Siemens bids $1 billion for CTI Molecular Imaging

Siemens and CTI Molecular Imaging have been collaborators for 18 years, sharing in a joint venture that supplied Siemens with PET scanners, andworking together since last spring on the sale of PET and PET/CT systems. Soon the partnership will end in a merger of the two, if Siemens' billion-dollar bid for its partner company goes through.

The two firms announced March 18 a merger agreement for all businesses of CTI Molecular Imaging, including the joint venture CTI PET Systems (CPS) and wholly owned CTI subsidiaries PETNET Solutions, Mirada Solutions, Molecular Technologies, and Concorde Microsystems. The boards of directors of Siemens and CTI Molecular Imaging have approved the agreement.

Siemens has until March 28 to make a cash bid of $20.50 per share to acquire all of the outstanding shares of CTI stock. Thereafter, any remaining shares of CTI stock will be obtained in a merger at the same price per share. Pending regulatory approvals and other customary closing conditions, the transaction is expected to close in the second quarter of this year.

Last July, CTI president and CEO Ronald Nutt, Ph.D., discussed with DI SCAN the all but inevitable sale of CPS to Siemens, noting that Siemens and CTI had agreed some 15 years previously that the joint venture eventually would pass into Siemens' hands (SCAN 7/16/04). In preparation for that sale, which Nutt expected would occur by 2006, CTI Molecular Imaging was making the transition to two different companies: one focused on developing biomarkers and probes, the other concentrating on detector materials, including lutetium oxyorthosilicate, which has become an integral part of Siemens' high-performance PET and PET/CT products.

"This is how we are organized and this is what Siemens is acquiring," Nutt said.

Michael Reitermann, president of Siemens' Nuclear Medicine Division, described the proposed merger as a natural progression in the company's long association with CTI.

"We have said for a long time that we want to be a player in the molecular imaging arena. We did this first through the joint venture with CPS, and now, basically, we have decided that the time is right to bring the companies together," he said.

The proposed merger with CTI will strengthen Siemens in its development of molecular imaging from two perspectives: the enhancement of healthcare economics and the improvement of clinical outcomes. These will be achieved, Reitermann said, not only through PET/CT but also through opportunities involving other types of hybrid imaging. He did not elaborate.

Chief rival GE Healthcare viewed the news as validating its move last year to acquire the pharmaceutical giant Amersham. That merger helped propel GE toward its vision of personalized medicine. The proposed merger between CTI and Siemens will accomplish a similar objective specifically addressing PET, according to Karthik Kuppusamy, GE's general manager of nuclear medicine, PET/CT, and radiopharmaceuticals business for the Americas.

"The whole world is going toward personalized medicine," he said. "This is a first step by Siemens toward that potential in molecular imaging."

Established in 1983, CTI Molecular Imaging focused initially on PET, laying the groundwork for the development of PET scanners and a radiopharmaceutical network under the auspices of its subsidiary PETNET. The manufacture of PET scanners was put under the control of the CPS joint venture between CTI and Siemens, which was established in 1987.

PET struggled as a clinical modality until several years ago, when the introduction of PET/CT hybrids and the extension of reimbursements energized the marketplace. CTI capitalized on these developments, launching its own PET/CT line. The company also extended its business to include:

• advanced image processing software (acquired Mirada August 2003)

• advanced R&D into PET biomarkers and probes (founded Molecular Technologies January 2004)

• electronics and miniature PET systems for animal testing (acquired Concorde Microsystems June 2004)

Reitermann and Nutt refused to comment on how or whether the operation of these subsidiaries might change if the deal goes through. The two companies have shown the ability to adjust their market approaches, even before they were deep in merger talks.

Last spring CTI backed away from the direct sale of its own PET-based products, allowing Siemens and other distributors to take the lead. At the time, Nutt cited the realization that CTI and Siemens had begun cannibalizing each others' sales (SCAN 5/18/04).

CPS supplied most of its PET scanners to Siemens, but the company had also opened supply lines to Hitachi, which is currently selling in the U.S. an LSO-based PET scanner integrated with a Hitachi multislice CT, and to Toshiba, which is integrating CTI-produced PET components with its own CT for sale in Japan. The two executives said they foresee no changes in either relationship as a result of the proposed merger.

CTI's change in market approach was followed by the release of disappointing news about its sales performance. Predictions of a continued sales shortfall, however, proved premature, and the company has since come back. Nutt noted that CTI hit a lull in sales toward the end of 2004, but revenues have since rebounded. He and Reitermann see continued growth, particularly in Southeast Asia and selected markets within Europe.

Nutt pushed during the past year to settle litigation brought against CTI. The company settled civil suits brought by GE against PETNET Solutions and certain staff to prevent former GE employees from disclosing or using GE confidential information (SCAN 6/14/04). In late February, the U.S. District Court for the Eastern District of Tennessee dismissed allegations of patent infringement regarding CTI's and CPS's detector block design brought by the University of Texas system and M.D. Anderson Cancer Center.

Last year, a former employee, Behrouz Amini, pressed litigation against the company, claiming in a letter distributed to the press at the Society of Nuclear Medicine meeting that he was seeking damages in excess of $100 million. The case was settled earlier this year, according to Nutt.

All that remains for the proposed deal to close is the routine process of gaining regulatory approval from government officials, meeting customary closing conditions, and acquiring the requisite number of shares.

"We are confident that we will get enough shareholders to agree to the transaction and there will be no problems," Reitermann said. "It will be decided in the next week."