Positron escapes financial brink thanks to bridge loan from Imatron

Lure of Japanese market leads Imatron to develop rescue package

PET developer Positron got help from an unlikely source this month when ultrafast CT developer Imatron announced that it would provide the financing required to get Positron back on its feet. Imatron is making the move to expand the market for its CT technology in Japan, where hospital networks are beginning to develop integrated cardiac scanning facilities that could employ both PET and ultrafast CT.

Positron’s future has been in question due to the company’s inability to meet its financial commitments, including long-term debt owed to two major creditors. Houston-based Positron in April divulged the seriousness of its financial problems, reporting that the company would not be able to continue as a going concern if it did not receive additional financing soon (SCAN 4/29/98).

Imatron rode to the PET firm’s rescue with a three-pronged plan designed to restore Positron to financial health. In the first part of the plan, Imatron has agreed to loan Positron $500,000 to meet immediate obligations. In exchange, Imatron would receive majority ownership of Positron. Imatron has also agreed to spearhead the recapitalization of Positron by securing $8 million in third-party equity financing over the next 18 months.

The third part of the plan involves the sale of Positron cameras in Japan, a country that has a thriving PET market but in which Positron has not been active. Imatron has agreed to market Positron PET cameras through its minority-owned affiliate, Imatron Japan. It hopes to sell 10 Posicam systems over the next three years.

At first glance, the collaboration of a CT company and a PET vendor seems odd, but the partnership is designed to capitalize on an emerging phenomenon in Japan. Healthcare networks there are developing comprehensive diagnostic imaging centers, some of which are focused on cardiology, according to Lewis Meyer, president and CEO of Imatron. Imatron’s ultrafast CT technology is targeted at cardiac imaging, while Positron focused much of its early development work on cardiac PET.

The technologies of the two companies could work in tandem in such centers, Meyer said. Patients could receive an ultrafast CT screening exam to search for coronary artery calcifications, believed to be a precursor to coronary artery disease. If such calcifications or any other abnormalities are detected, the patient could be sent on for a PET stress perfusion study or a stress myocardial viability study in the same facility.

“In Japan, there is a concept that is fairly well established that people will pay money to get a diagnostic checkup from all the high-tech equipment that is available,” Meyer said. “This is really an extension of that.”

Imatron Japan has already received expressions of interest from at least two large private health networks that are interested in buying multiple PET cameras, perhaps as many as 10 systems each. By expanding its range of product offerings with PET technology, Imatron Japan should also be able to sell more ultrafast CT scanners to these newly developing center networks.

“The idea is to get Positron off the ground as a way to expand Imatron Japan’s products offerings and end up with a stronger Imatron Japan,” Meyer said. “The stronger Imatron Japan is, the more ultrafast CT scanners they are going to sell.”

How bad off was Positron before Imatron announced its bail-out? Although Positron was on the brink of insolvency, its long-term debt stands at just over $1 million, not an insurmountable sum. Most of this money is owed to two firms, Uro-Tech and ProFutures Bridge Capital Fund. Positron has about 12 employees, down from 23 in January, due to cost-cutting measures.

Imatron’s short-term plans for Positron are to help the company return to financial viability. In particular, Imatron will help Positron develop the strong operations expertise and financial controls that it may have been lacking over the last several years. It will be able to do this with a clean slate of management, as nearly all Positron’s executive staff have left the company, with the exception of chairman Gary Wood. Indeed, Imatron’s agreement stipulates that all of Positron’s officers and three of its four directors step down. Wood will remain with Positron, Meyer said.

Imatron does not intend to remain the majority owner of Positron. Once the $8 million equity financing is secured, Imatron’s share will be sharply diluted, and the company will probably retain a stake in Positron in the 20% to 25% range, Meyer said. Imatron executives are traveling to Europe in June to pitch the deal to investors, and the company hopes to have commitments locked up in the next 90 days.

“This is not a staggering amount of money,” Meyer said of Positron’s debt. “That’s why an $8 million equity infusion really provides this company with a launch pad to do something.”