ADAC paints picture of strong growth at Hambrecht & Quist investor meeting

January 20, 1999

Company moves forward despite shareholder suitsADAC Laboratories highlighted new ventures in radiation therapy planning, nuclear medicine, and image and information management as promising areas for growth at a presentation at this month’s

Company moves forward despite shareholder suits

ADAC Laboratories highlighted new ventures in radiation therapy planning, nuclear medicine, and image and information management as promising areas for growth at a presentation at this month’s Hambrecht & Quist investor conference in San Francisco. While a spate of shareholder lawsuits have been a distraction, the litigation has had little impact on the purchasing decisions of the company’s customers, said ADAC’s CEO Andy Eckert.

ADAC was hit with more than half a dozen lawsuits after announcing in December that it would restate revenues and earnings for the past three years to correct revenue recognition issues (SCAN 12/16/98). ADAC’s stock fell 19% at the news, prompting the litigation, and the stock has yet to recover. In mid-January, it was trading at just over $21 a share, down from $27.13 prior to the restatement news.

ADAC’s decision to restate revenues primarily amounts to a retiming of sales records, Eckert said.

“The effect of (the restatement) will be to more closely time our revenue patterns with the payment patterns of our customers, which have been changing. The positive impact of that, if there is a silver lining, is that accounts receivable will decrease over time,” Eckert said.

On the business side, Eckert highlighted the progress its HealthCare Information Systems division in Dallas has made since last year. In February 1998, ADAC took a one-time charge of $12.9 million and shut down its effort to commercialize LabStat, a laboratory information system (SCAN 2/18/98).

The HCIS division is now profitable and ready to take on new market opportunities, according to Eckert. One of them is PACS. ADAC is preparing to enter that market with its Envoi image and information management software.

ADAC unveiled Envoi at last month’s RSNA meeting. It is based on the company’s successful QuadRIS radiology information system, and it enables clinicians to distribute images and data using Web-based technology. Envoi is not intended to compete with high-end PACS offerings from companies like Siemens, Agfa, and GE. As such, it doesn’t include some features found in full-scale PACS, such as a long-term archive. But it provides an entry point to PACS for those hospitals that want to move into digital image management without spending millions on a digital network.

Envoi should enable ADAC to grow revenues by addressing a market segment that was worth $369 million in 1998 and has grown at an average annual rate of 20% over the past five years. In contrast, the value of the RIS market has been stuck at the $130 million level for the past several years, with ADAC’s share of the market at about 15%.

“The PACS market is growing exponentially, and that’s the curve that you want to get on. (Envoi) is our attempt to attack a very healthy and growing image management marketplace using the fundamental building block of the RIS as a way into that market,” Eckert said.

ADAC is taking orders for Envoi and should begin installations in the next several months.

While covering ADAC’s radiation therapy planning activities, Eckert highlighted Pinnacle3, the vendor’s RTP system. Radiation therapy planning is a $160 million market, and many hospitals are converting from 2-D to 3-D systems. ADAC believes Pinnacle3 should help the company gain a strong share, especially because of a deal with the oncology division of Siemens Medical Systems of Concord, CA. Siemens has agreed to sell Pinnacle3 with its radiation oncology products.

Nuclear medicine is still ADAC’s main business, however, generating 55% of the company’s revenues through equipment sales and nearly 20% through customer support and service. In contrast, 12% of sales come from information systems and 13% from radiation therapy planning.

ADAC sees imminent growth from the ongoing recovery of the nuclear medicine market. The company’s new Forte gamma camera will spur momentum, as will ADAC’s Molecular Coincidence Detection (MCD) protocol and its C-PET program. ADAC booked 155 orders for MCD upgrades as of December 1998 and received 15 orders for the $1.2 million C-PET camera over the same time period.

MCD and C-PET sales could get an additional shot in the arm, thanks to the improving reimbursement situation for FDG studies. Lung cancer exams are already reimbursable by Medicare, but new indications could be forthcoming this year. The nuclear medicine community is scheduled to meet with the Health Care Financing Administration later this month to discuss Medicare payments for additional FDG applications, Eckert said.