third, 2,200-employee Reichert Scientific Instruments, makes microscopes, ophthalmic and other instruments and is based in Buffalo, N.Y.

Warner-Lambert declined to break out annual revenue for Reichert or Deseret but said that, on an annualized basis, the three units’ revenue comes to about $380 million.

Warner-Lambert’s Williams declined to estimate what the company will make on the sale of the units, but he said he expects that all three will be sold by February.

The $550-million charge against earnings also includes the cost of closing two manufacturing operations in Mexico and England, part of what officials said has been a six-year effort to streamline the company’s operations.

Officials said Warner-Lambert has closed 30 plants in that period and has dropped the size of its work force to 39,000 employees from 61,000.

With the sale of the 6,200-unit medical products division and the closing of the two factories in Mexico and England, the work force is expected to be 32,000 by early next year. Williams said he hopes that the voluntary retirement program will attract 400 managers.

The company said the $550-million charge represents the medical products division’s reduced value, even taking into account what the company will gain from the sale. The write-down also includes an unspecified charge that Warner-Lambert will take as a result of its decision to temporarily suspend overseas sales of Isoxicam, an anti-arthritis drug. Use of the drug has been temporarily barred in France after reports that adverse skin reaction and four deaths may have been associated with its use. Warner-Lambert officials are investigating the reported reaction but believe that current evidence suggests that the drug is safe.

The $550-million charge represents $7.10 per share.

The shutdown of the factories, sale of the units and the retirements are expected to reduce Warner-Lambert’s overhead by about $30 million a year, the company said.

Earlier this year, Warner-Lambert sold a diagnostic products company, General Diagnostics, to the Dutch-based Akzo Corp. for an undisclosed sum.

Several analysts applauded Warner-Lambert’s step. “They’ve made some real mistakes, but now they’ve decided to recognize that an albatross is just that and move to other things,” said Neil Sweig, an analyst with Prudential-Bache Securities in New York.

He noted that Warner-Lambert has been the subject of persistent takeover rumors, largely because of the value of its brand-name products. Divestiture of the slow-growing units “will have the effect of making them even more attractive” to would-be buyers, he said.

Sweig added that the stock repurchase program has not involved a large enough portion of the company’s shares to repel any would-be raider.

Chief Executive Williams said Warner-Lambert may spend as long as three years repurchasing its stock. In addition to the 8 million shares authorized for repurchase, Warner-Lambert has 1.6 million shares yet to be repurchased under a program authorized in 1984.