Kodak bids for PACS developer, implements reorganization plan

Algotec will serve as R&D center of excellence

Kodak has bid $42.5 million for PACS and 3D software developer Algotec. The cash deal is expected to close by the end of this year.

Algotec supplies Kodak with its Web-based PACS product, which Kodak sells as DirectView PACS System 5. The company will become a "center of excellence" for developing Kodak medical PACS products and 3D imaging technologies. It will continue to operate in Raanana, Israel, as a self-contained R&D site. Its efforts, however, like those at other Kodak R&D centers, will be guided from headquarters in the U.S.

"Think of it as a kind of hub-and-spoke organization," said Dan Kerpelman, president of Kodak's Health Imaging Group and a senior vice president of the company.

Kodak's Healthcare Information Systems (HCIS), which directs PACS and image processing, is currently reorganizing around a site near the company's Rochester, NY, headquarters. R&D centers in Fremont, CA, and Allendale, NJ, will relocate there. This selective consolidation should enhance performance on shared projects by increasing collaboration and decreasing operating costs, according to the company. The consolidation is expected to be complete by mid-2004.

"We're not trying to move all things to Rochester," Kerpelman said. "We are trying to put the critical mass of business management and some of the 'glue' technology that ties it all together in one place. It is just a better way to manage a business."

HCIS will accelerate product development through a double-digit percentage increase in R&D spending. The company also plans to boost sales and technical support, committing about 40 specialists to the PACS market by year-end, effectively doubling the current effort.

Kodak's courtship of Algotec began in May 2002, when the Israeli company agreed to supply Kodak with a Web-based PACS. Algotec stood out among the dozens of companies that make similar products, according to Kerpelman.

"They had a better product, and the intellect of the team was extremely strong," he said.

The proposed acquisition of Algotec is the most recent of several buyout attempts. A decade ago, Kodak acquired Vortech Data in a bid to do what it now hopes to achieve with Algotec: acquire core technology in PACS. The Vortech venture failed and was followed in 1998 by the acquisition of Imation, from which Kodak obtained Imation's PACS efforts and those begun by Cemax-Icon, which had been acquired by Imation. Despite these endeavors, the company had to contract with an outside supplier for PACS in 2002.

The union with Algotec will not go awry, as other deals have, Kerpelman said. Kodak's current product is solid, and its intellectual property, particularly its source code, is strong enough to serve as the cornerstone of future Web-enabled products. And perhaps most important, he said, Kodak has the experience and staff to pull this all together.