Consolidation hits PACS industry as mergers, partnerships proliferate

More deals may be on the horizon as vendors seek scale

PACS and teleradiology firms have clearly determined that size does indeed matter. Visitors to this month's Radiological Society of North America meeting in Chicago needed a scorecard to keep track of all the corporate activity as PACS and teleradiology vendors continue to seek the right product and organizational mixes.

With few exceptions, most smaller PACS players have been unable to secure enough customers on their own to support their continued independence. This factor, coupled with customer interest in broader image and information management solutions, is driving consolidation and strategic alliances among PACS companies.

An example of such a consolidation is Access Radiology of Lexington, MA, which just prior to the RSNA meeting announced its acquisition of San Antonio-based teleradiology firm EMED from defense giant Raytheon (SCAN 11/25/98). The companies did not disclose the terms of the agreement, which brings together two vendors known for their success in different teleradiology market sectors. Access has carved a niche in diagnostic teleradiology applications, while EMED has been a dominant provider of on-call teleradiology systems. Access hopes to take advantage of EMED's large installed base of at-home teleradiology users to drum up sales of more advanced diagnostic teleradiology offerings, said Access president and CEO Scott Sheldon.

Product offerings that employ both EMED and Access technologies are already shipping, thanks to similarity between the two product lines and their common use of the DICOM 3.0 standard, according to the company. Existing EMED customers will be offered upgrade paths to the Access Framewave DICOM or Web-based teleradiology offering, and to EMED's more advanced teleradiology products, PACSPro/DX.

"All of the legacy EMED teleradiology offerings will be a vital part of the continuing product road map," Sheldon said.

Key components of image distribution and viewing products from EMED will also be retained. Access will maintain a sizeable presence at EMED's San Antonio headquarters, although some staff reductions have occurred in redundant areas such as administration and manufacturing, Sheldon said. Access would not disclose the number of job cuts, although rumors on the RSNA floor put the number at 40. Further cuts may occur as integration progresses if further administrative redundancies appear, according to Access.

In product developments, Access has decided to end EMED's efforts to bring a DICOM-to-home viewer to market, since Access already has commercialized a similar product, called Framewave At-Home. EMED's proposed Web-based product will also be dropped in favor of a similar offering from Access. That Access product, called Framewave Web, is going into beta testing this month and will be available in the first quarter of 1999. Access will also continue to invest in EMED's MegaScan OEM monitor business, which has placed roughly 3000 displays in the field, said David Mahoney, vice president of sales and marketing.

Still in question is the status of EMED's remaining PACS technology. EMED had hoped to make a transition from teleradiology player to PACS vendor, but it experienced delays in getting its PACS technology to market. No determination has been made on the remainder of EMED's PACS technology, Mahoney said. Access will continue to emphasize its own miniPACS offerings, but may integrate some PACS components from EMED, he said.

EMED's independent sales representative (ISR) and distributor networks have been consolidated with the direct sales efforts maintained by Access. The four selling regions will be led by a regional sales manager, who will manage the ISR channel and direct sales efforts, as well as OEM distribution into that territory. Access has OEM relationships with GE Medical Systems of Milwaukee, HBO & Company of Atlanta, and Sterling Diagnostic Imaging of Greenville, SC.

Other deals. The Access/EMED deal wasn't the only corporate announcement at the meeting. GE took the opportunity to provide more details on its product integration effort and equity investment in radiology information systems vendor Cerner of Kansas City. The alliance, announced prior to the RSNA show, will result in the integration of Cerner's HNA Millennium RadNet RIS with GE's PACS technology (SCAN 11/25/98). Cerner also gets access to GE's distribution and support capabilities in North America. As part of the alliance, GE took a 2% equity position in Cerner.

"We're going to provide better and better integration, with the end result being a single, unified radiology information solution, with no distinction between a RIS and a PACS," said Vishal Wanchoo, general manager of GE's Integrated Imaging Solutions group in Mount Prospect, IL.

A goal of the alliance is to enable PACS workstations to run RIS applications, with users able to perform diagnosis, dictation, reporting, and other tasks on the same platform. A time frame for commercialization of the product should be released within the next few months, Wanchoo said.

Eastman Kodak's acquisition of Imation's medical imaging business also closed during the RSNA meeting, leading to some quick changes to Imation's booth in the middle of the week. Under the terms of the $520 million transaction, Kodak of Rochester, NY, receives Oakdale, MN-based Imation's medical imaging assets, several new manufacturing sites, and the company's Fremont, CA-based Cemax-Icon subsidiary (SCAN 8/19/98).

Kodak is believed to have pursued the acquisition because of Imation's successful laser printing business, which is led by the company's DryView dry-process printers. The agreement also solidifies Kodak's lead in the U.S. x-ray film market by adding Imation's market share in film to that of Kodak's.

The situation in PACS is not so cut and dried, however. Both Kodak and Imation have been making major investments in PACS technology that could be seen as redundant. Indeed, some high-level executive layoffs have reportedly already taken place at Cemax-Icon. As of press time, Kodak had not released information about the integration of the product lines or the continuance of OEM relationships.

Kodak did firm up the senior management team for its expanded Health Imaging division shortly after the RSNA show, however. Kodak veteran Richard Cimino has been named chief marketing officer and director of global strategy, while another Kodak executive, William Evans, has been tapped as general manager for worldwide business and product planning.

Former Imation executive Michael McQuade has been named general manager of worldwide operations at Kodak. McQuade, who served as general manager of medical imaging systems for Imation, will direct the Health Imaging division's global manufacturing and service operations, as well as all regional operations. Nancy Sousa, formerly regional business general manager of the greater Asia region for Health Imaging, has been assigned as general manager of new businesses. All senior management team members will report to Martin Coyne, president of Health Imaging.

Of the three deals, the Kodak/Imation acquisition will probably have the greatest long-term impact on the industry. The agreement puts Kodak in a dominant position in the film and laser printing segments, and other film companies may be forced to seek alliances to counter Kodak's new strength.

Scuttlebutt on the RSNA exhibit floor speculated that Sterling and Agfa of Ridgefield Park, NJ, might work together. The companies have a good match of businesses, with Agfa's strong digital image management operations complemented by Sterling's foray into the image acquisition side with its DirectRay technology. Both Agfa and Sterling declined to comment on potential corporate moves, however.