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Sterling's search for DR buyer marks technology's turnabout


Sterling is confident a buyer can be foundThree years ago, many medical imaging industry observers saw the direct radiography systems under development by Sterling Diagnostic Imaging as a "game-changing" technology. Sterling was perceived to be

Sterling is confident a buyer can be found

Three years ago, many medical imaging industry observers saw the direct radiography systems under development by Sterling Diagnostic Imaging as a "game-changing" technology. Sterling was perceived to be ahead of the digital x-ray competition and leading the way to filmless radiography. How times have changed.

Agfa's proposed acquisition of Greenville, SC-based Sterling was almost as notable for what it excluded-Sterling's DirectRay program-as for what it included-Sterling's x-ray film operations. Agfa's decision to pass on DR was especially ironic since the Ridgefield Park, NJ, company has chosen to concentrate on computed radiography-a technology that DR was supposed to make obsolete, according to some market watchers.

DR's fall from grace is partly a testament to advances made in CR, the mainstay solution to digital imaging being offered by Agfa and other companies. It is also a reflection of Agfa's desire to protect its investment in CR.

"Agfa has established a good position in computed radiography, and we have some interesting CR products to announce," said John Glass, medical imaging business group manager for Agfa. "Those products, we believe, will make DR more difficult to justify."

The role of DR as a corporate orphan marks a sea-change from the 1995 RSNA meeting, when the technology was first introduced (SCAN 12/13/95). At the time, there was speculation that DR was unveiled early as a way to attract suitors to bid on the PACS and film division then owned by Du Pont. Rodney Wolford, a Du Pont consultant who later became chairman and CEO of Sterling Diagnostic Imaging, recalls that the Sterling Group, which acquired the film and PACS business unit from Du Pont in April 1996, viewed DR as a bonus rather than a raison d'être.

"Investors at Sterling looked at it as, 'Yes, if we make something of it, that's great; if we don't, we haven't given a lot of the purchase price for it,' " Wolford said.

After the acquisition, Sterling formed Direct Radiography Corp. (DRC) to function as a freestanding subsidiary in Glasgow, DE, and make the selenium-based flat-panel digital detector, which in 1997 was renamed DirectRay. Seven DR-based radiographic systems have been installed in North America and Europe, and purchase orders are in hand for several more.

DRC provides DirectRay panels to Fischer Imaging of Denver for that company's digital trauma unit, as well as to Dong Kang, a Korean manufacturer of x-ray equipment. Fischer, in turn, supplies DRC with nondigital components for Sterling's DR products. As a result of Fischer's dual relationship as supplier and OEM, the company has much at stake regarding DRC's evolving status. Wolford believes Fischer has a lot to gain.

"If an OEM happens to be the acquirer of the technology, it is likely that it would continue to supply the OEM, so I think it is positive from Fischer's standpoint," Wolford said.

Sterling executives discount speculation that they chose to sell Sterling Diagnostic to get out from under a DR program incurring large R&D costs. The program's development costs were coming down, commercialization had begun, and, while competition was increasing, there was no reason to believe that Sterling would not meet its sales targets.

"DRC was not looking to separate itself from the rest of Sterling," said Thomas Umbel, Sterling vice president and DRC's general manager. "But (the Agfa purchase) is something that we can and will deal with."

Agfa's acquisition of Sterling Diagnostic means that DRC will be on its own, at least for a while. Investment banker Bear Stearns & Co. has been hired to help establish the subsidiary's corporate worth and to assist in its sale-executives hope-to a major player in the radiology industry. Sterling is not ruling out any potential suitors, with the exception of small companies. On the long list of prospective buyers are PACS and film companies, as well as major OEMs and OEM suppliers. Interest is high, Wolford said.

Neither Agfa's decision to pass on DR nor the growing cacophony of digital x-ray products-CR, amorphous silicon, and CCD-based technologies-will have much effect on interest in DRC, according to Umbel.

"Some of our competitors' products only address one function: fluoroscopic capability and not static, or static and not fluoro," he said. "We have both of these in our pipeline."

If the company is not acquired, DRC executives will switch gears and lay plans to operate DRC as a freestanding subsidiary of the Sterling Group. In that case, the DRC staff of 84 would have to add personnel for the tasks now performed by others at Sterling Diagnostic. The biggest single addition would be a direct sales force. Such expansion would take capitalization, and once again, DR would serve as a lure for prospective investors. This time, however, it would be the only lure available.

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