Lumisys to expand in PACS with acquisition of CompuRad

October 1, 1997

Lumisys to expand in PACS with acquisition of CompuRadDeal caps whirlwind year for CompuRadLumisys late last month made a decisive move to expand beyond its core x-ray film digitizer market with the signing of an agreement to acquire

Lumisys to expand in PACS with acquisition of CompuRad

Deal caps whirlwind year for CompuRad

Lumisys late last month made a decisive move to expand beyond its core x-ray film digitizer market with the signing of an agreement to acquire teleradiology and PACS software developer CompuRad. The deal would create one of the largest PACS and teleradiology component providers in the industry.

The agreement marks an interesting turn in the paths of two closely watched companies. Lumisys has been the dominant player in the film digitizer market for several years, but faces a long-term threat from direct-to-digital x-ray detectors. CompuRad, meanwhile, was one of the few remaining independent PACS and teleradiology vendors in the U.S.

The difficulties faced by Lumisys became evident earlier this year, when the company reported that it was experiencing softness in its film digitizer market (PNN 5/97). While growth rates in that segment were projected by the company to be in line with overall PACS market growth of 15% to 20%, the market appeared to be in the middle of a temporary slump. To avoid dependence on one core market, Lumisys has been in the midst of a diversification effort, which has included commercializing its QR 2000 ultrasound work-flow management workstation and developing a low-cost computed radiography reader. The acquisition of CompuRad appears to reflect a continuation of this trend.

For CompuRad, the deal culminates a period of furious activity for the company. Earlier this year, the Tucson-based vendor acquired the PACS family of Star Technologies in a deal CompuRad executives said gave the company all the products needed to be a full-line PACS company (PNN 9/97). In late August, the vendor also acquired nuclear medicine software provider Medical Imaging Technology Associates (see below).

Like Lumisys, CompuRad also faced a hazy future. PACS and teleradiology vendors have been consolidating rapidly, with most of the once-independent companies in the U.S. falling under the aegis of a major corporate parent. CompuRad has become one of the few firms without strong corporate ties.

The Lumisys/CompuRad deal should benefit both companies. Lumisys will gain access to the hot PACS and teleradiology software market, which undoubtedly will outlast the film digitizer segment, while CompuRad will benefit from the strong OEM ties possessed by Lumisys. Indeed, the OEM angle was a major reason why CompuRad agreed to the deal, according to Dr. Philip Berman, chairman of the board, president, and CEO of CompuRad.

"We believe that end-user sales will be dominated by bigger companies," Berman said. "CompuRad could have gone head to head against the bigger PACS and teleradiology players, but we never wanted to do that. We always saw ourselves as a software component (supplier)."

After the acquisition, Lumisys will phase out the direct sales previously performed by CompuRad. The company will continue to support CompuRad customers and will provide upgrades until a VAR or OEM network is in place in their geographical region, said Lumisys CEO Stephen Weiss.

Following the close of the acquisition, the CompuRad name will be retired, although its Tucson headquarters will be maintained. It will likely function as a software and customer support division within Lumisys, Weiss said.

CompuRad's PACS offerings will be added into the Lumisys product catalog for OEM customers. Lumisys also plans to integrate CompuRad software into the firm's film digitizers to create what Lumisys executives call "appliances." For example, digitizers could then be programmed to output DICOM images compressed according to user specifications, said Cary Cole, vice president of marketing for CompuRad.

"This will dramatically reduce the cost of delivering digitizer stations, because now you don't need a computer and all that extra hardware," Cole said. "It's built into the digitizer."

Company officials also see potential in offering services such as installation, HIS/RIS, and DICOM integration.

Under the terms of the acquisition, CompuRad shareholders will get 0.928 shares of Lumisys common stock for each share of CompuRad common stock. As of Sept. 29, CompuRad shares were selling at $6.50, which translates to an acquisition value of $25.6 million. CompuRad shareholders will end up with approximately a 36% stake in Lumisys, with Lumisys shareholders retaining the remaining shares. The companies expect the deal to be finalized between Dec. 1 and Jan. 30.

The transaction is expected to qualify as a tax-free reorganization and to be accounted for as a pooling of interest, according to Lumisys. It is also subject to shareholder approval by both companies, as well as regulatory approval.

CompuRad executives will be well represented in the upper management of the new company. Berman will take over as president of Lumisys, and Dr. David Lapan, a member of CompuRad's board of directors, will join the new company's board of directors. Weiss will retain the title of CEO with the new company. Cole will also assume the position of vice president of marketing for Lumisys, while Henky Wibowo, CompuRad vice president of engineering, will be named vice president for software development.

MITA acquisition

The Lumisys acquisition comes just weeks after CompuRad announced that it would acquire nuclear medicine software provider Medical Imaging Technology Associates (MITA) in a deal that allowed CompuRad to expand into nuclear medicine and nuclear cardiology digital image management. Philadelphia-based MITA makes the Tapestry line of DICOM-compliant software products for the acquisition, distribution, and viewing of nuclear medicine studies, as well as Gammacon, a software connectivity tool to allow images generated by gamma cameras from different vendors to be read on the same processor.

"We think there is a real good niche opportunity in moving nuclear cardiology images around in a centralized reading environment," Cole said following the acquisition. "Concurrently with that, MITA has very good nuclear medicine products, so it allows us to tie nuclear medicine into our PACS, miniPACS, or teleradiology offerings."

Under the terms of the agreement, CompuRad would acquire MITA for 17,500 shares of CompuRad common stock on Apr. 1, 1998. If the Lumisys agreement is completed, an appropriate conversion of Lumisys stock will be substituted. At that point, MITA and its four employees will be absorbed into Lumisys. In the meantime, CompuRad began distribution of Tapestry, which has been renamed GammaView, on Sept. 1. Distribution of Gammacon will begin in April 1998, after a previous distribution agreement for the product expires.

CompuRad and MITA engineers will also collaborate to finalize development of a nuclear medicine image server, to be called GammaLinx, which will be introduced at the 1997 Radiological Society of North America meeting.

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