Hologic top exec ties growth to long-term goals

Six years ago, Hologic looked like a company on the brink. Once the darling of the radiology industry with booming sales of bone densitometers, Hologic had sought to diversify, but its acquisitions were dragging the company down rather than lifting it up.

The firm bought FluoroScan in 1996 for its mobile C-arm technology, Direct Radiography Corp. in 1999 for its flat-panel technology, and Trex Medical in 2000 for its Lorad, Bennett, and Continental x-ray portfolios in radiography and mammography. And, although the x-ray lines obtained through the corporate acquisitions lofted Hologic's top line, associated costs outdistanced revenues by about $20 million in both 2000 and 2001. Then, in June 2001, company founder David Ellenbogen died unexpectedly.

Jack Cumming took charge two months later, slashing costs by closing Hologic facilities and trimming its workforce by 25% while refocusing R&D expenditures. Engineering teams concentrated on fewer projects with more immediate paybacks. The company began distancing itself from the radiography end-market, yet Cumming kept Hologic true to its core competencies in skeletal imaging and women's health, moves that proved to be brilliant.

In the succeeding years, digital mammography took hold, driving sales and profits through the roof. With rising revenues, Hologic's acquisitive nature resurfaced. This year the company acquired breast biopsy specialist Suros Surgical, computer-aided detection pioneer R2 Technology, key assets of rival Fischer Imaging, and AEG Elektrofotografie, Hologic's sole provider of the amorphous selenium photoconductor coating applied to its Selenia mammography system's digital detectors. The company's approach to skeletal imaging was buoyed further by an alliance with Esaote forged last year to provide Hologic with niche MR scanners for extremity imaging.

In an interview with DI SCAN, Cumming explains how these various pieces reflect his vision of Hologic and how the company will use them to get where it's going.

DI SCAN:: How does MR fit in?

Cumming:: It's important because we are continuing to build our skeletal health business and this MRI is specifically targeted at orthopods and rheumatologists. When you look at our bone density system, which now does 3D imaging, it's clear that we have gone from simply measuring bone mass to looking at the architectural structure of the bone itself and even to looking at aortic calcifications. You couple that with an offering to orthopods of a compact system that speaks directly to siting requirements in an office and diagnostic quality to do a variety of skeletal imaging at a very reasonable price, and it is an expansion that is complementary to what we are doing.

DI SCAN:: I find it interesting that you remain true to those roots in skeletal imaging.

Cumming:: That is certainly what the company was founded on. I like to think that when you look at any significant technological development in bone over the last decade, it has emanated from Hologic and we continue to put R&D money into that (bone density) system. We see the potential growth in this market over the next decade with the aging of the population and the way that clinicians are looking at osteoporosis and the number of deaths related to osteoporotic disease. They have found that you can have normal bone mass and a spinal fracture because the integrity of the bone is not good. That's why we are taking this to another level in what we believe will be an expansion of the market for us.

DI SCAN:: You're also expanding your portfolio on the women's health side with the R2 and Suros acquisitions.

Cumming:: And we could not be happier that we were able to have these two technology innovators join the family of our companies. They have been the market leaders in the business, so we are marrying the number one computer-aided diagnosis company with the number one digital mammography provider along with Suros, which provides the biopsy.

DI SCAN:: R2 has had a high profile for some time, but what was it that raised your interest in Suros.

Cumming:: We saw in it a company that grew up with innovation, got investor funding, and took 15% or 20% market share away from a giant, multibillion dollar conglomerate (Johnson & Johnson) to carve out a niche based on cutting-edge technology. Now that they are part of our company, we are going to be very focused on building this market share. We know we're facing a strong and aggressive competitor, but having not only survived but flourished in the mammography market against the dominant imaging company, GE Healthcare, we think we are tough enough, smart enough, and have the capital to take on J&J on their home turf. It is clearly our goal to be the market leader.

DI SCAN:: When do you expect to achieve that?

Cumming:: It won't happen in the next year or two, but it will happen over a period of time. They will not get off the top of that market without a heck of a fight, but we are committed to that market. If they felt the heat from Suros, they are going to feel a lot more heat from us.

DI SCAN:: I see competition heating up in mammography. Hologic's acquisition of the intellectual property for technologies developed by Fischer Imaging is an indicator of that. Were you aware at the time of that purchase that Philips wanted the IP so it could get into digital mammography, or did it just work out that way?

Cumming:: It worked out well for us.

DI SCAN:: But were you aware that Philips wanted that IP?

Cumming:: They never bothered calling us to tell us that.

DI SCAN:: But you were aware they wanted it?

Cumming:: On the record, no comment.

DI SCAN:: It worked out for you in regard to the digital mammography, but not the MammoTest stereotactic biopsy table.

Cumming:: The choice of divesting that IP was not ours. It was our friends at the Federal Trade Commission who said it was in the best interest of the market. We had a total difference of opinion there. You know the old saying about how it's pretty tough to fight city hall. We acquiesced because we had a much more important opportunity in front of us, which was Suros, and we didn't want anything to hurt that. So we went forward with that (divestiture) and put the IP in the hands of a strong competitor, a company that we have great respect for and that we know will do a good job.

We know it is going to put us in a more competitive environment than we were in for the past 18 months, or a year ago when the product, MammoTest, was off the market, but we also have more to offer now than we did before.

DI SCAN:: The R2 acquisition brings CAD in-house, which gives you more control over the development path, so you can optimize the technology to be integrated with the Selenia full-field system at the same time it improves your margins, as you don't have to source the technology from a freestanding R2. Are those the most significant advantages from this deal?

Cumming:: You hit it right on the head. The improved margin is a big thing because it's our margin now. Second, we can optimize this now specifically for Selenia.

The R2 CAD is a neural net that gets better the more images that are fed into it. Now that we have an unlimited number of images to feed it, we are going to get a CAD product that has better statistics (and accuracy) than what we had before. And then you also have to remember that as the market leader, R2 had 2600 installations, so there is a large base of customers who are not just Lorad, but GE and Siemens customers using the product. That gives us a platform to go and talk to those customers and tell them what we have coming as the next evolution of digital mammography, which is tomosynthesis, and we believe CAD will be an integral part of that.

DI SCAN:: I see Hologic doing something of a high-wire act, trying to balance between trying not to set expectations so high as to impact the sale of digital mammography systems but still keeping people looking forward to the next generation of systems.

Cumming:: You clearly have a bead on this. In tomosynthesis, we look at the information coming from our clinical sites, and we become very optimistic about the clinical benefits to the patient and physicians but, you know, they have to be proved out through good solid clinical research. The initial results are very encouraging and I believe the product holds a lot of promise. But you can't get ahead of yourself. You have to be able to point to peer-reviewed articles that show reductions in the recall rate and in the number of unnecessary biopsies and a reduced dose. Then we can take this clinical data to the radiology community and radiologists can then make the decision on their own whether they will use it as a diagnostic tool or as a screening tool. They'll see how easy it is to use the workstation and how fast they can review these versus conventional cases.

DI SCAN:: When will we see a commercial product?

Cumming:: The end of 2007.