SourceOne sharpens strategic focus to support sale of capital equipment

March 10, 2004

CEO eyes expansion into nuc med, multidetector CTSourceOne Healthcare Technologies is being reborn. The company-an amalgamation of two distributors, Picker's Health Care Products and Diagnostic Imaging-has completed the merger of

CEO eyes expansion into nuc med, multidetector CT

SourceOne Healthcare Technologies is being reborn. The company-an amalgamation of two distributors, Picker's Health Care Products and Diagnostic Imaging-has completed the merger of these two companies begun in December 2002 and is now methodically revamping its corporate strategy to focus on capital equipment.

Late last month, SourceOne struck an alliance with Del Medical to strengthen the distribution of that company's radiographic products, a move that SourceOne president and CEO Jerry C. Cirino predicts will double the revenue achieved with Del Medical from single- to double-digit millions of dollars this year compared to last.

The cornerstone of the deal is a new line of digital radiography equipment being forged through a licensing agreement announced in early February between Del and Hologic (SCAN 2/25/04). The agreement allows Del to produce DR equipment previously developed, manufactured, and marketed by Hologic.

SourceOne's agreement to distribute these systems is part of an evolving strategy at the company to expand its portfolio of offerings in computer-aided detection and women's health. Last fall, the company signed up to distribute CAD systems for CADx of Beavercreek, OH, then formally added more CAD products with an agreement in February regarding products made by iCAD, after CADx merged with the Nashua, NH-based company.

The CAD expansion reaffirms SourceOne's commitment to women's health, according to Cirino. It complements the distribution of mammography products made by Finnish manufacturer Planmed, which SourceOne brought onboard last summer. It is also in line with the long-standing marketing of consumables, such as fixer and developer for mammographic films.

SourceOne's growing revenue stream from computed radiography products, particularly its repeated sales of Orex CR products to the U.S. military, underscores the benefits of the company's strategic focus on capital equipment, Cirino said. CR sales complement the DR products the Del agreement brought into the fold, as well as conventional radiographic systems.

"Our strategic plan has us offering an extremely broad range of equipment-that will continue to grow-to the marketplace," he said.

Cirino has packaged the most recent deals as evidence of the firm's expanding capital equipment focus. Yet the deals have a familiar ring.

Preceding CADx and iCAD as providers of CAD equipment was R2 Technology. Before Planmed arrived, there was Lorad and its mammographic systems. Del and its DR products were preceded by ones made by SwissRay. And, prior to Orex CR, the SourceOne portfolio included-and still does-CR products made by Fuji, Kodak, and Agfa.

Cirino contends that recent moves by the company constitute a significant redirection of the company. He points to a restructuring of the SourceOne sales force earlier this year to support efforts in capital equipment sales. Last year, the company's staff of 140-plus salespeople were divided between selling consumables and capital equipment. They now are cross-selling all products in the SourceOne portfolio and are being backed by a crew of sales specialists who assist in sales presentation and product training.

The future may bring more changes. Cirino and his crew hope to sign a distribution deal for gamma cameras before year's end and possibly to begin selling multidetector CT scanners. Cirino harbors no illusions of SourceOne joining the ranks of the big multimodality vendors, but he sees opportunities in market niches where the big players tend not to go.

"I don't envision us competing at the university hospital level," he said. "We will sell to 150 to 200-bed hospitals and imaging centers."

What makes for a good fit with a manufacturer will reflect the core capabilities of SourceOne, as well as the character of the manufacturer. The products must address radiology and they must be sold into markets currently being visited by SourceOne staff. The manufacturer must be a credible provider of radiology equipment and have an established installed base. Cirino does not want to build the brand name of an unknown.

And there is another consideration, one that goes to the heart of the technology. It must be mature.

"Manufacturers tend to look for distributors late in the life cycle of a product, when the technology is well understood," he said. "This is when it might make sense for them to skip the high cost of having a direct sales channel."

Gamma cameras certainly meet that criterion, as these systems have been around for several decades and are now sold primarily as replacements for existing systems. That multidetector CT is a candidate for inclusion in SourceOne's portfolio, however, speaks volumes about how far this technology has come in a very short time.