Fonar claims early success for new MRI scanner series

Damadian sees many routes to company comeback

Less than a month after its first major exhibition in seven years,MRI pioneer Fonar has announced the receipt of five signed andfunded orders for its new Quad series of open-style MRI scanners.Another 10 orders are pending, the company said last month.

The announcement signals the most recent positive results ofan endeavor by Fonar founder and CEO Dr. Raymond Damadian to restorehis company to prominence in MRI equipment manufacturing. Damadianconsiders 1995 and 1996 to be pivotal years in a campaign thatcombines a product-line overhaul with a get-tough patent-protectioninitiative. That effort led last year to a substantial out-of-courtsettlement with Hitachi and a $62 million judgment against GEthat is pending appeal (SCAN 7/19/95).

The two tactics are intertwined. The company's future ultimatelydepends on market response to the Quad series, according to Damadian.The initial promotion and ongoing development of the scannersare to be funded by revenue generated by Fonar's successes inthe legal arena, he said.

The company announced a substantial improvement in its back-orderstatus in September 1995, largely from the first wave of salesof the 0.35-tesla Quad 7000 that gained Food and Drug Administrationclearance five months earlier. The company's backlog at that timewas $4 million, compared with $1.5 million in September 1994.Fonar gained the FDA's approval in November to begin marketingthe more powerful Quad 12000.

Fonar's legal wranglings have so far garnered mixed financialresults. Industry sources point to the Hitachi settlement as amajor source for the five-fold improvement in Fonar's cash positionreported in fiscal 1995. The company had $3.2 million in cashon June 30, 1995, compared with only $567,000 on the same datein 1994.

But the company continues to lose money because of legal expensesincurred in the GE appeal and ongoing patent infringement casesagainst Siemens and Philips. Losses were also incurred as thecompany expanded its manufacturing capacity.

Fonar reported losses of $370,000 on revenues of $4.3 millionin the first quarter (end-September). The results compared witha $72,000 loss and $4.9 million in revenues in the same periodof 1994.

The once and future pioneer? These developments do not dauntDamadian's optimism regarding the potential sales success of histwo new open-architecture scanners. Damadian, the developer ofthe first MRI scanner sold commercially, believes he again hasthe right product at the right time. He argues that the low acquisitioncost of Fonar scanners will attract imaging center customers,while their potential capabilities in interventional MRI and low-costMR mammography will lead to university-based sales.

"It's nice to be coming in with a new product when itis appropriate," he said.

Declining reimbursement has placed a premium on MRI cost reduction,which Fonar addresses with the Quad 7000 priced at $650,000 andthe Quad 12000 at $850,000, according to Damadian. Both platformsfeature open architectures to appeal to the market for scannersfor claustrophobic, pediatric and obese patients, he said.

Convenient patient access combines with relatively high fieldstrength to appeal to interventional radiologists, Damadian said.He touts the 0.6-tesla Quad 12000 as the first high-field scannerin the open-architecture MRI class. This claim is based on thescanner's vertical-field, iron-core electromagnet design. Accordingto Damadian, the vertical-field orientation enables the scannerto operate with solenoid coils that are twice as sensitive tothe detection of radio signals than saddle coils used with horizontalfield magnets. Consequently, the 0.6-tesla Quad 12000 generatesa signal-to-noise ratio equivalent to the performance of a 1.2-teslahorizontal-field scanner, he said.

For interventional MRI, the scanner can be placed on a raisedplatform or next to a floor-recessed surgical bay, so the patientis at a height convenient for the physician. Negotiations areunder way to examine how well Quad performs as a surgical guidancetool.

Damadian developed a four-bed patient carousel for the Quadseries to realize his vision of low-cost MRI breast cancer screening.Each bed occupies a quadrant of the scanner and can be isolatedby walls or screens for privacy. Patients are positioned and scannedin sequence around the carousel to eliminate dead time betweenprocedures, he said.

The five-minute exam is performed without compression whilethe patient is dressed in normal loose-fitting street clothes,according to Damadian. The configuration is designed to scan 12patients per hour at a cost of $80 per study, Damadian said. Heenvisions cooperative agreements among several hospitals to generateenough patient volume to support the service. The carousel concepthas yet to be tested in clinical conditions, although severalfacilities have expressed interest in the approach, he said.