Otsuka searches for corporate partner after parent threatens to pull plug

August 15, 1994

MRI vendor slashes sales and marketing budgetOtsuka Electronicsis searching for a joint marketing partner for its MRI technologyafter parent Otsuka Pharmaceutical said it would cut off the businessunless a corporate ally is found. Otsuka

MRI vendor slashes sales and marketing budget

Otsuka Electronicsis searching for a joint marketing partner for its MRI technologyafter parent Otsuka Pharmaceutical said it would cut off the businessunless a corporate ally is found. Otsuka Electronics has restructuredoperations and slashed its sales and marketing budget until itfinds a partner, according to president and CEO John Heinrich.

Otsuka notified its employees of the news last month and, asa result of the restructuring, an unspecified number of workerswere let go. Otsuka also cut its advertising budget and abandonedplans to attend the American Healthcare Radiology Administratorsand Society of Magnetic Resonance meetings this month, Heinrichsaid. Whether Otsuka exhibits at the Radiological Society of NorthAmerica meeting this November depends on the outcome of its search,he said.

The ultimatum from Otsuka Pharmaceutical came amid rising doubtsamong the Japanese firm's board of directors that a company withonly one product line could go it alone in the increasingly competitivemedical imaging market.

"The history of this marketplace indicates that it isdifficult for single-product companies to be highly successfulin the major modalities," Heinrich told SCAN. "We arecurrently seeking a partner to establish a relationship that willmaximize the business' probability of success."

The news comes at an inopportune time for Otsuka Electronics.The Fort Collins, CO, firm received Food and Drug Administrationmarketing clearance for a new configuration of its 1.5-tesla Oraclescanner in December and began a major sales and marketing campaignearlier this year (SCAN 5/18/94).

Otsuka markets Oracle as an affordable high-field magnet appropriatefor today's cost-conscious medical imaging market. Oracle listsat $1.15 million and features the smallest and lightest 1.5-teslamagnet available. Since May, Oracle has had an installed baseof four.

Otsuka suffered several setbacks in development of the scannerthat evolved into Oracle. The company initially planned a nichescanner that used insertable gradient coils. That system, OE 1.5SI, debuted at the 1991 RSNA meeting and was cleared for marketingby the FDA in 1992 (SCAN 12/25/91 and 7/29/92). The OE 1.5 SIdid not perform as well as expected, however, and Otsuka retooledthe system to develop Oracle, a full-featured scanner. Otsukais currently upgrading the system to include a radio-frequencybody coil.

Otsuka planned to build a solid reputation in the U.S. andthen branch into other markets. The company signed a distributionagreement for Europe with Kontron Instruments of France (SCAN1/19/94).

Otsuka now faces the unenviable prospect of promoting itselfas a viable partner to former competitors, many of whom have recentlyreleased new 1.5-tesla offerings into a battered MRI market. Philips,Picker and Siemens have all introduced new 1.5-tesla scannersin the past year.

Several other smaller players in the MRI market have eitherfolded their tents or have scaled back marketing efforts. Sophaabandoned a venture into low-field MRI, and Resonex defaultedon loan payments and was taken over by creditors (SCAN 2/2/94and 3/16/94). Shimadzu retreated on a plan to build a direct MRIsales network (SCAN 7/13/94).

A more likely ally for Otsuka could be a large medical imagingfirm without a strong offering at the 1.5-tesla level, or a medicaldevice company with a desire to break into imaging. Heinrich declinedto speculate on how a partnership would be structured or whatthe fate of Otsuka will be if it does not find an ally.

Otsuka can offer a potential partner high-field MRI technologyat an affordable price, he said.

"We are in the midst of a major product upgrade programthat we believe will produce a product with state-of-the-art capabilitiesand a unique price-performance characteristic," Heinrichsaid. "Those things are potentially attractive to the rightpartner."