Imatron keeps CT focus despite Positron takeover

Firm sees potential in combo CT/PET sites

Imatron took over officially as controlling shareholder of moribund PET manufacturer Positron of Houston last month. The move does not mean, however, that the South San Francisco-based supplier of ultrafast CT scanners has become a multimodality imaging vendor, according to company officials.

"This is not a diversification (of product lines) for Imatron," said Lewis Meyer, Imatron's CEO.

Rather, the effort to resuscitate Positron is part of a two-fold strategy by Imatron to boost CT sales by meeting emerging demand for CT/PET cardiac diagnostic centers in the Japanese market and to reap financial returns by investing in a strengthening U.S. PET market, he said.

Following the approval this month by Positron shareholders of Imatron's takeover of the company, Meyer was installed as chairman of the board, and Gary Brooks, Imatron's CFO, was named president of Positron. The move follows Imatron's provision of a bridge loan to Positron last summer that kept the company afloat while it fulfilled Securities and Exchange Commission filing requirements and prepared a shareholder proxy vote (SCAN 5/13/98).

Imatron and Positron are seeking private-placement equity financing that will reduce the former's stake in Positron to around 19.9%, or low enough to avoid the need to consolidate Positron's operating results into Imatron's financial statements, Meyer said.

"We are going to be an investor just like the new money that comes in," he told SCAN. "We have plenty to do selling ultrafast CT scanners and addressing all of the prospects that GE is throwing our way (through its sales and marketing alliance with Imatron). I don't think we need to take our eye off that ball."

A recapitalization of Positron will be required to rebuild the company's administrative structure and sales and marketing operations so that new scanners can be sold and delivered, Brooks said.

Although Positron is still operating, the company has been stripped down to a bare-bones staff of engineers and field service personnel necessary to continue the service business brought in by Positron's existing installed base, he said. That business includes 15 PET installations in the U.S., one in Europe, one in the Middle East, and an investigative site run by Imatron Japan.

"The issue is one of getting enough cash to relaunch sufficiently to make inroads into the market," Brooks said.

Imatron was first convinced of the business potential of Positron by Imatron Japan, an independent Japanese-owned distributor in which Imatron has a 24% equity stake. One of Imatron Japan's customers, which had purchased about a dozen Imatron CT systems over the past five years, had expressed interest in using the Positron PET system in tandem with Imatron's CT scanner to establish a network of cardiac clinics, Brooks said. Imatron Japan is shepherding the Positron system through Japan's regulatory process.

The concept of screening for arteriosclerosis using ultrafast CT, and then following up when appropriate with functional viability and perfusion studies using PET, appears to be a sound one that may have potential outside of Japan as well, Brooks said. Ultrafast CT screens indicate the need for a second diagnostic exam in 20% to 25% of patients screened.

"This (ultrafast CT and PET) is a good diagnostic tandem. We would like to see it done in other places," he said. "As president of Positron, I am certainly going to follow up the Imatron installations and try to have other people consider the idea. It makes a lot of sense."

While the Imatron and Positron businesses will be maintained as independent operations, there could be some beneficial crossover between the groups. For instance, Imatron has had extensive experience in meeting the requirements of the ISO 9001 international quality standard and the new European Medical Device Directive, Meyer said. Sharing this expertise with Positron could give the PET vendor a leg up in establishing international sales.

One reason PET prospects look good in Japan is the country's favorable reimbursement climate for this modality, Meyer said. Better payment prospects have taken hold in the U.S. as well over the past year, with the initiation of Medicare reimbursement. Expansion of reimbursement to additional PET applications in the future is a possibility.

"Living with a technology where insurance reimbursement has been and still is an impediment to its widespread distribution, we may be more sensitive to the significance of insurance reimbursement," he said. "From my point of view I think this (Medicare reimbursement) is fabulous news. (PET) is now a business."

Keeping the Positron operations separate from Imatron is in line with the company's strategy of focusing more tightly on its CT equipment production and sales. Imatron decided last year to spin off its cardiac screening business, HeartScan (SCAN 8/5/98). While an initial deal to sell HeartScan to LifeTest America has fallen through, Imatron is in discussions with other interested parties, Meyer said.