January 2000

Terms such as workflow efficiency and patient throughput were oft-used catch phrases with technological advances designed to streamline the imaging process. Digital imaging and image management systems are advancing each year, as more and more companies — and customers — board the digital bus.

One of the biggest catalysts is the debut of the Integrating the Healthcare Enterprise (IHE) project, demonstrated at RSNA to mostly positive reviews. IHE is a joint undertaking between RSNA and the Healthcare Information Management Systems Society (HIMSS) to

promote the use of industry standards in medical imaging for the efficient exchange of images and information.

Several years in the works, the IHE Year 1 demonstration included a short video describing the concept. Attendees also viewed Simulated Healthcare Enterprises (SHEs), which followed a patient through certain imaging procedures by combining videotaped “patients” with real image and data exchange.

In one scenario, one patient injured a knee while playing basketball. After a short videotape detailing the injury, a representative sent orders for an X-ray to a CR vendor via an HIS vendor. The modalities receive the orders and send images back and forth in the SHEs to demonstrate connectivity at work. To emphasize the point, an MRI exam was ordered and the process included an MRI vendor.

A special demonstration of the IHE was presented Nov. 30 at RSNA, attended by both the media and top executives of many participating companies. While only 15 companies responded to a pre-show invitation to the special event, the 70-seat theater was filled to standing room only, thanks to the increased publicity IHE gained at the show.

Twenty-four companies participated in IHE Year 1 demonstration. Another demonstration is planned for the HIMSS show in April 2000. That demonstration is expected to mirror what was seen at RSNA and include the same vendors.

Perhaps the only negative aspect to the IHE project was the absence of two major IS vendors — Shared Medical Systems Corp. (SMS of Malvern, Pa.) and McKesson HBOC Inc. (San Francisco). Steve Drew, assistant executive director for scientific assembly and informatics at RSNA, said every effort was made to involve the two IS vendors, but each had its own reasons for declining.

“HBOC was involved through the planning stages and through the workshop last spring,” said Drew. “When it came time to sign off on the application form, that’s where they stopped. A lot of HBOC’s desire not to participate can be attributed to the [financial] problems they went through with the McKesson deal.”

Drew said SMS had the majority of its resources tied up in Y2K-related issues and could not spare the manpower for IHE.

“We’d love to get them involved in this,” Drew said of the two absentees. “One of the things that the committees are working on is how we make this more attractive to the IS side.”

HIMSS will have most of the responsibility for attracting more interest from the IS side, while RSNA will continue to promote imaging companies’ interest in the project. Drew said RSNA is producing a video from this year’s show to attract vendors from other medical disciplines.

Jeffrey R. Immelt, president and CEO of GE Medical Systems (Waukesha, Wis.), provided his comments for the video on his way from the Nov. 30 demonstration.

“We’ve been told by CIOs that there are 25 to 35 different information systems within the walls of their institutions,” said Drew. “What [IHE] will do is break down those barriers in terms of exchanging information. We are not trying to develop a standard. We’re trying to draw on the ones that are out there, primarily DICOM and HL7 this year.”

Drew cited the increased number of exhibitors connecting to the RSNANet backbone as a sign that more and more imaging companies are becoming network-centric. While approximately 60 to 65 vendors connected to the network last year, more than 100 were linked for the first time ever this year.

There were some minor glitches in the RSNANet leaving several vendors without network connections for periods of Monday. Drew said the problems were not RSNA’s fault, but that of the Internet service providers.

Plans for the Year 2 IHE demonstration at RSNA 2000 already are well underway and more participants are expected.

“I think, like DICOM, when some of these vendors come to the conferences and see they weren’t part of it and their customers are asking why they aren’t involved it [they will want to be involved],” Drew said. “It’s important to the customers.”

Education was also a part of IHE. In all, 24 educational sessions were included, along three tracks — management, clinical and technical. Some 1,500 attendees pre-registered for the symposiums.

Under the proposal, General Electric Co. (GE of Stamord, Conn.) would pay Mecon shareholder $11.25 per share in GE stock. The transaction could close by February 2000.

GEMS also is partnering with Pronosco (Vedbaek, Denmark) to market and distribute the Pronosco’s X-Posure system.

X-Posure enables the measurement of osteoporosis from a standard X-ray image of the hand and forearm. The image is digitized through a computer scanner and analyzed by software developed by Pronosco.

By 1:30 p.m. central time, Jack Welch, the chairman and CEO of General Electric Co. (GE of Stamford, Conn.), and Jeffrey R. Immelt, GEMS’ president and CEO, joined a sea of other GEMS’ employees and OEC people in taking OEC into the fold. The welcome came at OEC’s booth at this year’s annual meeting of the Radiological Society of North America. The shareholders’ special meeting took place at the Hyatt Regency, next door to McCormick Place.

OEC shareholders received 0.262 shares of GE stock for each share of OEC common stock held at the close of the merger, plus cash for fractional shares.

OEC becomes a wholly-owned subsidiary of GE and will do business as GE OEC Medical Systems. The operation — which includes approximately 800 employees worldwide and facilities in Salt Lake City; Warsaw, Ind.; and Wendelstein, Germany — keeps its headquarters in Salt Lake City. Joseph W. Pepper, OEC’s president and CEO, continues to head the company.

“They [GEMS] want to build a bigger business unit in fluoroscopy around the OEC kernel,” Pepper told Medical Imaging at RSNA. “We are going to be intelligent about how we integrate what we sell around the world. We have already begun the process of figuring out how to get the best of both worlds in the U.S. distribution system.”

Pepper has met with GEMS’ managers from several key Asian markets, namely China, Japan and India. With GEMS’ distribution infrastructure, Pepper expects OEC products to penetrate those markets faster than if OEC were doing it on its own.

OEC has a distributor in Japan — Cathex Co. Ltd. — and Pepper expects GEMS to help buoy those efforts, especially in the high-end applications market in Japan.

“In China, we have made good headway with our cardiac unit, but the availability of the GEMS organization will allow us to accelerate that process,” he added. “We have had distributors in India, but nowhere near the support and drive and commitment we will get [from GEMS] in terms of selling the OEC products.”

On the product side, OEC expects to wind down production of its Series 9600 C-arm in the first quarter of 2000. The success of its digital Series 9800 system — launched in May — precipitated the decision and forced OEC to retool its manufacturing process this past summer to accommodate accelerated production of the 9800.

“We have a relatively small number of 9600 cardiacs [units] we have reserved for sale outside of the United States,” Pepper said. “Beyond that, we are out of new production of the 9600 business, other than supporting our customer base into the future.”

While Pepper declined to disclose the number of orders OEC has taken for the 9800, he said the company had a 75- to 80-day order backlog at the close of the third quarter. “Our objective is to get that backlog down into the 45- to 50-day range,” he added.

In December, OEC and GEMS met to formulate future plans for all of OEC products. Pepper said discussions would include U.S. and Asian distribution strategies, the service businesses, manufacturing and expanding and integrating the companies’ combined product lines.

In a news conference at the annual meeting of the Radiological Society of North America (RSNA), R. Ernest Waaser, senior vice president of Agfa Corp. (Ridgefield Park, N.J.), confirmed that the iiSYS PACS product line — which was acquired in the purchase of Sterling — is one of the offerings that will be discontinued.

“In the PACS world, we are rationalizing to Agfa’s Impax system, so the former Sterling iiSYS line is not being sold in a go-forward mode,” Waaser said. “We are supporting the installed base.”

Former Sterling operations in both Glasgow, Del., and Brevard, N.C., will be streamlined “significantly,” added Waaser. Film R&D will be centralized at the Agfa facility in Mortsel, which means the reduction of operations in the Brevard R&D plant. The Brevard facility will focus primarily on North American film operations. The Glasgow operation has been reduced substantially and most of the manufacturing activities are being removed.

Waaser said the majority of the product line consolidations will take place throughout 2000 and into 2001.

At the annual meeting of the Radiological Society of North America (RSNA), the film giant heralded the coming of three new digital radiography (DR) products and two new computed radiography (CR) systems next year.

With the help of the five product releases set for the first eight months of 2000, digital products for the first time will dominate Kodak sales.

“In 2000, we’ll sell more digital product than analog product,” said Martin M. Coyne, president of Kodak’s Health Imaging division. “If you look at digital — CR, DR, laser printers, laser film and digital film, distributed medical imaging and PACS — it will be more than 50 percent of the revenues next year. By next year, we would have made the transition to a digital world.”

Coyne anticipates a profitable co-existence between DR and CR, as healthcare facilities make a gradual transition from film to digital, based on capital budgets.

“It is hard to project what the DR acceptance rate will be,” Coyne said. “We look at CR as continuing at a nice trajectory of growth with DR coming up underneath it.”

As Kodak’s digital revenues grow, the company plans to maintain its market share of analog film sales. In the U.S., Coyne anticipates the overall market for general radiology film to grow in the low single digits, but decline in Western Europe with the advent of DR and CR. In Latin America, Eastern Europe and Southeast Asia, growth is expected to reach the high single digits.

In China, where Kodak manufactures X-ray film, Coyne said the market is “growing beautifully. As the market grows and because of our presence, we’re gaining on two points — market share and the volume increases in the market.”

Coyne added that Kodak plans to launch a new mammography film specifically for Western Europe.

Marta Scheff Volbrecht, Image Systems’ vice president of sales, told Medical Imaging that the reason for buying the division was “market consolidation — to capture their customer and service space and add it to ours.”

Volbrecht added that Image Systems will continue to support existing Nortech customers, but will not develop the Nortech product line.

“They have some non-medical customers that will continue — some military contracts and things like that which aren’t really high-resolution, but customers that have been there for years,” she added. “We’ll probably keep up that technology for as long as the orders keep coming in.”

The acquisition is a homecoming of sorts. Both Image Systems and Imaging Technologies were spun from the same company at different periods.

“Our technologies followed similar paths, but three or four years ago, we became competitors,” Volbrecht explained. “Prior to that, Nortech hadn’t done a lot in medical imaging and we had been exclusively medical imaging. When they moved into it, we became competitors.”

The staff at Imaging Technologies has been trimmed to eight employees in recent months, but Volbrecht said at least one of those employees — a sales manager — has joined Image Systems. There is a possibility other members of the Nortech staff may join Image Systems.

“Most of those are service and technical people, which will be a good fit for us, as we take on the service of their product line,” Volbrecht said. Nortech’s Imaging Technologies division did not own its own building, but other assets of the division — including existing inventory — are part of the acquisition.

The final transaction includes an option for Misonix to increase its investment by 39 percent under certain circumstances, such as when sales and performance targets are achieved.

Sonora refurbishes high-performance ultrasound systems and replacement transducers for the medical imaging industry. The company also has a line of aftermarket products and services, including its own ultrasound probes and transducers. The addition of Sonora gives Misonix a presence in five medical markets — medical imaging, enlarged prostate treatment, alleviation of hearing disorders, ultrasound surgical blades and soft tissue aspirators.

For the first nine months of this year, Sonora tallied revenues of $1.7 million. For the most recent three months, ending Sept. 30, Misonix notched revenues of $6.5 million and net income of $605,000.

Little will change for Sonora. The company and its eight employees will remain in Longmont, operating as an independent unit of Misonix. Sonora’s co-founder and CEO G. Wayne Moore and Chief Technical Officer Bill Phillips will continue in their current positions.

Moore and other major Sonora shareholders apparently feel very positive about the new partnership and Sonora’s potential, as they keep a 49 percent interest in the company. “We wanted to maintain a large percentage of the ownership,” he added.

With its cornerstone replacement transducer business, Sonora also has one of the largest probe repair facilities in the U.S. Utilizing a robotic probe tester, Sonora repairs an average of 10 to 15 electronic array probes daily.

At the annual meeting of the Radiological Society of North America (RSNA) both companies said plans to become one entity came to an amicable end.

“There is no animosity. It is just one of those things that didn’t happen,” said Wayne DeJarnette, DeJarnette president. “We still like Swearingen; we still work with them; and we will still support them.”

Randall P. Swearingen, Swearingen Software president, echoed DeJarnette’s comments. “We’re still working with [DeJarnette] as a partner,” he said, “but the acquisition was not in everyone’s best favor.”

One of Swearingen’s current priorities is countering false rumors that DeJarnette would buy the company and discontinue its RMS for DOS and works-in-progress RMS for Windows RIS software products.

Both companies’ sales are increasing as more of their products enter the market. Swearingen’s sales reached $1.5 million in its fiscal year, ending May 1, 1999, compared with approximately $1 million in FY98.

“From June through December [1999], we’re already over $1.5 million and we’re targeting $2 million to $2.5 million this fiscal year,” Swearingen added.

While DeJarnette’s partnership with Swearingen remains in place, the company is working with other RIS vendors, including WebMedix Inc. (Chapel Hill, N.C.).

“Maybe [the acquisition] just didn’t make as much sense as we and they had thought, more from a business point of view,” DeJarnette added. “Product integration was not an issue. It was a joint decision.”

If and when the deal closes, stockholders of MBI and Palatin each would own approximately 50 percent of the new company, which will retain the Palatin name.

“In today’s market, early-stage companies take so long to develop one drug to bring it to the market and it’s so expensive that you have to think early about putting two or three of these companies together and leverage the operating and R&D expenses,” said Edward J. Quilty, Palatin’s chairman, president and CEO. “I’d like to get the valuation of these two businesses going and then look for other synergistic opportunities to layer on top of this.”

Quilty said the companies plan to close MBI’s San Diego facility and locate the new company’s headquarters in Princeton. The two companies have approximately 70 employees, but Quilty feels that number can be reduced to 45 or 50.

MBI’s president and CEO Bobba Venkatadri will serve as a consultant for the new company.

MBI manufactures Optison, an ultrasound contrast agent, which will be the only FDA-approved product sold by the new Palatin. Optison currently is on the market for its first indication, the enhancement of endocardial border delineation and left ventricular opacification. In August, MBI completed myocardial perfusion Phase Two studies of Optison and submitted the results to the FDA.

Beyond that, the company will have several products in different stages of development. Palatin expected to file for FDA clearance on its LeuTech infection imaging agent product in December. Also under development is PT-14, a small molecule peptide for treating sexual dysfunction, and MB-840, a liver-selective CT imaging agent with therapeutic potential.

Civco designs and manufactures specialized medical products for ultrasound imaging equipment and procedures and for minimally invasive surgery equipment and procedures for original equipment manufacturers. The company has annualized revenues of approximately $10 million marketing ultrasound needle guidance systems, transducer covers and diagnostic accessory devices.

As part of the stock-for-stock transaction, Colorado Medtech issued 736,324 shares to acquire Civco and its Kalona facility. Civco will remain at its current location and operate as a subsidiary of Colorado Medtech. Civco President Charles Klasson will continue in that position. Civco has approximately 95 employees. No layoffs are anticipated.

Colorado Medtech President and CEO John Atanasoff said the company plans to “grow and strengthen our position in the ultrasound area and perhaps explore catheters and sensing devices that can be combined with some of Civco’s capabilities. We’re very interested in imaging software and companies in the disposable catheter area and in vitro diagnostics area.”

The Civco purchase is Colorado Medtech’s third acquisition this year. In August, Colorado Medtech completed its $2 million acquisition of Creos Technologies LLC (Englewood, Colo.), which provides advanced X-ray generator subsystems.

In February, the company purchased Eclipse Automation Corp. (Longmont, Colo.) for $500,000.

MedOptics designs digital X-ray medical imaging cameras for high-resolution and small field-of-view radiographic applications, such as breast biopsies. The company anticipates revenues of approximately $4.5 million this year.

Dalsa designs, develops, manufactures and markets image sensor and electronic camera products based on its image capture charge-coupled device (CCD) technology.

Dalsa CFO James M. Hill said discussions with MedOptics began in the late summer and early fall, as Dalsa contemplated opportunities within the medical imaging marketplace.

“We were looking at medical imaging as a market where we sensed strategic growth for Dalsa,” Hill said.

There will be few changes as far as business plans after the acquisition is complete. Employees at MedOptics will remain in Tucson.

Nov. 18 to enthusiastically receptive investors. At the closing bell on the New York Stock Exchange, Agilent — trading under the ticker symbol “A” — traded at $42.50, up $12.50 in its inaugural appearance. Some 47,727,400 shares changed hands. The company also hiked its IPO share allotment to 72 million shares. Of that total, 57.6 million were offered in the U.S. and Canada and the remainder outside of the two countries. Agilent will have approximately 452 million common shares outstanding, with HP owning approximately 84 percent of those shares. HP plans to divest its ownership interest in Agilent by mid-2000 by distributing all of its Agilent shares to the holders of HP common stock. In its first fiscal quarter, ending Oct. 31, Agilent reported net revenues of $2.4 billion, up 23 percent from the year-ago quarter. Agilent also posted net income of $146 million, compared with a net loss of $51 million in the year-ago quarter.

Double-digit growth in revenues in its fiscal year, ending Oct. 3, has ADAC Laboratories Inc. (Milpitas, Calif.) thinking that it may have turned the financial corner and can lay to rest a difficult FY99. On the up side, revenues climbed 14 percent to $342.1 million, compared with $300.5 million in FY98. On the down side, ADAC posted restructuring charges of $4 million, an in-process research and development charge of $1.4 million and other non-ordinary charges and expenses of $29.7 million. The charges resulted in a fiscal year net loss of $33.6 million, compared with earnings of $7.4 million in FY98. Excluding the charges, ADAC’s loss was $6.6 million. In its fourth fiscal quarter, ADAC revenues declined to $84.8 million, compared with $88.8 million in the fourth quarter of FY98. Excluding the impact of certain non-ordinary charges and expenses, the company’s income for the fourth quarter was $600,000, compared with net income of $4.1 million in the fourth quarter of fiscal 1998.

Fonar Corp. (Melville, N.Y.) posted reported revenues of $9.6 million in its first fiscal quarter, ending Sept. 30. The numbers are 28 percent greater than $7.5 million in revenues in the first quarter of FY99. Fonar also reported a net loss of $3.3 million, compared with a net loss of $2.8 million in the year-ago quarter. The company cited a “low level of scanner sales and increased R&D” as reasons for the decline in earnings. Fonar added that it has redirected its efforts to marketing and sales and recently hired X-Ray Marketing Associates Inc. (Romeoville, Ill.) as its U.S. distributor.

A decrease in personal injury claims business as a result of regulatory changes in New Jersey adversely affected net service revenues at Medical Resources Inc. (MRI of Hackensack, N.J.) in the third quarter. Revenues slid to $37.6 million, compared with $44.2 million in the third quarter of 1998. MRI also posted an operating loss of $6.1 million, compared with operating income of $2 million in the year-ago quarter. When the company added charges for the impairment of long-lived assets, losses on sale and closure of centers and other items, the net loss totals $41 million, compared with a net loss of $1.8 million in third quarter of 1998. For the nine-month period, net service revenues were $120.2 million, compared with $137.8 million in the same period of 1998. The net loss increased to $44.9 million, compared with a net loss of $13.5 million in the year-ago period. MRI also cited reduced reimbursement rates, a decline in net revenues of the company’s Dalcon Technologies subsidiary and temporary service interruptions due to the installation of new MRI and CT units as additional reasons for the revenue shortfall.

InSight Health Services Corp. (Newport Beach, Calif.) is off to a mixed start in its new fiscal year. In its first fiscal quarter, ending Sept. 30, InSight notched $46.2 million in revenues, compared with $37.9 million in the first quarter of FY99. Net income, however, dipped to $1.3 million, compared $1.7 million in the year-ago quarter.

Radioisotope developer International Isotopes Inc. (III of Denton, Texas) increased its product sales to $693,000 in the third quarter, compared with $672,000 in the same quarter of 1998. The company’s net loss increased to $3.3 million, compared with a net loss of $1 million in the year-ago quarter. The increased net loss was due primarily to pre-production expenses. For the nine-month period, product sales advanced 51 percent to $2.8 million, up from $1.8 million in the same period of 1998. The nine-month net loss stood at $8.8 million, compared with a net loss of $2.6 million in the year-ago period. Cutting into earnings were $4.6 million in pre-production development costs, $1.2 million in depreciation and a $1.5 million charge for warrant expenses related to III’s sale of preferred stock.

Howtek Inc. (Hudson, N.H.) achieved greater sales and a slightly trimmed net loss in the third quarter. Sales climbed 31 percent to $1.6 million, compared with $1.2 million in the third quarter of 1998. Howtek’s net loss improved to $559,380, down from a net loss of $811,557 a year ago. Nine-month figures showed sales of $5.1 million, a 51 percent jump from $3.3 million at the same point a year ago. The nine-month net loss increased to $3.6 million, compared with a net loss of $2.7 million in the year-ago period.