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Imatron hopes to stanch red ink by restructuring HeartScan stake

Imatron hopes to stanch red ink by restructuring HeartScan stake

Reimbursement issues retard center firm's growth

Imatron is in a bit of a bind. The South San Francisco, CA, vendor has seen an increase in sales of its premium ultrafast CT scanners this year, particularly in overseas markets. Imatron's financial results don't reflect this upturn clearly, however, because the company has been including losses incurred by its minority-held HeartScan Imaging subsidiary into its own reports.

Imatron formed HeartScan three years ago with the goal of creating a nationwide network of centers to offer ultrafast CT-based coronary artery screening directly to the public (SCAN 4/21/93 and 4/6/94). Since then, HeartScan has not grown as fast as anticipated: While the company projected it would have 70 centers open by 1999, it has only five running with one more expected to open this year, according to Lewis Meyer, president and CEO of Imatron.

Imatron would have had a profit in the first quarter of 1997 (end-March) of $739,000 if it had not been for the $1.6 million loss of HeartScan, he said. The equipment vendor sold five systems in the first quarter, up from two in the first quarter of 1996.

The reason Imatron must consolidate HeartScan's financials-even though it does not hold a majority position-is related to a complex put option that investors in the imaging services business were given at the time of HeartScan's private offering a year ago, Meyer said.

Imatron is talking with these investors to find a way to restructure this put option, he said. The restructuring might involve a change in Imatron's 49% position in HeartScan, although it may not necessarily turn out that way.

Imatron isn't looking to sell a portion of HeartScan in order to exit the imaging services business, Meyer told SCAN. Any diminishment of its equity stake would be a result of investor requirements in renegotiating the put option. This option allows the investors to exchange their HeartScan position for Imatron shares at a predetermined rate for another year and then at a percent of the market price of Imatron stock for two additional years.

Reimbursement woes. Part of the reason for HeartScan's slow growth is that some major private payors in the U.S., notably Blue Cross, won't pay for the ultrafast CT CAD screening exam because they consider the procedure to be investigational, Meyer said. Although Medicare and some private-payor reimbursement is available, being closed out by these large insurers has dramatically reduced the market potential of the ultrafast CT exam.

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