Fischer Imaging declares bankruptcy

August 23, 2006

One of the oldest U.S. manufacturers of x-ray equipment is no more. Fischer Imaging, a Denver-based maker of x-ray products for nearly a century, filed for bankruptcy Aug. 22, one day after signing an agreement to sell its remaining assets to neighboring Byers Peak, a contract manufacturer of medical equipment.

One of the oldest U.S. manufacturers of x-ray equipment is no more. Fischer Imaging, a Denver-based maker of x-ray products for nearly a century, filed for bankruptcy Aug. 22, one day after signing an agreement to sell its remaining assets to neighboring Byers Peak, a contract manufacturer of medical equipment.

Fischer, a Delaware corporation, filed for Chapter 11 to avoid the expense and time delay involved in securing stockholder approval, according to the company. Delaware law requires such approval for a company to sell all or substantially all of its assets, unless it is bankrupt. Fischer also cited its deteriorating financial position as a reason for filing Chapter 11.

The deal with Byers Peak includes Fischer's VersaRad, SPX, EPX, and Bloom EP Stimulator product lines. VersaRad is a ceiling-mounted U-arm designed for general-purpose radiography. SPX is a ceiling-mounted C-arm intended for use by interventional radiologists and in vascular surgery, orthopedics, and urology. EPX is a single-plane electrophysiology system. The four-channel Bloom system, designed specifically for the electrophysiology lab, stimulates the heart.

"These products have an opportunity in the marketplace; they are viable products," said Phil Prescott, Byers Peak president. "We are looking to service clients who currently have these products from both a field service perspective and a parts perspective for those who service their own. We will then be looking to rejuvenate sales of the products themselves."

Under the agreement signed Aug. 21, Byers Peak assumes service contract and warranty repair obligations for the several product lines included in the deal. It also involves some related equipment, inventory, "general intangibles," and intellectual property related to the product lines. The company will pay $260,000 and up to another $80,000, depending on the number of Bloom units sold by Byers in the year ahead.

The Bloom EP system holds special opportunity for Byers Peak. The cardiac stimulator is a higher volume product with wide appeal.

"We will be targeting this product to rejuvenate first," Prescott said.

The company already handles repair depot services for the EP system under a contract with Fischer. Byers Peak also manages a loaner pool of these systems.

Other products may be upgraded or versions put into production as opportunities arise. The future of VersaRad will depend in part on Kodak, which had been buying the system under a supply agreement with Fischer.

"Because Kodak is looking to make a change in its business strategy, we will put that one on the back burner," Prescott said. "But we know there is still an interest in service and spare parts, so we are looking to support that entire process."

Kodak is considering the sale of its healthcare business (DI SCAN 5/4/06, Kodak strategists look at options for Health Group). The company previously purchased from Fischer the rights to service and supply parts for VersaRad, but Byers Peak, as part of its just-signed agreement with Fischer, has rights to both.

"It is a kind of mutual license, whereby we would have the authority to rejuvenate the spare parts business, as well as produce new equipment for sale," Prescott said.

Byers Peak will also look into restarting the EPX and SPX lines, he said, although both product lines would require revamping. Enhancements would be provided to the installed base as part of a retrofit program.

Additionally, Byers Peak is talking to International Surgical Systems, which markets a version of the EPX under its own name. The rebranding and service of this system fall under a previously signed agreement with Fischer.

"We are going to be looking to partner with them to rejuvenate that business for them as well," he said.

Prescott did not provide a time frame for when the company might take any of these actions. Final decisions must wait until Byers Peak has at least gotten its arms around the device master records for these product lines, which include documentation, validation, and regulatory materials.

A more pressing issue is completing the deal with Fischer, whose board of directors will either file a reorganization plan to liquidate assets or convert from Chapter 11 to Chapter 7 after the Byers agreement is closed. If a liquidation plan is filed, it must be approved by creditors, interest holders, and the bankruptcy court. Regardless of which path the company follows, Chapter 11 or Chapter 7, liquidation will be complete in one to two years. Until the sale is completed, Fischer expects to meet service and warranty obligations by using the services of Byers Peak through a manufacturing services agreement and other contractors.

It's been a long decline for Fischer Imaging, which helped pioneer digital mammography. The company weathered an SEC investigation that ended in late 2004 when Fischer accepted a cease-and-desist order, promising not to violate certain provisions of the federal securities laws. No penalties were imposed by the commission. The SEC filed a complaint last year, however, against several former Fischer executives, alleging that they inflated the company's financials between 2001 and 2003 by shipping equipment to third-party warehouses but claiming the revenue as if the equipment had been shipped to customers.

Along the way, Fischer sold off all the assets that once distinguished the company as a leader in the medical imaging community, including the intellectual property regarding its slot-scanning, full-field digital mammography to Hologic and its IP for prone breast biopsy to Siemens. The latter deal was forged when Fischer's original sale of biopsy assets to Hologic failed to meet criteria set by the Federal Trade Commission (DI SCAN 7/10/06, FTC scuttles Hologic purchase of some Fischer Imaging assets).