Otsuka signs tentative agreement to sell clinical MRI business

Buyer's identity is $64,000 question at SMR

Otsuka Electronics has succeeded in finding a possible corporateally for its 1.5-tesla MRI technology. The company announced thismonth that it signed a memorandum of agreement with an unnamedfirm that would buy Otsuka's clinical MRI business. The two firmsare conducting due diligence prior to signing a definitive agreement,which could happen within three months.

The identity of the anonymous buyer was one of the few hottopics of conversation at an otherwise languid Society of MagneticResonance meeting in San Francisco earlier this month. The meetingwas the second of two SMR conferences held this year due to theconsolidation of the Society of Magnetic Resonance in Medicineand the Society for Magnetic Resonance Imaging (SCAN 4/20/94).

Otsuka last month said that it restructured operations andcut its sales and marketing efforts pending the completion ofa search for a corporate ally (SCAN 8/10/94). Otsuka had decidedthat it was too difficult for a company with only one productto go it alone in the U.S. medical imaging market, according topresident and CEO John P. Heinrich.

In an interview with SCAN at the SMR conference, Heinrich elaboratedon Otsuka's decision to seek a partner. Heinrich said he broughtup the idea of finding an ally to the board of directors of OtsukaPharmaceutical shortly after he assumed the top spot at the U.S.MRI unit this year. Otsuka Pharmaceutical is the Japan-based parentof Otsuka Electronics, which is headquartered in Fort Collins,CO.

"It is often difficult for a company configured like Otsukato be successful," Heinrich told SCAN. "We are relativelysmall, trying to crack a big market with a single product. Weare very vulnerable to the sorts of industry downturns we arein right now. I felt that it was in the best interests of thebusiness to try and find a partner."

An ideal buyer for Otsuka would be a company with worldwidedistribution channels and a product line that can be used to leveragesales of MRI scanners, Heinrich said. Heinrich forwarded a listof 10 companies he thought would be good candidates to OtsukaPharmaceutical's board of directors, and received approval toapproach the companies confidentially earlier this year.

Otsuka is involved in discussions with more than one company,although it is farthest along with the unnamed firm with whichit signed the memorandum of agreement. That agreement includesprovisions for a substantial recapitalization of the MRI businessto maintain continuity of product development and system shipmentprograms. Otsuka has agreed to keep the identity of the mysterybuyer secret until a definitive agreement is signed.

Meanwhile, Otsuka's sales effort has been derailed just asthe company was preparing to begin a major upgrade program. Otsukahad to cancel several sales that were in progress at the timethe restructuring occurred, Heinrich said. The company hopes tobe able to resume its sales and marketing efforts as soon as adefinitive agreement is reached.

"We want to minimize the loss of momentum in the marketplace,we want to minimize the uncertainty for the employees," Heinrichsaid. "It's in everyone's best interest to try to get thisdone quickly."