Du Pont medical imaging unit evolvesinto Sterling Diagnostic Imaging

April 10, 1996

Huge sole-source deal with Premier gives boost to new firmDu Pont Diagnostic Imaging has become Sterling Diagnostic Imaging,a stand-alone company headquartered in Glasgow, DE, but ownedin part by the Sterling Group of Houston. The new medical

Huge sole-source deal with Premier gives boost to new firm

Du Pont Diagnostic Imaging has become Sterling Diagnostic Imaging,a stand-alone company headquartered in Glasgow, DE, but ownedin part by the Sterling Group of Houston. The new medical imagingcompany has embarked on several dynamic changes in contracting,global policy, and product development.

The new name took effect March 29, when company ownership officiallytransferred from Delaware chemical giant Du Pont to Sterling,a Texas investment firm. Most senior managers from Du Pont willbe retained.

Sterling Diagnostic Imaging is a privately held company withmajor stock positions maintained by Sterling Group, the managementof Sterling Diagnostic, and its employees, as well as by severalother investors, whose identities have not been publicly disclosed.Sterling Group is the largest investor in the new company.

But the changes of name and ownership, while the most visible,were not the only notable events occurring in recent weeks atDu Pont's former medical imaging unit.

Less than a week prior to the name change, Sterling DiagnosticImaging signed a seven-year contract to supply medical imagingfilm to Premier, a healthcare alliance formed last year by PremierHealthcare Alliance, American Healthcare Systems, and the SunHealthAlliance. Premier is the largest healthcare alliance in the U.S.,representing nearly 1700 facilities. The contract with Premieris a virtual guarantee that all these facilities will buy filmexclusively from Sterling, according to Suzanne Linderman, thenew president of Sterling Diagnostic Imaging.

"We have a sole-source agreement with Premier, and attheir recent governance conference in Florida, each of the CEOsin the new Premier groups was asked to commit to utilizing (allof the sole-source) contracts negotiated on their behalf,"said Linderman, who served as business director of Du Pont DiagnosticImaging. "It is our expectation that the CEOs of these systemswill drive compliance."

The dollar value of the deal is difficult to determine becauseof varying prices for different types of film. But Linderman estimatesthat Premier members will consume about a quarter-billion squarefeet of Sterling film annually for the next seven years.

To win that contract, Sterling provided an attractive pricediscount. Alan Weinstein, chairman of Purchasing Partners, a relatedcompany of the new Premier alliance, said that the pricing fromSterling will save some members of the alliance more than 25%of current film prices.

Sterling employees will have to increase productivity whilemaintaining costs if the company is to meet its goals in the yearsahead, Linderman said. The Premier contract is just the most recentand largest of several deals either in the final stages of negotiation,or concluded, such as a five-year extension of an existing contractwith Columbia/HCA.

"We believe demand for our products will continue to growsignificantly and our challenge to the folks at Brevard (NC, wherethe film is manufactured) will be to produce that additional volumeat the same kind of staffing and cost levels in place today,"Linderman said.

Japan pullout. But just as the company is aggressively expandingsales in the U.S., it is pulling back in another part of the world.Sterling Diagnostic has decided to close its Tokyo office; pullout of the JMCP (Japan Federation of Medical Congress Promotion)trade show, one of Japan's largest medical equipment trade events;and resign its membership in JMCP.

"We are changing our strategy in Japan. We are not goingto have direct operations there any longer," said David Pierce,business manager for Latin America and Asia Pacific. "Wedid not have a strong distribution network and to (build one)would have been a big investment."

Pierce expects that Sterling will continue selling to customersin Japan, but products will probably be exported directly fromthe U.S.

"It is just a more cost-effective means for us to staya participant in the Japanese market," he said.

Maintaining a local operation in Japan proved to be expensiveand a drain of resources, Pierce explained. Competition from Japanesefilm companies was part of the problem, but the major difficultyin making film sales was even more fundamental, he said.

"Japanese customers are much more automated in their operations,and that extends to mechanical devices for film transport andprocessors right down to the table devices that move film,"Pierce said. "It is not just a matter of having a film ora screen, which we certainly have, but it is a situation whereyou need a complete system that fulfills all the automation."

Asia represents a very small slice of Sterling Diagnostic's$525 million in annual sales, which Linderman estimated as 60%in North America, 30% in Europe and about 10% to the rest of theworld. Asia makes up only a minor part of that 10%. That couldchange, however: The company is planning to be a major participantin the International Congress of Radiology meeting in Beijingin June, said Jayne Seebach Persico, a Sterling spokesperson.

"We will be showing our broad product offering and givingtechnical seminars throughout the country," she said. "Chinahas tremendous growth potential and we are focusing many of ourresources there."

Dry hard-copy output. The company is shifting into high gearin R&D with the development of a next generation of Linx networkingsystems, a new dry hard-copy output system, improvements in laserprinting systems, new platforms for film technology, and enhancementsto its mammography film products. Sterling is partnering withanother company in the development of the hard-copy system. Lindermanwould not specify whether the new system would be a dry laseror would use some other type of dry printing technology.

"Our objective is not to have the highest resolution inthe market but superior resolution at a lower cost," shesaid. "We believe that the technology we are pursuing providesus with some opportunity in that area."

A commercial launch date has not been set, and Sterling Diagnosticis awaiting the outcome of tests to be run on a prototype of thehard-copy device later this month.

The company is developing its Linx networking system to increaseflexibility and adaptability by making the software less dependenton a single computer platform. A determination has not been maderegarding the platforms -- Sun, Digital Equipment, Apple Macintosh,or IBM PC -- to which the software might be adapted.

A commercial release date has been set for Sterling's DirectRadiography product, shown at the Radiological Society of NorthAmerica conference as a work-in-progress last November (SCAN 12/13/95).The technology, which promises to replace film buckys with a selenium-basedelectronic array that directly converts x-rays into electronicsignals, could be commercially released in 1998, she said. Meanwhile,company engineers will be looking into second- and third-generationproducts that might adapt the technology to fit other applications,including digital fluoroscopy.

"It is our intention to achieve and sustain technologyleadership in the area of direct digital capture," Lindermansaid. "To do that, we believe it is essential that we firstmarket the array we introduced at the 1995 RSNA (show), but wemust begin to define our second and third products now."