ADAC suddenly anxious to exit the information systems business

ADAC suddenly anxious to exit the information systems business

Firm to dump cardiology group as first step in HCIS divestiture

Citing poor financial performance and a difficult market climate for healthcare information systems, ADAC Laboratories has disclosed that it is actively seeking to divest its Houston-based Health Care Information Systems division. The company has already signed a letter of intent to sell its Cardiology Systems Group to Camtronics Medical Systems, a subsidiary of Analogic, and is in negotiations with other suitors for the rest of the HCIS group.

The HCIS division has a number of strategic partners that could be considered potential buyers, including Cedara Software, Perot Systems, and Applicare. ADAC also partners with Philips Medical in the nuclear medicine field.

The Camtronics deal has been in the works only a couple of months, according to John McAuley, vice president and general manager of the CSG division. ADAC would not disclose the selling price or other terms of the deal. However, because the transaction is expected to be recorded as a $2 million nonordinary charge by ADAC in the fourth quarter, it is clear that the division is being sold for less than its book value and that ADAC will make no money off the deal. The transaction is expected to be finalized next month.

Milwaukee-based Camtronics plans to integrate ADAC's CorCAAT hemodynamic and database management system for cath labs into its Vericis integrated cardiac repository. The goal is to create an electronic medical record system for cardiovascular environments, including cath labs and echocardiography, according to McAuley. The company has no immediate plans to move the CSG group out of Florida.

ADAC says it is looking to divest its entire HIS business to refocus on its core imaging businesses: nuclear medicine, PET, and radiation therapy. The company expects to report lower than anticipated revenue and earnings for the fourth quarter (end September), with revenue in the range of $83 million to $86 million. This compares with revenue of $82.3 million for the third quarter (end June), a 15% increase over $75.6 million for the third quarter of 1999. The bulk of that revenue came from sales of ADAC's PET and CT imaging products.

The ongoing poor performance of the HCIS business is being blamed for much of the projected fourth-quarter shortfall, although the company's PET business has been having some problems as well. While orders are strong, ADAC's PET shipments have been lower than expected.

"The market for large-scale healthcare information systems has been quite difficult for at least the last 18 months, and we believe a divestiture will benefit our HCIS customer base over the longer term," said Andrew Eckert, ADAC CEO.

Current market dynamics favor large IT companies with broader product portfolios, he said.

ADAC has been in the HIS business for only about three years and generates about $35 million in annual sales. The Winter Park, FL-based Cardiology Systems Group was formed following ADAC's acquisition of Cortet, a provider of information systems for cardiac cath labs. The rest of the HCIS group is devoted to the QuadRIS product line and the development and introduction of ADAC's first integrated PACS/RIS product, Envoi (PNN 11/99). The division had been under the direction of Jay Deady, but he left the company last month. Deady was replaced by Jim Heisler, who originally started with ADAC in 1978 and rejoined the firm earlier this year (HNN 10/4/00).

The firm's stock opened at $12.69 per share on Oct. 11, the day after the announcement, a 34.3% drop from its closing price of $19.31 per share on Oct. 10. At one point on Oct. 11, the stock was trading at $10 per share. In addition, online message boards have been wild with speculation that ADAC itself, not just the HCIS division, is a takeover target for any vendor looking to acquire PET expertise. Much of the early speculation centered on Philips Medical Systems, which does not have its own nuclear medicine or PET business.

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