Endosonics market deal builds Dornier's line

June 5, 1991

Dornier Medizintechnik made further inroads into the medical imagingmarket last month by forming a sales and R&D partnership withEndosonics, a Pleasanton, CA, intraluminal ultrasound firm. The move rounds out Endosonics' team of international

Dornier Medizintechnik made further inroads into the medical imagingmarket last month by forming a sales and R&D partnership withEndosonics, a Pleasanton, CA, intraluminal ultrasound firm.

The move rounds out Endosonics' team of international marketingpartners and offers the U.S. start-up firm access to diagnosticand therapeutic technology for its intraluminal devices, saidMichael R. Henson, president.

A subsidiary of Germany's massive Daimler-Benz group, Dornieris the world's leading supplier of renal and biliary lithotripters.With growth prospects sagging in the lithotripsy market, the Germanfirm is targeting other medical product lines, specifically inimaging (SCAN 9/12/90).

Dornier purchased half of Phoenix-based ultrasound vendor AcousticImaging in 1989 and increased its stake in that firm to 80% lastyear. While Endosonics does not plan to work with partners tosell its systems in the U.S., the intraluminal company could cooperatewith AI in ultrasound R&D, Henson said.

Dornier has built an ultrasound sales and marketing team inEurope to sell the AI system. Although this imaging sales effortis relatively young, there is an advantage in working with a firmthat does not carry many similar products, he said.

"Our strategy is to develop relationships outside theU.S. with people who have powerful distribution organizationsand service capabilities. Dornier offers a tremendous serviceorganization because of its lithotripsy business," Hensonsaid.

Medical customers, particularly in Europe, are hesitant towork with small foreign firms or independent dealers, largelybecause of concern over service, he said.

Endosonics began discussions with Dornier during the same searchprocess that resulted in the formation of a marketing and R&Dpartnership with Esaote Biomedica of Italy. Esaote made a smallequity investment--less than 5%--in Endosonics, but was only interestedin marketing products in Italy, France and the Soviet Union (SCAN3/27/91).

Dornier proved eager to take the remainder of the Europeanmarket as well as the Middle East and Pacific markets outsideof Japan. The German firm did not invest in Endosonics, but willcommit substantial R&D funds, Henson said. Endosonics choseFukuda Denshi, the largest cardiac monitoring company in Japan,as its business partner in that national market last year.

The Dornier agreement is valid for 18 months. At the end ofthat period, Endosonics will evaluate whether to continue withDornier, choose another partner, or build its own organization,Henson said.

Endosonics has been selling its intraluminal imaging devicesin Europe through dealers and has an installed base of about 30systems, he said. The firm has switched from dealers to its owndirect sales in the U.S.

ENDOSONICS HAS A DIFFERENT product strategy than most other intraluminalultrasound firms, Henson said. Although the firm does sell dedicatedimaging catheters, its highest hopes are for a combined balloonangioplasty and ultrasound catheter called Oracle, which is undergoingclinical testing.

The Dornier relationship offers Endosonics therapeutic technologypossibilities that could lead to other types of hybrid systems.Daimler-Benz also owns MBB, one of the world's largest medicallaser companies, Henson noted.

Europe's more rapid approval process for therapeutic devicescould make that market more viable than the U.S. in the shortterm, he said. Endosonics hopes to start selling Oracle this yearin some foreign markets and next year in the U.S.

Since Oracle will replace dedicated therapeutic balloon cathetersin performing angioplasty procedures, U.S. reimbursement shouldnot be as much of a concern as it is with imaging-only intraluminalsystems, he said.

"Reimbursement prospects are not bright for any purelydiagnostic medical electronic device," he said.

Despite the fact that both Dornier and Esaote sell ultrasoundscanners, there is not much immediate demand for combining intraluminaland standard scanning on a single ultrasound system. Users ofthe intraluminal devicess--interventional cardiologists and interventionalradiologists--are distinct from the echocardiographers and ultrasonographerswho use scanners, Henson said.

"The systems are used in different places in a hospital.(Combining intraluminal and standard imaging) is not a significantadvantage in today's market. Three to five years from now, theremay be some advantage as intraluminal ultrasound becomes morewidely used," he said.