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When Steve MacMillan took charge of medical-device maker Hologic in December 2013, the company was reeling. Losses were mounting after a series of expensive and bungled acquisitions. Even more urgent, two powerful corporate activists, Carl Icahn and Ralph Whitworth of Relational Investors, had taken big stakes and were agitating to sell off pieces of the company. Without the wherewithal to wage an expensive proxy battle, the board consented to Icahn’s demand for two board seats on the same day it appointed MacMillan president and chief executive. Times were dire.

The workforce was “unsettled and anxious,” recalls MacMillan. “There was very little accountability within the organization and no sense we could grow. We had phenomenal products that were being undermanaged.”

Photo: Noam Galai/Getty Images

Hologic’s (ticker: HOLX) products, which are chiefly focused on women’s health, include mammography systems and diagnostic systems that screen for cervical cancer and sexually transmitted diseases. In fiscal 2015, which ended in September, earnings (adjusted for acquisition-related amortization expense) rose 19%, to $485million, or $1.67 a share, on revenue of $2.7 billion. And free cash flow came in at $738 million—up 59% from fiscal 2014.

MacMillan’s first call was to Icahn to persuade him “there was another way to create shareholder value.” MacMillan, a health-care industry veteran who had most recently tripled revenue at Stryker (SYK) during his seven years as CEO of the orthopedic-device company, got the green light to pursue a turnaround.

What transpired over the next two years was a transformation of corporate culture: an entirely new top leadership team; new presidents of all divisions, many of whom had worked with MacMillan in the past; and a re-energized sales team linked to a vast distribution base that includes obstetricians, gynecologists, and radiologists.

The shake-up appears to have met Icahn’s approval, as the shares climbed 80%, to a recent $40. Although the activist reduced his stake in August to 10% from 12.5%, he continues to hold two board seats. Icahn couldn’t be reached for comment. In August, he tweeted, “Trimmed our position but remain a huge supporter of Steve MacMillan and the @Hologic ($HOLX) team.”

Ralph Whitworth, who has been unwinding his Relational Investors fund due to a recurrence of throat cancer, also cut his stake; he holds 2.6%.

One buyer of the shares is David Geisler, portfolio manager at Lateef Investment Management, in Greenbrae, Calif. His firm took a 1.9% stake in the company in the third quarter. “There is a lot of opportunity for this to be a bigger company,” he says. His 12-month price target for the shares is $47. Based on his discounted cash flow analysis, he thinks the stock could double in three to five years.

Hologic has beat analysts’ earnings projections in every quarter since MacMillan took charge of the Marlborough, Mass.–based company, thanks to growing sales and rising profit margins. In the past two years, it has cut debt by $900 million, to $3.1 billion.

The company forecasts 2016 revenue of $2.81 billion to $2.84 billion and earnings per share of $1.80 to $1.84. Analysts expect earnings to reach $2.03 a share in fiscal 2017.

Driving recent gains is robust demand for the company’s Genius 3D digital mammography system, introduced in 2011, well ahead of competing products from General Electric (GE) and Siemens (SIE.Germany). Under MacMillan and his new marketing team, a new campaign for the 3-D system was put in place in a matter of months, and the result has been a dramatic acceleration of sales.

Revenue in Hologic’s breast-health segment jumped 22% in the most recent quarter, largely due to gains in 3-D imaging. As medical institutions replace existing analog mammography systems with the more accurate 3-D technology, sales are expected to remain strong. Boasting first-mover advantage, Hologic’s share of the domestic mammography market grew by three percentage points, to 60%, in fiscal 2015. So far, 2,400 of its existing base of 8,600 mammography systems have been replaced by new 3D systems, which carry a pricetag of $350,000; 6,200 remain. There are 14,500 mammography systems in the U.S.

Hologic currently derives 76% of its revenue in the U.S. Not surprisingly, MacMillan sees international expansion as “an across-the-board gaping opportunity.”

NEW GUIDELINES issued by the American Cancer Society recommend that women receive fewer and less-frequent mammograms, beginning at age 45 instead of 40. But studies showing a 41% rise in detection of invasive cancers and a 15% reduction in false-positive readings with 3-D mammography are compelling reasons for radiologists and hospitals to adopt the technology, MacMillan contends. “Earlier and more accurate detection is better for patients and also for health-care companies interested in keeping costs down,” he says.

Breast health accounted for 39% of Hologic’s revenue last year and 65% of operating profit. The company is also a leader in diagnostic services, due to overpriced acquisitions in 2007 and 2012 for a total of $9.95 billion. Hologic’s current market value is $11.3 billion—and that’s after the big run-up in the past two years.

Diagnostics produced 45% of revenue last year and 24% of profit. New products are under development to detect prostate cancer as well as hepatitis B and C and the human immunodeficiency virus, or HIV.

The balance comes mainly from Hologic’s surgical division, which is focused on endometrial and fibroid treatments.

MacMillan, 52, expects that Hologic’s international growth will evolve gradually over the next decade. But his ambition is hardly modest. “There’s no reason we can’t be one of the premier diagnostic and health-care companies on the planet,” he says.

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