Diasonics revamps as VST launch hits slow market

August 26, 1992

The head of marketing for Diasonics' ultrasound division leftthe company this month as sales of the vendor's new Spectra VSTsystem remain below expectations. The departure of Steven Kaska, vice president of marketingfor ultrasound, is among several

The head of marketing for Diasonics' ultrasound division leftthe company this month as sales of the vendor's new Spectra VSTsystem remain below expectations.

The departure of Steven Kaska, vice president of marketingfor ultrasound, is among several personnel moves that have occurredas the company encounters a tight market for its flagship ultrasoundsystem.

"Steve has moved on to pursue other opportunities,"said Shawn O'Connor, chief financial officer for Diasonics. O'Connordeclined to comment further on Kaska's departure.

Last month Diasonics reported revenues of $69.6 million anda net loss of $9.7 million for the second quarter of 1992 (end-June).The loss includes a one-time charge to establish a $3.1 millionreserve for an unfavorable court judgment, which is being appealed.The company also reported nonrecurring charges of $3.5 millionrelated to personnel and facilities reductions in the U.S. andEurope.

"Market conditions and pricing for ultrasound in the U.S.and Europe continued to be difficult, and costs and expenses associatedwith launching both the new VST ultrasound system and new specialtyx-ray products exceeded earlier estimates," said StewartCarrell, chairman and CEO of Diasonics.

Diasonics rolled out its Spectra VST system earlier this year,with industry observers lauding the product as placing Diasonicsback in the thick of the ultrasound technology race (SCAN 5/20/92).The general sluggishness of the ultrasound market, however, coupledwith lingering doubts over the company's loss of a leadershiprole in the modality, have combined to impede sales.

"Their technology has been lagging for many years,"said Larry Haimovitch, a San Francisco medical technology consultant."I think (the VST) has put them back in the mainstream ofhigh technology for the first time in almost a decade. The problemis that the ultrasound market is very sloppy, and they have lostsome of their credibility in the marketplace."

Diasonics officials acknowledge that VST sales have been slowerthan anticipated, but say that the product has been well-receivedand predict that sales figures will improve in subsequent quarters.

"We were probably overly optimistic about how fast (theVST) would impact our results," said Roderick A. Young, formerpresident and CFO of Diasonics. "Looking at ATL's introductionof HDI last year, we recognized that it hadn't impacted them untilthe fourth quarter."

Young has been named CEO of a newly formed subsidiary set upto pursue development of an ultrasound ablation system. The separateentity should enable the company to focus its efforts on ablationR&D, which has been partially funded through a partnershipwith PaineWebber.

The subsidiary further solidifies the vendor's move towarddiversifying within ultrasound, Young told SCAN.

"Clearly our attempt has been to develop some new products,not necessarily outside of ultrasound, but that are not just traditionaldiagnostic ultrasound," he said.

Young previously was president, COO and CFO of Diasonics overall.He was replaced as CFO by O'Connor.

The ablation product would treat enlarged prostate conditionsusing high-intensity focused ultrasound to heat and destroy tissue.The technology has been undergoing human clinical trials in Austria.Diasonics has received an investigational device exemption fromthe Food and Drug Administration and will begin human clinicaltesting in the U.S. in September.

The product should capitalize on the trend toward minimallyinvasive prostate surgery, but is not expected to have an impacton the company's balance sheet for the next several years.

"They are going to be entering a crowded market, but ifthey have something really unique, then they may really have something,"Haimovitch said.