ADAC sees multivendor serviceas major opportunity for growth

February 14, 1996

MCD and LabStat will also expand markets in 1996The multivendor service program being developed by nuclear medicinevendor ADAC Laboratories is one of three major growth initiativesthe Milpitas, CA, firm is pushing in 1996 to expand its

MCD and LabStat will also expand markets in 1996

The multivendor service program being developed by nuclear medicinevendor ADAC Laboratories is one of three major growth initiativesthe Milpitas, CA, firm is pushing in 1996 to expand its markets.ADAC CEO David Lowe provided the investment community with anoutline of the program at last month's Hambrecht & Quist HealthCare Conference in San Francisco. From the looks of things, ADAC'sversion of multivendor service could make life difficult for itscompetitors, especially Siemens and GE.

ADAC has long prided itself on its high service and customersatisfaction ratings. It has placed first for the past four yearsin overall customer service satisfaction in surveys conductedby IMS America, a subsidiary of Dun & Bradstreet. The vendoralso enjoys a 94% customer retention rating, compared with anindustry average of 55%, according to Lowe.

Those ratings are fine for ADAC and its customers but representa limited universe from a revenue standpoint. Like other companieswith multivendor service programs, ADAC realized that it couldaccess new sources of revenue by targeting the installed basesof its competitors.

With that in mind, ADAC in November purchased JD TechnicalServices, a gamma camera refurbisher and service provider basedin Washington, MO (SCAN 12/13/95). JD Technical Services specializesin service of ADAC, Siemens and GE gamma cameras, Lowe said.

For the next six months ADAC will concentrate on transferringthe experience of JD Technical Services to the rest of its fieldservice force. It should have the program in full swing by thelatter half of the year.

"JD Technical Services provides us with the technology,know-how and spare parts inventory to allow our field serviceengineers, all 110 of them, to start bidding for service of GEand Siemens equipment," Lowe said. "In the second halfof this year we expect some pretty good progress out of attackingthis profitable segment of our core business, where our reputationis clearly unmatched."

How profitable is the segment? ADAC believes that the installedbase of Siemens and GE cameras represents a $100 million opportunityin a segment with the highest profit margins in medical imaging.Most other nuclear medicine companies derive 125% of their profitsfrom service, according to Lowe.

"Most of our competitors are selling their products ata loss," Lowe said. "The ability for us to attack thisarea of customer support, or post-sales support, where they maketheir money, we think will be another profit opportunity for us."

There could be one bump in ADAC's plan, however. A cornerstoneof the multivendor programs developed by major OEMs is the beliefthat hospital clients want one-stop shopping for their serviceneeds. A hospital that wants to reduce the number of service providerson which it depends could simply contract with a multivendor providerfor the entire enterprise, rather than break down its serviceinto modality-specific units.

MCD and LabStat. Two other initiatives ADAC is developing toexpand its markets include its Molecular Coincidence Detection(MCD) high-energy imaging technology and its LabStat laboratoryinformation system, acquired through ADAC's purchase of CommunityHealth Computing last year (SCAN 8/2/95).

With respect to MCD, ADAC is funding a $1.5 million multicenterclinical trial to prove the value of MCD as a tool that can producebetter outcomes more cost-effectively than conventional imagingtechnologies for oncology applications. The study will not compareMCD with positron emission tomography (PET), but rather with otherimaging techniques used to stage cancer patients, according toLowe. Lowe believes MCD can help ADAC's gamma cameras take marketshare from other modalities.

"(The study) will not compare MCD to PET, because PETis only utilized in 70 institutions in the U.S.," Lowe said."But it will compare MCD to conventional imaging like CT,for solitary pulmonary nodules, and biopsy for breast cancer."

ADAC believes interest in MCD is behind the recent growth inthe company's revenues and bookings for its second fiscal quarter(SCAN 1/17/96). ADAC has 250 cameras in the field that can beretrofitted with MCD, while all new ADAC dual-heads capable of180° imaging support the technology.

ADAC engineers have tripled the performance of LabStat sincethe company acquired the software, Lowe said. LabStat, which willbegin shipping this spring, will enable ADAC to break out of the$125 million radiology information systems market and move intothe laboratory information systems market, which is worth about$400 million, according to Lowe. ADAC also hopes to expand itsinformation systems business into the cardiology market this year.

Multivendor service, MCD and information systems should enableADAC to maintain a high growth rate through 1996 and beyond, accordingto Lowe.

"If you look at our addressable market in 1995, we werein the therapy planning business, the nuclear medicine business,we supported our customers and we had a small healthcare informationsystems business, all of which we dominated," Lowe said."Over the course of the next few years, we will be dramaticallygrowing our nuclear medicine applications through MCD. We willbe adding multivendor service to the market that we are addressing.And the radiology, laboratory and cardiology information systemsbusiness will provide us considerable opportunities for additionalexpansion."