E-Z-EM Inc.

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E-Z-EM Inc.

1111 Marcus Avenue
Lake Success, New York 11042-1034
U.S.A.
Telephone: (516) 333-8230
Toll Free: (800) 544-4624
Fax: (516) 333-8278
Web site: http://www.ezem.com

Public Company
Incorporated: 1983
Employees: 611
Sales: $138.37 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: EZEM
NAIC: 325413 In-Vitro Diagnostic Substance Manufacturing; 423450 Medical, Dental, and Hospital Equipment and Supplies

30 YEARS MAKING BARIUM-ENEMA KITS

STERN’s LAST DECADE AT THE HELM: 1990–2000

CHALLENGES OF A NEW CENTURY

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

30 YEARS MAKING BARIUM-ENEMA KITS

E-Z-EM’s originator was Howard S. Stern. A chemical engineer who held two degrees from the Massachusetts Institute of Technology, he was marketing director for a radiation-applications firm in 1959. Stern was at a dinner party, listening to Dr. Philip Meyers, a radiologist, discuss a contamination problem concerning the barium enemas given to patients in preparation for X-ray examinations of the lower intestinal tract. The contents of a bucket loaded with barium passed through a non-disposable tube and rectal lip. Stern thought the contamination problem could be solved by making disposable bags instead, and he experimented at home with making such bags out of inexpensive polyethylene and sealing them with his mother’s iron. He completed a crude kit the following year. Since it was inadequate for a hospital setting, he found a manufacturer of inflatable vinyl toys for the bags and a manufacturer of fishing lures for the rectal tips.

Stern and Meyers started E-Z-EM in 1962 with $1,000 each. Every morning, Stern made up to 100 bags in a small room in his father’s garment-factory loft in New York City, then went on the road to make deliveries and solicit more customers. After securing a contract from a big pharmaceutical company, he moved the business to a 2,000-square-foot plant on Long Island in 1964. The company moved to a larger facility in Westbury, Long Island, in 1968.

E-Z-EM experienced the customary problems of a start-up business in these early years. The company lost its contract in 1968 and found itself engaged in a price war with another pharmaceutical company that had begun making its own bags. The turning point came when E-Z-EM began concentrating on fulfilling specialty orders to radiologists, but it also won orders by looking overseas for customers. Different mixtures of barium sulfate were needed in examining different organs of the gastrointestinal tract, such as the esophagus, stomach, colon, and small intestine. This substance was also being used in computed tomography (CT) scans, magnetic-resonance imaging (MRIs), and ultrasound scans. During the company’s first 25 years, more than 90 percent of its revenues came from powdered and liquid barium sulfate mixed to the requirements laid down by radiologists. By 1983, when E-Z-EM went public, raising $14 million from the sale of stock, it enjoyed nearly two-thirds of the U.S. market for disposable barium-enema kits used for X-rays that examined the gastrointestinal tract. E-Z-EM bought several small companies in the 1980s, including ones in Canada and Japan.

With E-Z-EM nearing saturation point in its market, Stern was casting his eye on other products that the company could sell. One was a liquid-crystal thermographic system, purchased in 1981 and consisting of a chemically treated plastic that changed color with body temperature and was intended to locate certain internal injuries or possible breast cancers. This FlexiTherm system, as the company called it, did not fare well in the marketplace. More promising was Nucleotome, a small hollow tube introduced in 1987 and used in medical offices as an alternative to surgery in treating certain back problems. E-Z-EM held 51 percent of the joint venture making this device. It was also making PercuCut biopsy needles and the PercuPump, a device that injected contrast material into veins during CT scanning procedures. Other products, such as specialty laxatives to prepare patients for barium enemas, related to X-rays and other imaging techniques. In addition, E-Z-EM’s research efforts included the breeding of monoclonal antibodies that might detect cancer in tissue samples.

STERN’s LAST DECADE AT THE HELM: 1990–2000

By 1994 E-Z-EM had net annual sales of nearly $100 million. It was the world’s leading supplier of barium-sulfate contrast-media systems for viewing the gastrointestinal tract by radiologists and was selling 30 products in 52 countries and employing some 1,000 people. Besides the Westbury plant, the company had a major facility for interventional radiology in Glens Falls, New York, and additional facilities in Montreal, Tokyo, Nova Scotia, and Puerto Rico. Surgical Dynamics Inc., the company making Nucleotome and other specialty orthopedic products, was sold in 1995 for $60 million, of which E-Z-EM garnered $27 million.

E-Z-EM was engaged in a fierce battle for taxpayer dollars in the mid-1990s. Medicare reimbursement for colon-cancer screening by means of barium-enema X-rays was a major source of income for the company, but this procedure was being challenged by improvements in colonoscopy, which allowed better viewing by the insertion of imaging equipment into the organ for evidence of tumors and also of polyps, smaller precancerous growths that could be easily removed before possibly becoming malignant. A colonoscopy was, however, more invasive and almost four times as expensive. Federal legislation enacted in 1998 favored the barium-enema X-ray for average-risk patients and colonoscopy only for high-risk ones, such as patients with a family history of colon cancer or personal history of colon cancer or inflammatory bowel disease. E-Z-EM was producing six different formulations of barium sulfate, each with substantially different handling characteristics, although all came in the same high-density-polyethylene bottle.

Although E-Z-EM had won this battle, at least temporarily, it recognized the need to avoid dependence on a product that might well become obsolete. A subsidiary, AngioDynamics, Inc., was established in 1988 to offer medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease. Then, in 1997, E-Z-EM bought a stake in ITI Medical Technologies, Inc., a company producing MRIs for diagnostic imaging, angiography, and fluid management. Another subsidiary, Enteric Products, Inc., was created to develop, manufacture, and market tests that would detect the bacterium Helicobacter pylori, which had been found to cause gastric ulcers.

COMPANY PERSPECTIVES

For over 40 years, E-Z-EM has been one of the most recognized brands in diagnostic imaging of the GI tract. From the first barium contrast systems we introduced in 1962, to today’s advanced CT and virtual colonoscopy products. E-Z-EM has continually developed innovative imaging and diagnostic solutions for physicians treating GI diseases.

In 1999, E-Z-EM signed an agreement with Eli Lilly and Company for marketing a form of glucagon in the United States. This injectable product was being used in the diagnosis and treatment of severe hypoglycemia (low blood sugar) in patients suffering from diabetes. Glucagon also was being used to relax smooth muscles in the gastrointestinal tract in order to improve the image quality viewed by radiologists. “The market wasn’t expanding because Lilly wasn’t calling on radiologists,” an E-Z-EM executive explained to Warren Strugatch for an article in Long Island Business News. “And calling on radiologists is what we do. This is a $40 million to $60 million market waiting to be tapped.”

CHALLENGES OF A NEW CENTURY

Stern spent so much time exploring new business opportunities that, at age 69, he stepped down as president and chief executive officer of E-Z-EM in 2000. Unlike most company executives, his successor, Anthony Lombardo, was more knowledgeable about computers than medicine. This was valuable to E-Z-EM because the company was working with three faculty members of the State University of New York at Stony Brook to develop proprietary software that would enable physicians to examine the colon electronically, by means of CT scans, and thereby forgo colonoscopies, which were unavoidably intrusive. These virtual colonoscopies, as they were called, were later described by Lombardo as a major advance in the struggle against colorectal cancer. “It’s designed to get more people into the screening system who would otherwise do nothing,” Lombardo told Peter Benesh of Investor’s Business Daily in 2006. Virtual colonoscopy did not require sedation but still involved insertion of a tube into the rectum to inflate the colon with gas in order to obtain clearer images. It had not been accepted by the medical profession as equivalent to colonoscopy in screening patients.

Lombardo struggled to raise E-Z-EM’s revenues, which had settled at a level of not much more than $100 million during the latter years of Stern’s stewardship. In 2004 the company spun off AngioDynamics in an initial public offering of stock that raised $21 million and still left it with an 82.5 percent stake in the firm. These shares were distributed to E-Z-EM shareholders later in the year. Lombardo also closed some E-Z-EM plants, converted two classes of company stock into one, and moved its share trading from the American Stock Exchange to the NASDAQ. Stern resigned as chairman of the board in 2004 and died in late 2005.

CT imaging was the chief source of revenue for E-Z-EM in fiscal 2006, accounting for nearly half of its sales. Sales of CT products surpassed those of its X-ray fluoroscopy products for the first time in 2005. CT scanners take a rapid stream of X-ray images from different angles. Computerization enables the data obtained to create two- and three-dimensional images of tissue. The process is significantly more expensive than X-ray fluoroscopy but provides better information. E-Z-EM was marketing 11 barium-sulfate formulations for thoracic, abdominal, and pelvic CT scanning, packaged in liquid or powder form for oral use. E-Z-EM was also producing and marketing its Empower line of electromechanical injectors. Radiologists were using injectors to deliver a controlled volume of iodine-based contrast media into patients so that they could visualize the vascular structure of circulatory systems and organs in the thoracic, abdominal, and pelvic regions. E-Z-EM believed itself to be the leading manufacturer of oral CT barium contrast media in the United States and the second largest manufacturer of CT injectors.

KEY DATES

1962:: Howard S. Stern and Dr. Philip Meyers found E-Z-EM with an investment of $2,000.
1983:: E-Z-EM goes public, raising money for further growth.
1994:: E-Z-EM is the main source for viewing the gastrointestinal (GI) tract with barium-sulfate contrast systems.
2000:: Stern steps down as president and chief executive officer of E-Z-EM.
2004:: The company spins off AngioDynamics, a subsidiary, chiefly to its shareholders.
2006:: CT imaging has become E-Z-EM’s chief source of revenue.

X-ray fluoroscopy remained a leading source of E-Z-EM’s sales, accounting for about one-third of its revenue in fiscal 2006. For more than 85 years, barium sulfate had been the contrast medium of choice for almost all X-rays of the gastrointestinal tract. The company believed that it was offering the most comprehensive line of barium-sulfate formulations in the United States and was marketing about 30 fluoroscopy formulations in five key body areas. The formulations were packaged in different sizes in oral, enema, liquid, and powder forms. E-Z-EM believed it was the leading worldwide manufacturer of these contrast media. It was also selling accessory medical devices for use in X-ray procedures.

Contract manufacturing was E-Z-EM’s third leading source of sales in fiscal 2006, although this source of activity accounted for less than one-tenth of its profit. The company was manufacturing products for dermatology; sunscreen lotions and creams; cough and cold medicines; oral antibiotics; antiaging and moisturizer skin-care products; and an oral iodinated contrast medium.

Other areas of business included accessory medical devices, gastroenterology, virtual colonoscopy, and defense decontaminants. With regard to accessory medical devices, E-Z-EM was developing, manufacturing, and marketing radiological medical devices, such as entry biopsy needles and trays, mammography wipes, and related accessories. It had a number of product offerings in the gastroenterology and virtual-colonoscopy markets. E-Z-EM was the exclusive worldwide manufacturer and marketer of RSDL for military services and first-responder organizations. RSDL was a patented, broad-spectrum liquid chemical-warfare agent decontaminant, neutralizing or removing chemical agents from skin on contact. Made in Montreal, this product was said to neutralize all known nerve, chemical, and biological agents. As of 2004, however, the company had not succeeded in making the U.S. Army a customer, despite lobbying the department and also congressional lawmakers.

E-Z-EM was mining barium sulfate in Nova Scotia and had manufacturing facilities in Westbury and Montreal. The company also had offices in Belgium, Great Britain, and the Netherlands, and distribution relationships around the world. Corporate headquarters moved from Westbury to Lake Success, New York, in 2002. Linda B. Stern, executor for the estate of Howard Stern, held 18 percent of company stock in 2006.

Robert Halasz