Inverness Medical Innovations, Inc. Business Information, Profile, and History

Company Perspectives:

Inverness Medical Innovations is a leading provider of women's health and other consumer and point-of-care health products and a developer of advanced technologies for both the consumer and professional diagnostic marketplaces.

History of Inverness Medical Innovations, Inc.

Inverness Medical Innovations, Inc. is a leading manufacturer of home pregnancy test kits and fertility monitors. The company's major brands include its ClearBlue home pregnancy test and the ClearPlan Easy fertility monitor. The company also develops and markets other products relating to women's health, such as prenatal vitamins. Inverness sells an array of other medical diagnostic products, such as tools to detect osteoporosis, mononucleosis, and sexually transmitted diseases. Inverness also sells the Smartcare brand of dietary supplements. The company's focus on women's health issues comes following the sale of its business in home blood glucose monitoring test kits to medical giant Johnson & Johnson in 2001. A sister company, Inverness Medical, is now a wholly owned subsidiary of Johnson & Johnson. Ron Zwanziger founded Inverness Medical Innovations under the name SelfCare in 1992.

Founder's First Venture in the 1980s

Inverness Medical Innovation's founder, Ron Zwanziger, grew up in Cyprus and was educated in England. He earned a degree in engineering from Imperial College at London University, and then moved to the United States to attend prestigious Harvard Business School. In 1981, Zwanziger and three other Harvard Business School students banded together to form MediSense, a biotechnology company. The new company planned to come up with ten different possible products. The executives hoped at least one of these ten ideas would prove to be a good one.

After three years of research and development, MediSense started focusing on one product. This was a device that detected blood sugar levels. Diabetics needed to test their blood sugar (glucose) levels daily, and the disease was gaining ground, with millions afflicted in the United States and hundreds of thousands more people diagnosed with the disease each year. Existing blood test kits were bulky, and required a relatively large drop of blood to give accurate results. MediSense developed a blood sugar test device that was only about the size of a credit card and used a pinprick-sized drop of blood. It was potentially a real advance in the home test industry, and investors funneled money into the company. MediSense raised some $60 million from investors within a few years of bringing its first blood test to market in 1988. MediSense had sales of $30 million in 1989, and worked on recruiting a worldwide sales force. In 1990, the business magazine Inc. picked MediSense as one of the fastest-growing private companies in the United States. Zwanziger told Inc. that the company had been close to running out of cash at several points, but that things looked good for the future.

Starting Over with SelfCare

Despite the optimism surrounding its improved diagnostic kits, MediSense ran into difficulty. Although its product had clear merits over existing test kits, the company's sales force was not able to make the headway it had hoped against larger competitors such as Johnson & Johnson and Boehringer Manheim and Miles. MediSense lost money in both 1990 and 1991, and its directors disagreed over whether or not to broaden the company's offerings into other areas. At that point Zwanziger left to start a new company.

Zwanziger's new firm, also headquartered near Boston, was called SelfCare. It focused on the other major part of the home medical diagnostics industry, home pregnancy tests. The home health products industry was growing quickly. Overall drugstore sales in 1992 were estimated at $1 billion, with analysts predicting sales of more than $2 billion by 1995. More than 90 percent of home diagnostic kits were for either blood glucose or to detect pregnancy. MediSense had been developing pregnancy tests, but it had put all its marketing muscle behind its diabetes tests. Zwanziger and other investors started SelfCare with $2 million, buying rights to 11 diagnostic products from MediSense. SelfCare started out small, employing only 17 people by 1993. Revenue was less than $1 million that year, and the firm was not yet profitable. However, SelfCare was developing products for an expanding market, as the bigger manufacturers touted their existing test kits. The company's first products were a pregnancy test and an ovulation predictor, and it also began developing a home test for vaginal yeast infections. The Food and Drug Administration (FDA) had allowed drug manufacturers to sell treatments for yeast infections without a prescription beginning in December 1990, and SelfCare thought this might signal a greater need for diagnostic kits for the condition.

While SelfCare developed various products for women's health, it also began working on blood glucose diagnostic tests. By the mid-1990s, Zwanziger's old firm MediSense had managed to do well with its diabetes monitoring products. That company was profitable again, and held the number three spot in the home blood sugar monitoring market niche, with an estimated 10 percent of the U.S. market. It also had raised more than $50 million in an initial public stock offering in 1994. The example of MediSense showed that it was possible for a small company to do well in the diabetes self-test market. SelfCare developed a new blood glucose monitoring system that it called The New System. The FDA approved The New System in late 1996, and SelfCare began selling the product within a few months. Instead of handling marketing of its new device itself, though, SelfCare worked out an agreement with LifeScan Inc., a subsidiary of healthcare giant Johnson & Johnson. LifeScan was already the leader in the blood sugar detection kit segment, with about 35 percent of the market. The New System offered advantages over LifeScan's products because it used an electrochemical analysis. The electrochemical method was both faster and less invasive than older diagnostic methods, requiring a smaller amount of blood. LifeScan hoped to gain market share by promoting SelfCare's new product; SelfCare would also benefit, gaining the larger company's established marketing presence and distribution channels.

Healthcare analysts expected the blood glucose monitoring market to continue to rise, growing from overall sales of around $1.8 billion in the mid-1990s to more than $3 billion by 2000. SelfCare's prospects seemed rosy. The company had sales of $7.2 million in 1995, and operated at a loss, yet it confidently expected revenue of close to $200 million by 2000. SelfCare went public in August 1996. By that time it had expanded internationally, with offices and manufacturing plants in Inverness, Scotland, and in Galway, Ireland, and a European sales office in Munich, Germany. The company continued to promote its pregnancy tests and ovulation predictors, and it developed home test kits for other conditions as well. By 1996 SelfCare had developed or was working on products for the detection of Lyme disease, the tick-borne illness endemic in much of the eastern United States, and for hepatitis, chlamydia, and HIV, as well as for H. pylori, an organism associated with both stomach ulcers and stomach cancer.

Name Change and a Sale in the 2000s

SelfCare prospered, with sales of $170.3 million for 2000. This was not far from company estimates made in 1995, which had projected extravagant growth. The company opened a new manufacturing facility in Israel, and sold its diabetes monitoring products and pregnancy tests in major mass market outlets in the United States, including the drug chains Walgreens and CVS and mega-retailer Wal-Mart. Its diabetes monitoring products were the real engine of the company's expansion. The strips for the glucose detection kits were manufactured in Inverness, Scotland, where SelfCare was one of the area's leading employers. In 2000 SelfCare changed its name to Inverness Medical Technology. Company headquarters remained in Waltham, Massachusetts, but the new name reflected the importance of the products made in Inverness. The year 2000 was a banner year for the company, which saw sales of its blood sugar testing strips double.

Inverness continued to pour money into research and development. The blood sugar monitoring market was growing quickly, yet competition was intense. Rivals for the market included German aspirin maker Bayer AG, Abbott Laboratories, which had acquired MediSense in 1995, and subsidiaries of the multinational drug firm Roche Holding Ltd. LifeScan Inc., which marketed Inverness's diabetes care products, reinforced its agreement with the company in 2000, signing a new global distribution contract that year. LifeScan began phasing out its own diabetes test kits, as the ones made by Inverness were much faster. Inverness brought out the One-Touch Ultra blood sugar test kit in 2000, which gave results in only five seconds. Older test kits took two minutes to perform their analysis.

LifeScan was more dependent on Inverness as it let its own products go by the wayside. Its market share was squeezed by competitors, and it lost ground. In 2001 LifeScan purchased the diabetes monitoring business of its supplier, Inverness. The deal was worth $1.33 billion, paid for with Johnson & Johnson stock. The way the sale worked, Johnson & Johnson bought Inverness Medical Technologies for its subsidiary, LifeScan. But since Johnson & Johnson wanted the glucose monitoring business only, part of the acquired firm was then spun off as a new entity, called Inverness Medical Innovations. This company remained headquartered in Waltham, with Zwanziger in charge. It included the pregnancy and fertility testing business and the other diagnostic testing businesses of the old firm.

Inverness was now a much smaller company with a new market focus. The company looked at ways to build on its existing strength in women's health. Inverness's main consumer products were its pregnancy tests and ovulation predictors. It also manufactured some vitamins and nutritional supplements. In 2001 Inverness began exploring cross-marketing of its product lines, for example, packaging prenatal vitamins with its pregnancy tests. The company spent at least $10 million on advertising in 2002, sending its account for two of its leading pregnancy test kits to the New York ad agency Kirshenbaum Bond + Partners.

The company seemed to be repeating the strategy that had worked for it in the blood glucose monitoring market earlier. Inverness made several acquisitions, giving it clout in the women's health arena, and also building its portfolio of diagnostic tools for various conditions. Inverness bought Ostex International in 2002, a company that made tests for osteoporosis. It also bought the medical diagnostics unit of Medpointe, Inc. in 2002, spending $70 million for the division. While broadening its product mix, the company also brought out a new and improved version of the home pregnancy test. As it had brought out a faster and easier blood glucose test, Inverness came out with a pregnancy test that was significantly easier to use. Whereas existing pregnancy test kits relied on the user interpreting a colored line on the test strip, Inverness's new digital test spelled out the word "pregnant" for a positive test, and "not pregnant" for a negative. Although the home pregnancy test market was very competitive and sales were relatively flat for the first half of 2003, sales of the new Inverness ClearBlue Easy digital kits spiked, hitting $1 million after only a few months on the market.

Other manufacturers hastened their own digital tests to market. Inverness strengthened its position in the home pregnancy test market by buying the pregnancy test and illicit drug test divisions of Abbott Laboratories in 2003. The company paid $92.5 million for the businesses. Due to its substantial acquisitions, Inverness Medical Innovations saw its revenue rise rapidly after it sold its diabetes business to Johnson & Johnson. Revenue was only $49.4 million in 2001, down from more than $170 million in 2000, as Inverness was much smaller. Sales for 2002 rose to $207.9 million, a huge increase over a year earlier. Yet Inverness operated at a loss in both 2001 and 2002. For 2003, sales climbed to close to $300 million, and Inverness was back in the black, with a net income of $12 million.

As Inverness had worked earlier with the much larger Johnson & Johnson to market its diabetes diagnostic tests, Inverness made a similar arrangement in 2003 with the large drug manufacturer Pfizer Inc. Inverness agreed to supply Pfizer's Warner-Lambert subsidiary with a digital version of Warner-Lambert's E.P.T. brand pregnancy tests. At the same time, Inverness planned to continue to market its own ClearBlue brand digital test. Inverness seemed to be reproducing its success with diabetes test kits in the pregnancy and fertility test kit market.

Principal Subsidiaries: Ostex International, Inc.; Orgenics, Ltd.

Principal Competitors: Wyeth Pharmaceuticals; Abbott Laboratories; Roche Group.

Chronology

• Key Dates:
• 1981: Ron Zwanziger founds MediSense.
• 1991: Zwanziger leaves MediSense; starts SelfCare.
• 1996: SelfCare goes public.
• 2000: The name is changed to Inverness Medical Technology.
• 2001: The company sells its diabetes diagnostic business to Johnson & Johnson; the company re-forms as Inverness Medical Innovations.
• 2002: The company acquires Ostex International and the medical diagnostics unit of Medpointe, Inc.
• 2003: The company purchases the pregnancy test and illicit drug test divisions of Abbott Laboratories; the company agrees to supply Pfizer's Warner-Lambert subsidiary with a digital version of Warner-Lambert's E.P.T. brand pregnancy tests.