ELGEMS makes debut at SNM show as Elscint and GE finalize joint venture

New firm is headed by Elscint veteran Hermony

The i's are dotted and the t's are crossed on the joint-venture agreement between Elscint and GE Medical Systems to form a new company to develop gamma camera technology that will be marketed independently by both vendors. The joint venture, called ELGEMS, is getting its executive lineup together and plans to move to a new facility south of Haifa, Israel, in the next several months.

Elscint and GE announced the joint-venture agreement in February, stating that their financial prospects in nuclear medicine would be enhanced if they could pool their R&D resources (SCAN 2/19/97). The agreement was finalized last month, and while ELGEMS did not have a booth at this month's Society of Nuclear Medicine conference in San Antonio, representatives from the company were on hand.

ELGEMS officially begins operations July 1, and GE will be moving its nuclear medicine manufacturing capacity to Israel over the next nine months. The joint venture will eventually have about 140 employees.

The president and CEO of ELGEMS is Nathan Hermony, a 20-year Elscint veteran who previously headed the company's nuclear medicine division. The joint venture's CFO is Jutta Hansen, a former GE executive who will relocate to Israel. Elka Nir, a former Elscint R&D manager, has been named vice president of marketing, sales, and customer support, while Daniel Leshem serves as vice president of R&D. ELGEMS reports to a board of directors comprising three GE representatives and three Elscint representatives, with Hermony as the seventh member. In interviews at the SNM meeting, GE and ELGEMS executives explained the philosophy behind the formation of ELGEMS, and the joint-venture's strategy for moving forward.

Elscint began to investigate the possibility of a joint-venture partner partly out of frustration with the company's slow progress in nuclear medicine, according to Hermony. Despite its well-regarded gamma camera technology, the company's market share was stuck at 10% for years, Hermony said. Coupled with a slowdown in equipment purchasing, the time was ripe for some kind of radical change in business strategy, Hermony said. Elscint's board also viewed the deal as a benefit for Israel, by establishing ties between a home-grown company and one of the world's largest multinational corporations.

Meanwhile, GE was seeing its market share shrink due to competition from variable-angle dual-head cameras, which GE did not start selling until this year with its Millennium MG product. GE saw the joint-venture deal as a way to combine resources with Elscint and access new products that would enhance its position in the modality, according to Sharon Banaszewski, general manager of GE's global nuclear and PET business.

"If you look at the size of the market and the numbers of players in it, we felt that there needed to be some consolidation to focus resources on future product development, and we have invested in complementary technologies that can be combined into future products," Banaszewski said.

Still competitors. Not that the deal is without risk for Elscint. ELGEMS will develop technologies for both firms, but GE and Elscint will still be competing for sales in the broader market, with similar product lines.

"Obviously it involves risk," Hermony said. "GE is very strong in marketing. Elscint has always used its advanced technology to get customers, and now (Elscint and GE) suddenly have the same product. I feel we can keep the 10% share of Elscint, but on the other hand, ELGEMS can boost GE's sales."

Hermony's first task is to merge the various product lines of GE and Elscint, a project that is already showing results. GE displayed its version of Elscint's VariCam in its SNM booth, which GE plans to market as Millennium VG. GE will differentiate VG from VariCam by offering the camera with its Genie nuclear medicine workstation, as well as GE's wide range of ancillary services and products, according to Banaszewski.

"The product itself is not the only thing that customers are looking for today. We provide a lot of services, both for financing and service, and we have remote InSite support, which is something that will be custom to us," she said. "We've also provided various marketing tools to the customer, and a lot of other services surrounding the actual equipment to help them make their operation financially successful for them."

At its SNM booth, Elscint showed MagiCam, a version of GE's Millennium MG, which gives Elscint a variable-angle camera at a new price point (SCAN 5/28/97). Integrating other technologies will be more difficult, however, as GE and Elscint had duplicative R&D efforts in some areas, such as coincidence detection and solid-state digital detector technology. In these cases, ELGEMS will take the best from each company and work on that, Hermony said.

Some manufacturing may take place in-house at ELGEMS, while some may be outsourced. Elscint will have the right of first refusal to manufacturing components, but ELGEMS is free to outsource manufacturing to other companies.

"The expertise of ELGEMS is in the detectors, front-end electronics, and clinical applications," Hermony said. "The detectors, the software for acquisition, and the clinical applications will be developed at ELGEMS and later on sold to the two vendors."