GE reexamines position in PET,sells product rights to Positron

July 31, 1996

Positron must raise $25 million to complete purchaseWearied by a moribund market registering worldwide sales of only$40 million a year, GE Medical Systems announced this month thatit intends to sell its manufacturing and product development

Positron must raise $25 million to complete purchase

Wearied by a moribund market registering worldwide sales of only$40 million a year, GE Medical Systems announced this month thatit intends to sell its manufacturing and product development interestsin position emission tomography to PET developer Positron.

GE officials stressed that the transaction does not signifythe company's withdrawal from PET, which GE entered in 1989 withits purchase of the PET line of Swedish firm Scanditronix (seestory, page 7). Although camera manufacturing will be moved nextyear from GE facilities in Milwaukee to Positron's Houston headquarters,GE will continue to sell and install Advance PET scanners andPETtrace cyclotrons supplied by Positron. GE will also retainthe service contracts for its installed base.

The PET market is not big enough to justify a full-blown commitmentby GE, according to James Shepard, general manager of GE's globalnuclear/PET business. Worldwide orders totaled $10 million throughJuly and will grow to roughly $40 million this year, he said.

"It is just a very large investment for us for a verysmall market," Shepard said. "We consider this a win-winscenario, because for Positron, it is their entire business andis a much bigger opportunity for their company."

The deal is an all-or-nothing gamble on the long-term viabilityof the PET market for Positron, which weathered a liquidity crisisearlier this year (SCAN 3/13/96). Rights to the GE product linewill cost the company $25 million in cash and 10% of its outstandingcommon stock. GE also gets a three-year option to buy an additional15%.

The week of the GE announcement, Positron revealed that itno longer meets the $4 million tangible net worth threshold forlisting on the NASDAQ stock exchange, and its stock has been movedto the NASDAQ Small Cap market. Positron must find a way to gaincritical mass to continue to compete with Siemens in the market,according to some observers.

Positron's stock continued to be listed on the NASDAQ exchangepending appeal of the listing requirements. A $1.2 million privatestock sale and the installation of a major upgrade this monthraised the company's net worth close to NASDAQ requirements, accordingto CFO David Rodrigue.

Positron has until the end of this year to come up with the$25 million to close the GE transaction, Rodrigue said. He expectsthe deal will be completed in November.

"The GE distribution system will give us broader exposure.We come out of this a stronger company," he said.

The acquisition of GE's assets fills several holes in Positron'sproduct line. The addition of the Advance camera -- which willbe repackaged and renamed -- strengthens Positron with a high-performancescanner designed for cancer detection and monitoring, Rodriguesaid. Most observers expect such oncological applications to drivedemand for future PET camera sales.

The deal also gives Positron access to Quest, a $1 millionPET scanner positioned to compete against Siemens' ECAT ART, a$980,000 scanner that has contributed to Siemens' sales leadershipin the European market. UGM Medical Systems in Philadelphia buildsQuest, for which GE contracted distribution rights in 1993 (SCAN12/29/93). These new products will be sold alongside Positron'sPosicam HZL, a $1.6 million scanner designed primarily for cardiacPET applications.

The GE deal also puts Positron in the cyclotron business forthe first time. The PETtrace cyclotron will continue to be manufacturedin Sweden and sold around the world by GE and Positron sales staffs,Rodrigue said.

Positron has a relationship with Israeli vendor Elscint, whichhas sold Positron scanners overseas since 1993. Positron's newlyformed relationship with GE could rekindle Elscint's interestin pitching the product line if it gets to sell the UGM scanner,according to consultant Marvin Burns, president of Bio-Tech Systemsin Las Vegas. Elscint has sold Positron scanners to customersin Madrid and Jerusalem, but could use a low-cost scanner to counterSiemens, Burns said. Positron officials said the GE deal willnot affect the company's relationship with Elscint.

In general, Burns was upbeat about the sale. He noted thatPositron has persevered in its commitment to PET, while at GE,PET diverted resources from GE's mainstream nuclear business.

"This sale was a good move for the industry, which wastroubled by overcapacity," Burns said. "All partieswill benefit."