ADAC builds high-energy imaging position by picking up rights to UGM's PET cameras

Company will sell systems now marketed by GE

Nuclear medicine vendor ADAC Laboratories scored a coup this month over rival GE Medical Systems by signing an agreement with UGM Medical Systems for UGM's low-cost PET cameras. GE had been selling the UGM systems under the Quest label, but starting in June will no longer have rights to the systems due to ADAC's exclusive relationship with UGM.

ADAC, of Milpitas, CA, announced the agreement with Philadelphia-based UGM at this month's Radiological Society of North America meeting. Under the terms of the deal, ADAC will have exclusive rights to UGM's PET cameras starting June 1.

The agreement is the outgrowth of a four-year relationship between UGM and ADAC, according to Ian Farmer, senior vice president and general manager for ADAC's nuclear medicine business. ADAC signed the deal to access UGM's expertise to develop its Epic digital detectors and Molecular Coincidence Detection (MCD) high-energy imaging option.

At the same time it was working with ADAC, UGM was supplying its low-cost PET systems to GE. UGM's camera differs from a conventional PET system in that it uses sodium iodide detector material rather than the more expensive bismuth germanate (BGO) crystals on which most PET systems are based. GE has been selling the Quest cameras for as low as $800,000 (SCAN 6/25/97).

Over time, it became difficult to work simultaneously with two companies that were major competitors, according to Gerd Muehllehner, president and CEO of UGM. Things became more complicated after GE's agreement to form the ELGEMS joint venture with Elscint, as the deal gave GE access to a coincidence detection package similar to what UGM has been working on with ADAC. When UGM's agreement with GE came up for renewal, UGM partnered with ADAC instead.

At first blush, ADAC's decision to add a PET camera to its product line seems surprising. The company has been the strongest proponent of coincidence detection imaging techniques such as MCD, in which gamma cameras are upgraded to image PET radioisotopes such as fluorodeoxyglucose (FDG). When coincidence detection first arrived in 1995, some viewed it as competitive with PET as it allowed clinicians to conduct PET-like imaging without buying a PET camera.

ADAC believes the technologies are complementary, however, and this philosophy is key to the company's strategy in pursuing the UGM agreement. Because reimbursement for FDG studies has been scarce, the technology has been slow to take off for clinical use, and this has hampered PET camera purchasing. Coincidence detection gives hospitals a means to move into FDG imaging with cameras that can also be used for other applications. As hospitals build their referral base for FDG studies, they will increase their volume of high-energy scans, and eventually this volume will be high enough to support a dedicated PET camera, according to Farmer.

"We can cultivate customers with positron imaging on MCD and have them make a natural move to dedicated systems at a later date," he said. "You have to establish a referral base with your oncologist, and you have to establish (high-energy imaging) within your hospital community."

ADAC's deal with UGM comes at an awkward time for GE. Although the company earlier this year had sought to sell its PET manufacturing capacity to Positron, GE reversed its position toward PET after the divestiture fell through and has said it intends to retain the business (SCAN 4/30/97). GE reiterated its commitment to PET at both the Society of Nuclear Medicine and RSNA meetings this year, and the company reportedly has been increasing the amount of marketing and R&D dollars it spends on the technology.

GE's flip-flops regarding the PET market have reportedly impacted the company's PET sales, however. UGM's Muehllehner said that his company will ship four of its cameras through GE this year. A recent Frost & Sullivan report on nuclear medicine stated that GE sold three PET cameras worldwide in 1996.

Muehllehner declined to state whether his company was satisfied with the amount of business it received through GE, but he was optimistic that ADAC would be able to increase its PET activities in the same way it has built its gamma camera business.

"In the past, ADAC has demonstrated the ability to get a major market share in nuclear medicine, and we hope they will be equally successful in the PET area," he said.

The loss of the UGM business is hardly a death blow to GE's activities in PET. The company still has access to the high-end Advance PET camera, which it manufactures in Milwaukee. (The system is not covered by the ELGEMS joint venture.) It also sells cyclotrons to produce PET radioisotopes like FDG. GE will remain committed to the PET market, according to Sharon Banaszewski, general manager of GE's global nuclear/PET business.

In any event, PET is likely to take a turn for the better in 1998 due to the Health Care Financing Administration's decision to develop reimbursement rates for FDG studies for the diagnosis and staging of lung cancer. The agency reportedly will be issuing the rates by the end of December.

When rates are available, it will dispel the perception among prospective PET camera customers that they can't get paid for doing clinical studies, Farmer said. In the absence of a national Medicare policy, this misconception has persisted, even though private payors and some local Medicare insurers are paying for the exams.

"In situations where we have cameras installed, reimbursement isn't proving a problem, but there is still this general perception by new customers that reimbursement isn't available," Farmer said. "This HCFA statement to the local directors will start to change the perception of the rest of the customer community. The perception is the important thing."