McKesson seeks to acquire Israeli cardiology IT firm for $105 million

June 27, 2005

McKesson has signed a definitive agreement to acquire Medcon, an Israeli developer of Web-based cardiology PACS and IT. The proposed acquisition, valued at $105 million, reflects the strategy of McKesson. The IT provider is aggressively promoting integrated healthcare systems that stretch across medical specialties including radiology, gastroenterology, ophthalmology, and cardiology.

McKesson has signed a definitive agreement to acquire Medcon, an Israeli developer of Web-based cardiology PACS and IT. The proposed acquisition, valued at $105 million, reflects the strategy of McKesson. The IT provider is aggressively promoting integrated healthcare systems that stretch across medical specialties including radiology, gastroenterology, ophthalmology, and cardiology.

Medcon specializes in Web-based cardiac image and information management. The company has installed worldwide more than 320 of its flagship cardiac PACS/IT product, the TCS Symphony. The company reported $17 million in sales last calendar year. Sales are expected to add to McKesson financials in 2007.

The deal would have a negative impact in the short term, as McKesson writes off one-time costs consisting mostly of in-process R&D expenses. The write-off is a technical accounting requirement, according to Sunny Sanyal, group president of clinical solutions for McKesson Provider Technologies, not the indication of a switch away from Medcon R&D.

"Our intent is to grow that development unit," Sanyal said. "It is really an expansion of our investment in R&D."

Medcon was attractive because its technology has an open architecture, is modular, complies with IT standards, and embodies philosophical considerations common to McKesson technologies, he said.

McKesson, based in San Francisco, currently offers Camtronics' cardiology IT product under a value-added reseller agreement struck last November. The company plans to continue selling the Camtronics offering, even if the Medcon acquisition goes through, at least in the near term. Sanyal said the two companies are now trying to hammer out the details.

"We have to make sure there is no market conflict, at least in the foreseeable future, to offering both technologies," he said.

McKesson is moving away from the Camtronics alliance in a bid to control product development, according to Sanyal, who is in charge of McKesson Horizon Clinicals product development, product strategy and planning, product management, product marketing, customer support, and professional services.

The proposed merger, which involves an offer of $3.05 per share of Medcon stock, is expected to close by the end of September. Medcon would become part of McKesson Provider Technologies, a McKesson division specializing in healthcare software, hardware, automation, and professional services. Integrated information and imaging solutions are among the key strategic aims of the division.

McKesson signed 28 new customers for its medical image management products in the first five months of this year and completed 15 installations. During McKesson's last fiscal year, which ended March 31, the number of exams read using Horizon Medical Imaging PACS increased approximately 40%, according to the company. The Horizon Radiology RIS/PACS suite is a key building block for the company's enterprise-wide portfolio, uniting image and information management. The Web-based system digitizes the patient record and integrates administrative functions such as billing, claims, data distribution, and reporting.

The addition of Medcon is expected to improve McKesson's ability to expand into cardiology, which the company has pegged as one of the fastest growing high-cost medical specialties in hospitals. Medcon's TCS Symphony pulls together cardiology information into a single patient-centric information system. These data are then used to diagnose and manage the patient.

The modular system can be tailored and scaled to meet specific needs. It compiles medical images, such as echocardiograms and angiograms, and electrocardiogram waveforms, as well as measurements obtained from these data. Physicians can access this information via the Web.

TCS Symphony also automates the workflow process, thereby improving patient throughput and productivity. Financial features built into the system address billing and reimbursement, as well as inventory control.

Medcon has two other products: Windsurfer, a hemodynamic monitoring system for the cath lab that can be integrated with TCS Symphony, and a Web-based telecardiology system called eMedcon Internet. McKesson plans to offer both. Windsurfer and eMedcon would be offered as stand-alone products and as parts of an enterprise solution along with TCS Symphony. The telecardiology product might be especially attractive to institutions wanting to link cardiologists who are loosely associated with the hospital, according to Sanyal.

"Once the acquisition closes, these types of 'go to market' strategies will be fleshed out more thoroughly," he said.

Growth in cardiology IT could be a boon to McKesson. The company estimates that fewer than 15% of U.S. hospitals have an integrated solution for cardiology, which is second only to radiology in the number of images and amount of patient information. The company also expects its merger to boost demand for its Horizon Radiology PACS.

"We are seeing increasing enterprise-type requirements in the deals we are doing. This is a trend that will only increase in the future (as institutions replace older technologies), and it positions us with a significant differentiator from competitors," Sanyal said. "So just by virtue of that, we believe it will drive our volumes."