Venture firms sign deal with Caprius to buy breast MR equipment business

Caprius seeks to reinvent itself again as center firm

Big ambitions are shrinking fast at Caprius. The Wilmington, MA, company, which once aspired to be a major vendor of high-field and dedicated MRI products, could soon leave the equipment manufacturing business altogether.

On Dec. 3, Caprius announced plans to sell the assets of its dedicated MR mammography system, Aurora, to venture capital firms Mi3 and Ampersand. Caprius chairman and CEO Jack Nelson declined comment to SCAN until the firms reach a definitive sales agreement later this month.

Caprius assessed the value of the deal at an estimated $5 million in payments and future royalties. Mi3 director of finance and administration Jean O'Connor noted that the sale, if finalized, would likely involve payouts extending over time.

Mi3 (Medical Imaging Innovation and Investment) and Ampersand, both based in Wellesley, MA, would likely form a separate company to market and develop Aurora. Company leadership would not involve either O'Connor or William McPhee, president of Mi3. O'Connor would not divulge who is being considered to run the fledgling company, if it is established. The goal behind its formation, however, is clear.

"The best thing would be to get the product out there and help breast imaging the best we can," O'Connor said. "We want to grow the company."

Mi3 and Ampersand have an exclusive negotiating period through Jan. 13 to buy the Aurora manufacturing operations. Key elements in the still-evolving deal call for Mi3 and Ampersand to assume all ongoing liabilities and debts connected to Aurora, according to a statement issued by Caprius. Any transaction would be subject to conditions including approval by the Caprius board, the completion of definitive agreements, and due diligence by the acquirers.

Caprius would benefit, not only from the infusion of cash, but also from cost reductions that would come from transferring Aurora technology. Financial statements from Caprius indicate that the Aurora program has been a drain on the company. For the nine months ended June 30, its total revenues decreased 77% to $2.7 million. During this period, losses increased 14% to $13.2 million. Those losses reflect in part a $7.1 million charge for purchased R&D.

"Our company has been strained to its limits in maintaining its Aurora technology," Nelson said. "With this transaction, the company will have significantly reduced its financial burdens, monetized its technology-related assets, and maintained a stream of revenues from future Aurora sales."

Efforts by Caprius to climb out of its current financial hole will be aided by a $1.1 million resolution of outstanding patent issues unrelated to patents protecting Aurora. The company refused to name the firm making the payment, describing it simply as "a major MRI manufacturer." Nelson stated, however, that the company making the payment is not GE Medical Systems of Milwaukee, a former development partner.

Just five years ago, Caprius, then called Advanced NMR, worked with GE to develop a 3-tesla scanner and a high-speed upgrade package, called InstaScan, for 1.5-tesla Signa scanners.

At the same time, ANMR spin-off Advanced Mammography Systems was developing Aurora as the industry's first dedicated breast MRI scanner. ANMR estimated the potential market for the system to be $700 million. Sales of Aurora, along with revenues from the GE joint efforts and the expected imminent success of Advanced Mammography Systems, were expected to boost the company. The purchase and establishment of breast MR imaging centers were expected to provide additional growth.

None of these expectations was met, however. The InstaScan and super-high-field deals with GE eventually broke down. The dedicated breast MRI market has been slow to develop, due to the novelty of the technology and the fact that breast imaging is available on general-purpose scanners fitted with special coils.

ANMR's foray into the imaging services market though the purchase in 1995 of mobile firm Medical Diagnostics didn't pan out either. After running MDI for 18 months, the company sold the unit to U.S. Diagnostic in 1997. USDL divested MDI to Alliance Imaging earlier this year (SCAN 5/27/98).

Faced with rising costs, ANMR reinvented itself, merging with Advanced Mammography Systems in November 1997 to create Caprius. At the same time, it disposed of its manufacturing assets not directly associated with breast imaging.

If the deal to sell off Aurora technology goes through, Caprius will have completed the transition from making equipment to running breast imaging centers. The new cornerstone of Caprius would be the Strax Center, a comprehensive breast imaging center in Florida, as well as rehabilitation centers in Springfield and Holyoke, MA. Caprius executives project that the combined revenue of these centers will exceed $5 million in 1999. The $1.1 million coming from the patent resolution, in combination with reduced overhead and funds associated with the pending deal with Mi3 and Ampersand, would allow Caprius to focus on the acquisition of more breast centers, according to the company.