Olympus rejiggers medical biz

Olympus (TYO:7733) last week announced its plan to rejigger its medical device business with an eye toward gaining share in the U.S. market.

The Japanese conglomerate weathered an accounting scandal in 2011 after firing its first foreign CEO, Michael Woodford, after he blew the whistle on unexplained payments worth around $1.7 billion and demanded the resignation of the former chairman and vice president. In September 2012 the company and 3 former executives pleaded guilty in Japan to cover-up charges.

By 2014 Olympus was caught up in an FDA warning about power morcellators, which were found to pose a cancer risk; the federal safety watchdog that year ordered so-called “black box” warnings for the devices.

In 2015 the issue was duodenoscopes, which were implicated in rash of deadly “superbug” infections caused by inadequate sterilization during reprocessing. Olympus and a former senior executive pleaded guilty last month to failing to file required adverse event reports involving infections connected to the ‘scopes and continuing to sell the devices in the U.S.; the company paid $80 million in fines and another $5 million in criminal forfeiture.

Then, in May 2016, the company agreed to pay roughly $306 million to 50 states, Washington, D.C., and the federal government to resolve kickbacks allegations stemming from a whistleblower lawsuit accusing it of doling out grants, fellowships, consulting payments, free trips, payments for recreation and leisure activities, gifts and no-charge loans and free use of equipment to physicians.

The changes announced last week start at the very top, with the Japanese conglomerate’s board. Olympus said it plans to ask shareholders to approve a change from a Japanese auditing system to a three-committee board and the addition of three new directors: ValueAct Capital Management partner Robert Hale and a pair of yet-to-be-named medtech executives the company plans to recruit from “global medical technology companies.”

In the executive suite, Olympus said president Hiroyuki Sasa will move to its board April 1, with CFO Yasuo Takeuchi assuming the role of president & CEO. The company also named Akihiro Taguchi as COO, Haruo Ogawa as CTO, Yasushi Sakai as CFO and Stefan Kaufmann as chief administrative officer.

The medical device business will go from five segments to two, with the gastrointestinal, respiratory and surgical endoscopy lines united with software, reprocessing, repair and system integration under the endoscopic solutions business run out of Japan. The therapeutic solutions business, run out of the U.S., will include single-use endotherapy devices for GI and respiratory, energy and surgical single-use devices, urology, gynecology and ear, nose & throat products.

Finally, Olympus said it’s freezing its fiscal 2020 R&D spend at the fiscal 2018 level and developing a long-term savings program.

“The transform initiatives we are announcing today are the culmination of the multi-year effort to rebuild Olympus led by Hiroyuki Sasa when he became CEO in 2012 after a highly challenging period. He introduced the medium-term vision and then drove sustainable business growth during the initial years of the ’16 corporate strategic plan. Through Mr. Sasa’s leadership, we strengthened internal control frameworks as a foundation for enhancing global compliance and governance, implemented a matrix organizational structure to maximize the use of corporate resources, and reinforced the quality and regulatory assurance function. We also began to reorganize our operations by including leadership from Europe and the Americas as part of our executive management team and introduced the cross-business application of best practices,” Takeuchi said in prepared remarks. “As we near our 100-year anniversary as a leading company in Japan, this new plan better supports and harmonizes our global operations as a global medtech company. We believe this organization will drive improved organic growth and significantly more efficient operations, as we look to position Olympus for another 100 years of success. This plan is also fundamental to our commitment to accelerate shareholder value creation.

“I want to thank Mr. Sasa for his extraordinary service to Olympus. I am also honored to continue my own service to Olympus in this new role. Through the implementation of this go-forward plan, we will improve our performance and create a more efficient company that will fulfill our purpose of making people’s lives healthier, safer and more fulfilling,” Takeuchi said.

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