High-tech MSI searches for role in cost-cutting health-care system

BTI secures new financing as backlog rises

Manufacturers of magnetic source imaging (MSI) devices are strugglingto find a niche for their technology in a health-care environmentincreasingly hostile to expensive medical equipment. One company,Biomagnetic Technologies (BTI) of San Diego, is finding some successin placing its systems at research sites, but has had to battlecash-flow woes in part due to the investment community's antipathytoward health-care stocks.

BTI is one of a handful of major players in MSI, another beingPicker International, which handles the Neuromag-122 scanner acquiredthrough its Picker Nordstar joint venture with Instrumentariumof Finland.

At last year's Radiological Society of North America meeting,BTI unveiled Magnes Whole Head, its newest MSI system. The scannerwas shown as a work-in-progress and features 148 channels, twiceas many as BTI's Magnes II. BTI plans shipments of Magnes WholeHead in the fourth quarter of this year.

Magnes Whole Head and Magnes II both use BTI's coils-in-vacuum(CIV) refrigeration technology, which encases an MSI scanner'ssuperconductive quantum interference device (SQUID) in a vacuumconnected via remote thermal link to a dewar of liquid helium.This avoids having the SQUID units bathed in the liquid heliumdewar and enables the manufacture of whole-head scanners thatcan image patients who are lying down, according to James Schumacher,BTI president, chairman and CEO. SQUID devices detect minute changesin electrical signals produced by the brain and must be kept atextremely cold temperatures to enhance conductivity and improvesensitivity.

Due to the incorporation of CIV into its helmet design, MagnesWhole Head is able to image patients who are lying down or seated.In addition, it can examine activity of all areas of the brainat once, rather than requiring clinicians to move the detectorto study different parts of the brain, Schumacher said.

Magnes Whole Head is also capable of imaging deeper into thebrain using a detection coil configuration called a magnetometer,according to Schumacher. Magnetometers are very sensitive, butalso are susceptible to noise, so BTI has incorporated noise detectioncancellation schemes into the unit.

All this technology doesn't come without a high price tag.MSI scanners list in the $2 million to $3 million range, withindividual exams costing around $5000. It can be tough to winacceptance for such a high-priced product in any environment,but the recent move toward cutting health-care costs has beenespecially hard on BTI.

The company in January reported a net loss of $10.3 millionfor its fiscal 1994 (end-September), compared to a net loss of$11 million in 1993. Revenues last year were $3.3 million, comparedto $4.3 million in the prior year. Last month, BTI reported resultsfor the first quarter of fiscal 1995 (end-December). Revenueswere $2.8 million, compared to $110,000 in the same period a yearago, while the company's net loss was $1.3 million, down from$2.6 million in the first quarter of 1994.

The red ink prompted BTI to seek additional funding last year.A secondary public offering was arranged, but the deal fell throughwhen the backer, biotech underwriter D. Blech & Co., pulledout due to funding woes of its own. BTI subsequently secured acommitment from a European investor to buy $15 million in commonstock, but auditing rules required BTI to issue a statement withits annual results announcing that it needed additional financingto continue operating.

"The company has been using more cash than it's been takingin, which is not atypical for a new technology," Schumachertold SCAN. "We ran into a buzz saw in the capital marketslast year. Anything to do with health care just froze."

The additional financing should be completed shortly and BTIis sending a proxy statement to shareholders to solicit theirapproval for the issuance of new shares to the European investor.The deal should take care of BTI's funding requirements for theforeseeable future, Schumacher said.

In the meantime, BTI is seeing increased acceptance of itstechnology. The company announced in December that it had wonthree orders for its systems, including two for the new whole-headscanner. Another order was placed in February for a Magnes IIsystem. All were for facilities outside the U.S. The orders increasedBTI's backlog of unfulfilled orders to over $10 million, the highestlevel in the company's history, Schumacher said.

BTI is trying to position MSI as a cost-effective technologythat can take the place of more expensive tests or rule out theneed for unnecessary surgery. In particular, the company is targetingepilepsy centers for its technology. For example, MSI is usefulin localizing dysfunctional tissue, such as pinpointing the fociwithin the brain of epilepsy seizures. This can eliminate theneed for an invasive EEG, which involves placing electrodes inthe brain and costs between $40,000 and $80,000.

There are also signs that the reimbursement situation is beginningto improve for MSI. MSI has been reimbursed for presurgical mappingapplications for a year, and the technology just received approvalfor epilepsy applications.

"As we move into clinical applications, we need to provethat our device is cost-effective," Schumacher said. "Ifwe can cut out half of the invasive EEGs at an epilepsy site,and if the site is doing 100 surgeries a year, we've cut out $5million of cost and added $2 million."