Merge goes public with plans to lead connectivity realm

March 1, 1998

Merge goes public with plans to lead connectivity realmFirm also developing technology to support electronic patient recordsWhile Merge Technologies has secured a prominent role in the connectivity segment of the PACS market, the

Merge goes public with plans to lead connectivity realm

Firm also developing technology to support electronic patient records

While Merge Technologies has secured a prominent role in the connectivity segment of the PACS market, the Milwaukee-based firm is not planning to rest on its laurels. In addition to growing its traditional connectivity business, Merge Technologies is developing products to help facilitate the use of images in electronic patient records.

Those efforts, and the company as a whole, should get a boost from funds raised through Merge's initial public offering of 1.9 million shares, which took place on Jan. 28. Trading on the NASDAQ SmallCap Market under the symbol MRGE, the shares opened at $6 a share and as of Feb. 20 were valued at $6.38 per share.

Merge executives were unable to comment on the IPO at length last month, since the company was in the quiet period mandated by the Securities and Exchange Commission. But information about their plans is readily available in the firm's prospectus.

Founded in November 1987, Merge has developed software, hardware, and systems integration products to network otherwise incompatible medical imaging devices such as modality scanners, video display terminals, and medical film laser printers. Sales began in 1989, and Merge's products have been installed at over 1000 healthcare facilities worldwide.

Merge's product portfolio includes MergeWorks, a line of connectivity offerings that retrofit legacy stand-alone imaging devices to DICOM 3.0 connectivity. The firm also sells interface products that allow OEMs to manufacture radiology devices capable of directly communicating with the DICOM standard. In addition, the firm provides network integration products and services for the design and installation of DICOM networks.

As an OEM and VAR (value-added reseller) provider, Merge naturally receives a large portion of its revenue from a handful of clients. The company's 10 largest customers contributed about 76% of net sales for the first nine months of 1997, and clients such as Picker International, Philips Medical Systems, and Siemens Medical Systems contributed 18%, 14%, and 11%, respectively, of Merge's net sales.

While OEM and VAR channels still account for a large portion of the company's sales, the company has broadened its distribution channels to include direct sales to end users.

Merge focuses its direct sales efforts primarily through dealers, although the company retains an extensive role in sales.

Typically, end-user sales have represented only a fraction of the company's revenues, making up 5% of Merge's net sales in fiscal 1995. That percentage grew, however, to 30% in fiscal 1996, and 39% for the nine months ending on September 30, 1997. Merge expects that percentage to increase even more in the future.

The company has been on a roll lately. Net sales for the nine months ending on Sept. 30, climbed from $4.3 million in 1996 to $6.8 million in 1997. In the future, the company also hopes to boost its international sales. The company maintains a sales office in the Netherlands, and employs seven full-time staff members in Europe for sales and technical support.

In addition to its traditional connectivity products, Merge is developing a line of what it calls networked image management products, which enable radiologists to select and mark for retrieval specific selections of medical imaging data. The firm believes that these offerings will reduce the amount of data required to be shared over a network, and will facilitate the development of electronic patient records (EPR).

Products in this category include CaseWorks, a radiology work-flow management tool that uses a MergeReader handheld unit to mark films that should be included in a patient's EPR. This technology allows radiologists to continue to perform diagnosis from film rather than workstations and is expected to be available for sale in the second quarter.

Merge is also developing ReportManager, a tool that builds upon CaseWorks to facilitate the automated assembly and distribution of radiology reports containing text and pertinent diagnostic image data. The resulting reports could be published in a variety of ways, including facsimile, telemedicine, and hypertext markup language (HTML). ReportManager is slated to be available by the end of this year.

The firm is also developing other products that will provide a direct connection between DICOM imaging networks and hospital information systems to facilitate the EPR. These products will also allow transmittal of patient demographic information to the MergeMVP converter and the MergeXPI print interface where images are initially acquired, which will lead to reduced data entry errors and labor costs, according to the company.

As part of the move towards developing technology to support EPR, Merge is planning to target other image-intensive medical departments besides radiology, including endoscopy, pathology, radiotherapy, and urology. Merge intends to develop connectivity products for these departments by using its experience in standardized communication protocols to bridge the gap between the DICOM and HL-7 standards. The company also plans to leverage its relationships with the manufacturers of image-producing and image-using devices.