DRAD » Topics » Trends and Drivers

This excerpt taken from the DRAD 10-Q filed Apr 30, 2009.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography, and declining average selling prices for our product offerings.

Beginning in 2007, we implemented a sales approach in our DIS business which is based on formalized co-marketing agreements with prominent academic or regional medical Centers of Influence (COI). Our COI strategy pairs an influential medical institution with community-based physicians in an effort to extend quality diagnostic capabilities to their patients, with an expected result of improved patient care. We expect our COI strategy to be the key driver behind our effort to expand our share of the nuclear and ultrasound imaging services provided in the geographies in which we operate during 2009. In the Product segment, we were able to attain profitability in 2008 for the first time in our history as a result of revenue growth and lower costs from outsourcing and other cost control initiatives. We also increased sales through an expanded dealer network and a more experienced direct sales team. Despite these factors, we sold fewer cameras in the first quarter of 2009 than in the first quarter of 2008 as our customers were impacted by the slowing economy, which we expect to continue.

Our primary focus for 2009 is to improve both our profitability and our cash flow results. To this end, we initiated a restructuring plan during the fourth quarter of 2008 to create greater efficiency in DIS by selling or closing underperforming locations. This, combined with flattening the management structure, is expected to result in a more profitable core DIS footprint that can be leveraged with our COI strategy. In our Product segment, we plan to invest in our technology platform designed to attract new customer segments. In the short-term, we believe we can build on 2008 achievements by introducing new products targeted specifically at the larger physician practices and hospital market segments. These initiatives are intended to drive us towards consistent profitability and cash flow.

These excerpts taken from the DRAD 10-K filed Feb 13, 2009.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography, and declining average selling prices for our product offerings.

 

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Table of Contents

We implemented a new sales approach in our DIS business beginning in 2007 which is based on formalized co-marketing agreements with prominent academic or regional medical Centers of Influence (COI). Our COI strategy pairs an influential medical institution with community-based physicians in an effort to extend quality diagnostic capabilities to their patients, with an expected result of improved patient care. This approach, as well as the expansion of our ultrasound imaging revenues brought about through the acquisition of Ultrascan, Inc. (“Ultrascan”) in May 2007, contributed to our increase in revenues compared to the prior year. We expect our COI strategy to be the key driver to expand our market share.

In the Product segment, we were able to attain profitability in 2008 for the first time in our history as a result of revenue growth and lower costs from outsourcing and other cost control initiatives. We increased visibility and sales through an expanded dealer network and a more experienced direct sales team. The majority of our camera sales growth in 2008 came from selling more portable cameras compared to prior year. We expanded our target market focus in 2008 to include hospitals and large physician practices, resulting in key camera placements at some important luminary centers and prominent cardiology practices. We gained market share by leveraging our new Cardius XPO series featuring fourth generation solid-state detectors, 500 lb. patient imaging capacity, nSPEED rapid imaging protocols and compact footprint.

Our primary focus for 2009 is to improve both our profitability and our cash flow results. To this end, we initiated a restructuring plan during the fourth quarter of 2008 to create greater efficiency in DIS by selling or closing underperforming locations. This is, combined with flattening the management structure, expected to result in a more profitable core DIS footprint that can be leveraged with our COI strategy. We anticipate improving our approach to launching and growing Centers of Influence during 2009. In our Product segment, we will invest in our technology platform designed to attract new customer segments. In the short-term, we believe we can build on 2008 achievements by introducing new products targeted specifically at the larger physician practices and hospital market segments. These initiatives are intended to drive the Company towards consistent profitability and cash flow.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography, and declining average selling prices for our product offerings.

 

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Table of Contents

We implemented a new sales approach in our DIS business beginning in 2007 which is based on formalized co-marketing agreements with prominent academic or regional medical Centers of Influence (COI). Our COI strategy pairs an influential medical institution with community-based physicians in an effort to extend quality diagnostic capabilities to their patients, with an expected result of improved patient care. This approach, as well as the expansion of our ultrasound imaging revenues brought about through the acquisition of Ultrascan, Inc. (“Ultrascan”) in May 2007, contributed to our increase in revenues compared to the prior year. We expect our COI strategy to be the key driver to expand our market share.

In the Product segment, we were able to attain profitability in 2008 for the first time in our history as a result of revenue growth and lower costs from outsourcing and other cost control initiatives. We increased visibility and sales through an expanded dealer network and a more experienced direct sales team. The majority of our camera sales growth in 2008 came from selling more portable cameras compared to prior year. We expanded our target market focus in 2008 to include hospitals and large physician practices, resulting in key camera placements at some important luminary centers and prominent cardiology practices. We gained market share by leveraging our new Cardius XPO series featuring fourth generation solid-state detectors, 500 lb. patient imaging capacity, nSPEED rapid imaging protocols and compact footprint.

Our primary focus for 2009 is to improve both our profitability and our cash flow results. To this end, we initiated a restructuring plan during the fourth quarter of 2008 to create greater efficiency in DIS by selling or closing underperforming locations. This is, combined with flattening the management structure, expected to result in a more profitable core DIS footprint that can be leveraged with our COI strategy. We anticipate improving our approach to launching and growing Centers of Influence during 2009. In our Product segment, we will invest in our technology platform designed to attract new customer segments. In the short-term, we believe we can build on 2008 achievements by introducing new products targeted specifically at the larger physician practices and hospital market segments. These initiatives are intended to drive the Company towards consistent profitability and cash flow.

This excerpt taken from the DRAD 10-Q filed Oct 28, 2008.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our product business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography, and declining average selling prices for our product offerings. Despite these reimbursement trends and the slowing economy, we sold more cameras in the third quarter of 2008 in comparison to the third quarter of 2007. In addition, we see increasing opportunities to sell to larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older equipment.

In providing DIS lease services, we continue to face pressure from the competition to reduce our prices. We compete against businesses employing traditional vacuum tube cameras, companies that use older Digirad cameras or low-cost refurbished cameras, and imaging centers that install nuclear gamma cameras and make them available to referring physicians in their geographic vicinity. To counteract pressures from the competition, we diversified the line of imaging services we offer, penetrated new regions, and launched new marketing efforts, all of which have contributed to our revenue growth compared to 2007. In May 2007, we acquired the net assets of Ultrascan, Inc. (“Ultrascan”; see Note 8 of the condensed consolidated financial statements included in Part I, Item 1), a mobile ultrasound company with facilities centered around Atlanta, Georgia, and began offering ultrasound imaging services. This acquisition allowed our nuclear imaging business to penetrate the southeast market and convert over one-third of Ultrascan’s pre-established customers to nuclear imaging. We now offer ultrasound imaging services outside of the greater Atlanta, Georgia region, and will continue to expand this offering to more locations. We also unveiled our Centers of Influence program during 2007. The Centers of Influence program is a marketing strategy that affiliates us with highly respected academic medical institutions and physicians. The established affiliation provides us with a competitive advantage, which has expanded our customer base and hub locations.

In 2007, our product leadership team re-focused our engineering efforts on the image quality, speed, reliability, cost structure, and overall performance of our multi-headed cameras and software. We expect that these efforts will result in the long-term revenue growth and operating profit for the product segment.

In September 2008, we announced that we had received U.S. Food and Drug Administration (FDA) 510(k) clearance for our new nSPEED® reconstruction software for reduced imaging time and improved image quality with less radiation exposure for patients . With nSPEED, our Cardius® solid-state dedicated cardiac systems can now perform cardiac imaging procedures in as little as three minutes or with one-half the required pharmaceutical dosages.

This excerpt taken from the DRAD 10-Q filed Jul 24, 2008.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our product business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography, and declining average selling prices for our product offerings. Despite these reimbursement trends and the slowing economy, we sold more cameras in the second quarter of 2008 in comparison to the second quarter of 2007. In addition, we see increasing opportunities to sell to larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older equipment.

In providing DIS lease services, we continue to face pressure from the competition to reduce our prices. We compete against businesses employing traditional vacuum tube cameras, companies that use older Digirad cameras or low-cost refurbished cameras, and imaging centers that install nuclear gamma cameras and make them available to referring physicians in their geographic vicinity. To counteract pressures from the competition, we diversified the line of imaging services we offer, penetrated new regions, and launched new marketing efforts, all of which have contributed to our revenue growth compared to 2007. In May 2007, we acquired the net assets of Ultrascan, Inc. (“Ultrascan”; see Note 8 of the condensed consolidated financial statements included in Part I, Item 1), a mobile ultrasound company with facilities centered around Atlanta, Georgia, and began offering ultrasound imaging services. This acquisition allowed our nuclear imaging business to penetrate the southeast market and convert over one-third of Ultrascan’s pre-established customers to nuclear imaging. We now offer ultrasound imaging services outside of the greater Atlanta, Georgia region, and will continue to expand this offering to more locations. We may continue our interest in strategic acquisitions. We also unveiled our Centers of Influence program during 2007. The Centers of Influence program is a marketing strategy that affiliates us with highly respected academic medical institutions and physicians. The established affiliation provides us with a competitive advantage, which has expanded our customer base and hub locations.

In 2007, our product leadership team re-focused our engineering efforts on the image quality, speed, reliability, cost structure, and overall performance of our multi-headed cameras and software. We expect that these efforts will result in the long-term revenue growth and operating profit for the product segment.

This excerpt taken from the DRAD 10-Q filed Apr 30, 2008.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our overall business continues to face the challenge of the decline in demand for nuclear imaging equipment and services, which we believe reflects the impact of the Deficit Reduction Act on the reimbursement environment, as well as competition from new nuclear gamma camera products and competing imaging modalities, such as CT angiography, positron emission tomography and hybrid technologies. We believe that the principal competitive factors in our market include: acceptance by physicians; qualification for reimbursement; pricing; ease of use, reliability and mobility; technical leadership and superiority; and effective marketing and distribution.

In providing DIS lease services, we continue to face pressure from the competition to reduce our prices. We compete against businesses employing traditional vacuum tube cameras, companies that use older Digirad cameras or low-cost refurbished cameras, and imaging centers that install nuclear gamma cameras and make them available to referring physicians in their geographic vicinity. To counteract pressures from the competition, we diversified the line of imaging services we offer, penetrated new regions, and launched new marketing efforts, all of which have contributed to our revenue growth in 2007. In May 2007, we acquired the net assets of Ultrascan, Inc. (“Ultrascan”; see Note 8 of the condensed consolidated financial statements included in Part I, Item 1), a mobile ultrasound company with facilities centered around Atlanta, Georgia, and began offering ultrasound imaging services. This acquisition allowed our nuclear imaging business to penetrate the southeast market as we have converted one-third of Ultrascan’s pre-established customers to nuclear imaging. Furthermore, we have begun to offer ultrasound imaging services at select existing DIS locations, and will continue to expand this offering to more locations. We will continue our interest in strategic acquisitions into 2008. We also unveiled our Centers of Influence program during 2007. The Centers of Influence program is a marketing strategy that affiliates us with highly respected academic medical institutions and physicians. The established affiliation provides us with a competitive advantage, which we believe will result in the expansion of our customer base and hub locations.

Our product business continues to be negatively affected by many factors, including declining healthcare reimbursement rates for cardiac imaging procedures, competition from alternative imaging modalities such as CT Angiography and declining average selling prices for our product offerings. We believe that reimbursement trends and economic factors, including the uncertainty in the credit market and a slowing economy, resulted in fewer sales of gamma cameras during the first quarter of 2008 in comparison to the prior year.

During 2007, our product leadership team began executing a plan to combine spending reductions, focused engineering efforts and revenue growth to translate into an operating profit for the product segment. We expect that this initiative will result in further reductions in operating expenses and improvement in our gross margins. We also plan to continue to invest in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software. We believe we are starting to see increasing opportunities to sell to larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older equipment.

These excerpts taken from the DRAD 10-K filed Feb 13, 2008.

Trends and Drivers

The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our business continues to face the challenge of the decline in demand for nuclear imaging equipment and services, which we believe reflects the impact of the Deficit Reduction Act on the reimbursement environment, as well as competition from new nuclear gamma camera products and competing imaging modalities, such as CT angiography, positron emission tomography and hybrid technologies. We believe that the principal competitive factors in our market include acceptance by physicians; qualification for reimbursement; pricing; ease of use, reliability and mobility; technical leadership and superiority; and effective marketing and distribution.

In providing DIS lease services, we continue to face pressure from the competition to reduce our prices. We compete against businesses employing traditional vacuum tube cameras, companies that use older Digirad cameras or low-cost refurbished cameras, and imaging centers that install nuclear gamma cameras and make them available to referring physicians in their geographic vicinity. To counteract pressures from the competition, we diversified the line of imaging services we offer, penetrated new regions, and launched new marketing efforts, all of which have contributed to our revenue growth in 2007. In May 2007, we acquired the net assets of Ultrascan, Inc. (“Ultrascan”; see Note 5 of the condensed consolidated financial statements included in Part I, Item 1), a mobile ultrasound company with facilities centered around Atlanta, Georgia, and began offering ultrasound imaging services. This acquisition allowed our nuclear imaging business to penetrate the southeast market as we have converted one-third of Ultrascan’s pre-established customers to nuclear imaging. Furthermore, we have begun to offer ultrasound imaging services at select existing DIS locations, and will continue to expand this offering to more locations. We will continue our interest in strategic acquisitions into 2008. We also unveiled our Centers of Influence program during 2007. The Centers of Influence program is a marketing strategy that affiliates us with highly respected academic medical institutions and physicians. The established affiliation provides us with a competitive advantage, which we believe will result in the expansion of our customer base and hub locations.

During 2007, our product leadership team began executing on a plan to combine spending reductions, focused engineering efforts and revenue growth to translate into an operating profit for the product segment. We expect that this initiative will result in further reductions in operating expenses and improvement in our gross margins. We also plan to continue to invest in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software. We believe we are starting to see increasing opportunities to sell to larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older equipment.

Trends and Drivers

FACE="Times New Roman" SIZE="2">The medical device industry, including the market for nuclear and ultrasound imaging systems and services, is highly competitive. Our business continues to face the challenge of the decline in demand for nuclear
imaging equipment and services, which we believe reflects the impact of the Deficit Reduction Act on the reimbursement environment, as well as competition from new nuclear gamma camera products and competing imaging modalities, such as CT
angiography, positron emission tomography and hybrid technologies. We believe that the principal competitive factors in our market include acceptance by physicians; qualification for reimbursement; pricing; ease of use, reliability and mobility;
technical leadership and superiority; and effective marketing and distribution.

In providing DIS lease services, we continue to face
pressure from the competition to reduce our prices. We compete against businesses employing traditional vacuum tube cameras, companies that use older Digirad cameras or low-cost refurbished cameras, and imaging centers that install nuclear gamma
cameras and make them available to referring physicians in their geographic vicinity. To counteract pressures from the competition, we diversified the line of imaging services we offer, penetrated new regions, and launched new marketing efforts, all
of which have contributed to our revenue growth in 2007. In May 2007, we acquired the net assets of Ultrascan, Inc. (“Ultrascan”; see Note 5 of the condensed consolidated financial statements included in Part I, Item 1), a mobile
ultrasound company with facilities centered around Atlanta, Georgia, and began offering ultrasound imaging services. This acquisition allowed our nuclear imaging business to penetrate the southeast market as we have converted one-third of
Ultrascan’s pre-established customers to nuclear imaging. Furthermore, we have begun to offer ultrasound imaging services at select existing DIS locations, and will continue to expand this offering to more locations. We will continue our
interest in strategic acquisitions into 2008. We also unveiled our Centers of Influence program during 2007. The Centers of Influence program is a marketing strategy that affiliates us with highly respected academic medical institutions and
physicians. The established affiliation provides us with a competitive advantage, which we believe will result in the expansion of our customer base and hub locations.

FACE="Times New Roman" SIZE="2">During 2007, our product leadership team began executing on a plan to combine spending reductions, focused engineering efforts and revenue growth to translate into an operating profit for the product segment. We
expect that this initiative will result in further reductions in operating expenses and improvement in our gross margins. We also plan to continue to invest in research and development to improve the image quality, speed, reliability, cost structure
and overall performance of our multi-headed cameras and software. We believe we are starting to see increasing opportunities to sell to larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older
equipment.

This excerpt taken from the DRAD 10-Q filed Oct 25, 2007.

Trends and Drivers

We have improved our gross margins in both our operating segments while simultaneously decreasing our operating expenses during 2007, and as a result our overall operating results have improved. We have accelerated the diversification of our mobile service model with the acquisition of Ultrascan and are now delivering mobile ultrasound imaging services, primarily in the Southeast.

The increase in DIS revenue is primarily due to expanding our ultrasound imaging services through the recently acquired assets from Ultrascan. This was offset by the decrease in revenue resulting from the decision to phase out the delivery of stress agents which contributed revenue of approximately $2.0 million to our 2006 results. The number of physicians each quarter who either bought their own cameras, terminated their mobile imaging service contracts or switched to other mobile imaging service providers increased during the second half of 2006, and has remained at approximately the same number over the past four quarters. We attribute this trend primarily to increasing competition from local and regional companies offering mobile imaging products or services, principally in the west.

We also note that the Centers for Medicare and Medicaid Services, or CMS, implemented reimbursement cuts of approximately 8.5% and 2% respectively for 2007, as compared to 2006, for the imaging procedures most often performed by our nuclear imaging and ultrasound physician customers. In July 2007, CMS proposed regulations that could result in additional reimbursement reductions of approximately 10% and 18% for 2008 for these nuclear and ultrasound procedures, respectively; furthermore, an additional CMS proposal could result in the elimination of one commonly used ultrasound reimbursement code. In the product business, industry sources have predicted that the rate of decline of sales of cardiac-specific nuclear cameras will slow to approximately 5% in 2007. Data from NEMA further indicates that sales of general nuclear imaging equipment decreased by 4% in the second quarter of 2007 when compared to the second quarter of 2006, and the market for cardiac-specific nuclear cameras increased by 4.7% through the second quarter of 2007 when compared to the second quarter of 2006. Pricing pressures persist in the cardiac-specific camera market, as evidenced by the declining average selling price of nuclear cameras. We have invested in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software. The hospital market has expressed a renewed interest in our general purpose single-head camera, and we expect to continue to sell more cameras in this market in 2007. We are seeing increasing opportunities in larger cardiology practices as they seek to increase productivity with more efficient systems by replacing older equipment.

During the second quarter of 2007, we began reporting a new asset utilization metric to track the productivity of our DIS assets. This metric counts the number of nuclear gamma cameras and ultrasound imaging machines, and measures the number of days, out of the total available days during the period, in which they were actually used to deliver services to DIS customers. For the quarter ended September 30, 2007, DIS operated 135 units with an overall utilization rate of 62% as compared to 83 units and a utilization rate of 51% for the same period in 2006. The increase in units and utilization was attributable primarily to the Ultrascan acquisition.

This excerpt taken from the DRAD 10-Q filed Aug 7, 2007.

Trends and Drivers

We have generated net income for two consecutive quarters and improved gross margins in both our business segments in this quarter as the result of our efforts to enhance operating efficiencies, lower material costs and reduce operating expenses. We accelerated the diversification of our mobile service model with the acquisition of Ultrascan and are now delivering mobile ultrasound imaging services, primarily in the Southeast.

The decrease in DIS revenue is primarily attributable to the decision to stop the delivery of stress agents, which contributed revenue of approximately $2.0 million to our 2006 results. The number of physicians each quarter who either bought their own cameras, terminated their mobile imaging service contracts or switched to other mobile imaging service providers increased during the second half of 2006, and has remained at approximately the same number over the past three quarters. We attribute this trend primarily to increasing competition from local and regional companies offering mobile imaging products or services.

We also note that the Centers for Medicare and Medicaid Services, or CMS, implemented reimbursement cuts of approximately 8.5% and 2% for 2007, as compared to 2006, for the imaging procedures most often performed by our nuclear imaging and ultrasound physician customers, respectively. In July 2007, CMS proposed regulations that could result in additional reimbursement reductions of approximately 10% and 18% for 2008 for these nuclear and ultrasound procedures, respectively; furthermore, an additional CMS proposal could result in the elimination of our commonly used ultrasound reimbursement code. In the product business, industry sources have predicted that the rate of decline of sales of cardiac-specific nuclear cameras will slow to approximately 5% in 2007, and that purchases of multi-head cameras will far outpace those of single-head cameras. Data from NEMA further indicates that sales of general nuclear imaging equipment increased approximately 1% in the first quarter of 2007 when compared to the first quarter of 2006, and the market for cardiac-specific nuclear cameras increased 7% in the first quarter of 2007 when compared to the first quarter of 2006. Pricing pressures persist in the cardiac-specific camera market, evidenced by the declining average selling price of nuclear cameras. We have invested in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software. The hospital market has expressed a renewed interest in our general purpose single-head camera, and we expect to continue to sell more cameras in this market in 2007.

For the quarter ended June 30, 2007, we are also reporting a new asset utilization metric to track the productivity of our DIS assets and drive margin improvements. The metric counts the number of nuclear gamma cameras and ultrasound imaging machines, and measures the number of days, out of the total available days during the period, in which they were actually used to deliver services to DIS customers. For the quarter ended June 30, 2007, DIS operated 130 units with an overall utilization rate of 60% as compared to 80 units and a utilization rate of 60% for the same period in 2006. The increase in units was attributable primarily to the Ultrascan acquisition.

This excerpt taken from the DRAD 10-Q filed May 7, 2007.

Trends and Drivers

We believe this quarter’s improved net income and gross margins in both our business segments are the results of our efforts to enhance operating efficiencies, lower material costs and reduce operating expenses. We expect these trends to continue, and to reap further labor cost reductions and camera reliability improvements as we continue to upgrade our DIS mobile camera fleet. We have also commenced the delivery of mobile ultrasound imaging services, a first step in diversifying our mobile service model.

The decrease in DIS revenue is primarily attributable to the decision to stop the delivery of stress agents, which contributed approximately $1.1 million to the results in the same quarter of 2006. The increase in the number of physicians who either bought their own cameras or switched to other mobile imaging service providers during the second half of 2006 continued during the first quarter of 2007. We attribute this trend to increasing competition from local and regional companies offering mobile imaging products or services.

 

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We also note that there were Medicare reimbursement cuts of approximately 8.5% for 2007 as compared to 2006 for the imaging procedures most often performed by our physician customers.

In the product business, industry sources predict that the rate of decline of sales of cardiac-specific nuclear cameras will slow from an estimated 24% in 2006 to approximately 5% in 2007, and that purchases of multi-head cameras will far outpace those of single-head cameras. We believe pricing pressures persist in the cardiac-specific camera market, evidenced by the declining average selling price of nuclear cameras. We will continue to invest in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software to counteract these pricing pressures. The hospital market has expressed a renewed interest in our general purpose single-head camera, and we expect to continue to sell more cameras into this market in 2007.

This excerpt taken from the DRAD 10-K filed Feb 20, 2007.

Trends and Drivers

Our DIS business in 2006 was able to attract a larger number of new customers, some of whom were larger, multi-specialty practices. Integrated delivery networks, hospital outreach programs and multi-location practices expressed increased interest in our DIS leasing services. Further, we signed our first contract for the delivery of ultrasound imaging services. We believe these trends will continue in 2007.

 

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The number of DIS physicians who purchased their own cameras or switched to a different service provider increased during the second half of 2006. Medicare reimbursement for 2007 will decline by approximately 8.5% over 2006 for the imaging procedures most often performed by our physician customers. In addition, a greater number of third party payors adopted guidelines that would prohibit reimbursement for certain imaging procedures performed with mobile or leased equipment or by unaccredited facilities. We plan to continue our efforts to obtain accreditation for our DIS hub locations in 2007.

In the product business, industry sources predict that the rate of decline of sales of cardiac-specific nuclear camera will slow from an estimated 24% to approximately 5% in 2007, and that purchases of multi-head cameras will far outpace those of single-head cameras. During 2006, we believe we were able to expand our market share and we will continue to invest in research and development to improve the image quality, speed, reliability, cost structure and overall performance of our multi-headed cameras and software to enable us to capture an increasing share of the gamma camera market. However, we continue to experience pricing pressures on the majority of our cameras. The hospital market has expressed a renewed interest in our general purpose single-head camera, and we expect to continue to sell more cameras into this market in 2007.

Our camera maintenance margins have improved as the number of cameras under contract grew and our service logistics have become more efficient, and we believe these improvements will continue in 2007.

This excerpt taken from the DRAD 10-Q filed Oct 31, 2006.

Trends and Drivers

During the nine months ended September 30, 2006, we experienced an overall slight decrease in revenue in our DIS business compared to the same period of 2005. This decrease was the result of the discontinuation of the delivery of stress agents in June 2006, partially offset by increased revenue per service days, primarily driven by an increase in studies per day. We continued our efforts to improve sales efficiencies and we have seen improvement in our DIS bookings during 2006, year-to-date. We also experienced an increase in lost business in the third quarter of 2006 compared to the first two quarters of 2006. We believe this increase is due primarily to customers purchasing cameras or physicians switching to a different service provider. We anticipate this trend to continue during the fourth quarter of 2006. In our product business, we sold a number of our new Cardius 3 XPO imaging systems in this quarter, and introduced the Cardius 1 XPO and Cardius 2 XPO at the Society of Nuclear Medicine in September 2006. The XPO systems offer enhanced features in image quality, patient comfort and serviceability. The Cardius XPO cameras also include our latest acquisition software tools and encapsulate the efforts of multiple development programs to improve camera reliability.

We have continued to implement operational efficiency and cost-cutting measures in both segments of our business. In early October 2006, we reduced our headcount, began steps to close underperforming DIS hubs, and streamlined our research and development efforts. In the third quarter of 2006, we expensed approximately $100,000 of severance and facility closure costs associated with these cost reductions. We anticipate that these measures will reduce costs in the fourth quarter of 2006 by approximately $400,000. We also hired a vice president of human resources during the third quarter of 2006 to address our employee turnover, which in our DIS business was 55% in 2005 and was 55% annualized during the nine months ended September 30, 2006. We also continue our efforts to increase system utilization and decrease costs of delivery service to our existing customers. Our plan to upgrade our DIS camera fleet is proceeding through a measured roll-out of our triple-headed mobile camera, though our pace during 2006, year to date, has been slower than expected. We anticipate that these triple-headed mobile cameras will be Cardius 3 XPO mobile cameras, which we believe will increase patient throughput, shorten the work days of our employees and improve reliability and image quality. Although we have seen an increase in the demand for our single head gamma cameras, primarily in the hospital setting, during the nine months ended September 30, 2006, the majority of our sales consisted of multi-headed cameras.

During the latter part of 2005 and the first nine months of 2006, we implemented a number of programs to improve operational efficiencies in our product business and improve camera reliability. This has resulted in an improvement in our product business margins in the first nine months of 2006, and we believe these initiatives will continue to translate into additional margin improvements during the last quarter of 2006.

This excerpt taken from the DRAD 10-Q filed Aug 3, 2006.

Trends and Drivers

During the six months ended June 30, 2006, we experienced revenue growth in our DIS business as we attracted new customers and revenue per lease day increased, principally because existing customers leased more service days and performed more studies per lease day. We are encouraged by the gradual decline in employee turnover and increase in the productivity of our sales force, but we believe we can do better in both of these areas and we are working to secure further improvements. We continued our efforts to increase sales efficiency by filling existing vacancies and increasing sales force training and sales visibility through data-driven market strategies. Further, we introduced the new Cardius® 3 XPO at the Society of Nuclear Medicine in June 2006. This system offers enhanced features in image quality, patient comfort and serviceability. The Cardius 3 XPO also includes our latest acquisition software tools and encapsulates the efforts of multiple development programs to improve camera reliability. To date, there have been no sales of the Cardius 3 XPO, however we expect to begin shipments of this product in the third quarter of 2006.

 

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Our efforts in DIS continue to focus on improving labor and operational efficiencies; decreasing employee turnover, which was 55% in 2005 and was 45% annualized during the six months ended June 30, 2006; increasing system utilization; decreasing costs of delivery to improve service to our existing customers; and attracting new customers in existing and expansion territories. We are continuing to upgrade our DIS camera fleet through a measured roll-out of our triple-headed mobile camera. We anticipate all future triple-headed mobile cameras placed into the DIS fleet will be Cardius 3 XPO mobile cameras, which we believe will increase patient throughput, shorten the work days of our employees, improve customer satisfaction and improve reliability and image quality. We continued with the implementation of various margin improvement initiatives, including reducing the overall pharmaceutical costs by discontinuing the delivery of stress agents at the end of the second quarter of 2006 and negotiating better pricing on radiopharmaceuticals, effective July 2006.

Sales of single head gamma cameras have historically represented the majority of the revenue generated by our product segment. However, consistent with the industry data, we saw a decline in sales of single head cameras during 2005, and an increase in the percentage of our sales of dual and triple head cameras. Although we have seen an increase in the demand for our single head gamma cameras during the six months ended June 30, 2006, the majority of our sales consisted of multi-headed cameras, and we believe this trend will continue in the future. We expect to continue to invest in research and development to improve the image quality, speed, reliability and overall performance of our multi-headed cameras to enable us to capture an increasing share of the gamma camera market. During the latter part of 2005 and the first half of 2006, we implemented a number of programs to improve operational efficiencies and improve camera reliability. This has resulted in an improvement in our product business margins in the first half of 2006, and we believe these initiatives will continue to translate into additional margin improvements during the second half of 2006.

This excerpt taken from the DRAD 10-Q filed May 10, 2006.

Trends and Drivers

During our most recent fiscal year, we experienced a decline in the rate of growth of our DIS business as we attracted fewer new customers and the number of lease days per new customer declined. We believe this was driven mainly by sales management vacancies, underperformance of our sales force and to increase proportion of sales to internists whose practice volumes are lower than those of cardiologists, resulting in fewer annual service days. To counter this trend, we have continued our efforts to increase sales visibility through data-driven market strategies and increasing the quality of our sales force, and have seen some improvement in the DIS growth rate in the first quarter of 2006. In addition, we intend to begin pilot programs in selected markets in the delivery of ultrasound services to seek to leverage our existing DIS infrastructure and service delivery knowledge base.

Our efforts in DIS will also focus on improving labor and operational efficiencies; decreasing employee turnover, which was 55% in 2005; increasing system utilization; decreasing costs of delivery to improve service to our existing customers; and attracting new customers in existing and expansion territories. We are continuing to upgrade our DIS camera fleet through a measured roll-out of our Cardius-3 mobile camera with three systems at the end of the first quarter of 2006, which we believe will allow us to increase patient throughput, shorten the work days of our employees and improve customer satisfaction.

Sales of single head gamma cameras have historically represented the majority of the revenue generated by our product segment. However, consistent with the industry data, we saw a decline in sales of single head cameras during 2005, and an increase in the percentage of our sales of dual and triple head cameras. This trend has continued in the first quarter of 2006, when the majority of our sales consisted of multi-headed cameras, and we believe it will continue in the future. We expect to continue to invest in research and development to improve the image quality, speed, reliability and overall performance of our multi-headed cameras to enable us to capture an increasing share of the gamma camera market. During the latter part of 2005 and the first quarter of 2006, we also implemented a number of programs to improve operational efficiencies and

 

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improve camera reliability. This has resulted in an improvement in our product business margins in the first quarter of 2006 that we believe will translate into additional margin improvements during the remainder of 2006.

This excerpt taken from the DRAD 10-K filed Mar 8, 2006.

Trends and Drivers

Our DIS services continued to grow during 2005 as compared to 2004 due to selling our DIS services to new customers and increasing service levels to our existing customers. However, the rate of growth of our DIS business slowed in 2005 as we attracted fewer new customers and the number of lease days per new customer declined. We believe these trends were driven mainly by sales management vacancies, underperformance of our sales force and an increasing proportion of our sales to internists whose practice volumes are lower than those of cardiologists, resulting in fewer annual service days. Sales to internists also appear to have created a moderate lengthening in the DIS sales cycle. Furthermore, the number of new DigiTech leases entered into during 2005 decreased as compared to 2004.

We believe that the number of nuclear imaging procedures performed in physician offices as opposed to hospitals will continue to grow, and that an increasing number of internists will begin to perform these studies in their offices. We believe that the special characteristics of our imaging systems will allow us to capitalize on these trends and to allow further growth. In 2006, we intend to improve our DIS camera fleet by beginning a measured roll-out of our Cardius-3 mobile camera to increase patient throughput, shorten the work days of our employees and improve customer satisfaction. We believe these steps will have a positive impact on improving employee satisfaction and reducing employee turnover, which in 2005 was 55% in DIS and 46% in the product business (including the results of the reduction in force which took place in the third quarter). We will focus on increasing the delivery efficiencies in our existing hub locations and on continued expansion of DIS to new states. In addition, we intend to complete our ICANL accreditation efforts. In 2006, we will also begin pilot programs in selected markets in the delivery of ultrasound services, leveraging our existing DIS infrastructure and knowledge base.

In the product business, industry sources predict that camera sales will decline by approximately 13% in 2006 as compared to 2005, and that purchases of multi-head cameras will far outpace those of single-head cameras. Historically, our single head gamma cameras have represented the majority of our camera sales. However, consistent with the industry data, we have seen an increasing percentage of our sales shifting to our dual head and triple head cameras. We will continue to invest in research and development to improve the image quality, speed, reliability and overall performance of our multi-headed cameras to enable us to capture an increasing share of the gamma camera market.

 

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Our performance in product sales in the third and fourth quarter of 2005 improved over that in the second quarter of 2005, as we began to reorganize our sales management organization and fill open sales positions. In 2006, we will continue to strengthen our sales team and focus on better execution.

During 2005, we experienced total employee turnover of 51% in the combined product and DIS service segments. We have implemented specific programs designed to reverse this trend.

This excerpt taken from the DRAD 10-Q filed Nov 4, 2005.

Trends and Drivers

 

Continued DIS growth in the first nine months of 2005 as compared to the same period in 2004, was due to expansion of our DIS services to new customers, increasing services to existing customers and higher customer retention.  However, we also saw a decrease in our rate of growth during this time frame as DIS attracted fewer new customers, the number of lease days per new customer declined and our efforts to expand into new territories were slower than expected.  We believe this trend was driven mainly by sales management vacancies, underperformance by our sales force and an increasing proportion of our sales being to internists whose practice volumes are lower than those of cardiologists and we believe result in a moderate lengthening in the DIS sales cycle.  Furthermore, there was a decrease in the number of new DigiTech leases entered into in the first nine months of 2005 compared to the same period in 2004.

 

In the product business, data from the National Electrical Manufactures’ Association, or NEMA, suggests that orders for nuclear medicine cardiology imaging systems in the United States will stay at approximately the same levels for 2005 as compared to 2004, and that purchases of multi-head cameras will far outpace those of single-head cameras.   Historically, our single head gamma cameras have represented the majority of our camera sales.  However, consistent with the NEMA data, we have seen an increasing percentage of our sales shifting to our dual head and triple head cameras.  Due mainly to sales management vacancies and underperformance by our sales force, our third quarter 2005 results were lower than results for the comparable quarter of 2004.  The third quarter of 2005 product orders improved significantly after what we believe was a transient drop in orders in the second quarter of 2005, attributable to organizational changes.

 

In the third quarter of 2005, we hired a President for DIS, began to fill vacancies in sales management, marketing and operations, and continued to assess our existing sales team, including those in new geographical areas.  We will continue to attempt to strengthen our sales team and focus on DIS expansion and various research and development initiatives designed to achieve clinical leadership in our field.  During the third quarter of 2005, we deployed two cameras into DIS.  Consolidated margins were negatively affected by a lack of production in the product business creating a significant excess capacity charge.  As we focused on improving manufacturing efficiencies, our net inventory decreased by $2.4 million from the end of the last quarter. We have not yet been able to gain greater traction in the multi-head camera market with our Cardius-2 dual-head camera or our recently launched Cardius-3 triple-head camera.  Acceptance of our Cardius-3 triple-head camera, featuring high count imaging statistics and high patient throughput, continues to lag behind our expectations, as we sold only eight of these cameras during the first nine months of the year.  Our main market obstacles in the multi-headed camera segment are downward pricing pressure from competitors, product feature gaps compared to competitors, such as

 

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software, leading to our inability to fully exploit the differential advantages of solid-state technology.  Our marketing efforts are focused on obtaining additional clinical validation and luminary acceptance of our premium products.

 

Our market is affected by continuing pressures by third party payors to reduce healthcare expenditures.  In August 2005, the Centers for Medicare and Medicaid Services, or CMS, proposed changes to the relative value units under the Resource Based Relative Value Scale physician reimbursement system that, if finalized as proposed, could decrease overall reimbursements for nuclear medicine procedures by some five percent.  This estimate reflects CMS’s proposed changes to the universe of nuclear medicine procedures and the specific impact for solely diagnostic imaging procedures is unclear.  Because we charge customers based on a flat lease rate, we cannot predict whether or to what extent the proposed Medicare reimbursement reduction, if finalized, will impact our business. CMS also proposed including nuclear medicine procedures to the list of designated health services subject to the physician self-referral prohibitions under the Ethics in Patient Referrals Act of 1989, also known as the Stark Law.  However, this proposed change, if finalized, should not significantly affect our business based on the potential availability of exceptions of the Stark Law. Also, several third party payors in geographic locations currently served by us issued guidelines prohibiting our physician customers from obtaining reimbursement for procedures they perform unless they own or lease our cameras on a full time basis.  These and other payors also require physicians and providers to obtain certain accreditations or certifications in order to obtain reimbursement for nuclear imaging procedures.  Should such accreditation or certification requirements become more frequent, non-cardiologists may not be able to obtain reimbursement for nuclear imaging procedures, a trend that could decrease sales in our product and DIS businesses.  Consistent with our commitment to providing high quality services and to comply with what may be an emerging reimbursement requirement trend among payors, we have obtained accreditation of one of our hub locations by the Intersocietal Commission for the Accreditation of Nuclear Medicine Laboratories, and are seeking such accreditation for our other DIS hubs and fixed sites.

 

Looking forward, we expect to continue to invest in research and development initiatives to enhance our system software, improve system sensitivity, reduce product costs and enhance reliability.  Testing of a mobile version of the Cardius-3 imager continues, and we believe that this camera, subject to its successful clinical and beta-testing and a measured roll-out into DIS, can provide value to our DIS customer physicians.  Our efforts in DIS will be focused on improving operational efficiencies, decreasing costs of delivery, improving service to our existing customers and attracting new customers in existing and expansion territories.

 

This excerpt taken from the DRAD 10-Q filed Jul 28, 2005.

Trends and Drivers

 

Given our strategy to continue to expand the number of areas in which we offer DIS services and the recurring contractual revenue stream from our existing DIS business, we expect DIS revenue to continue to contribute the majority of our consolidated revenues and earnings. We expect our growth to be generated from providing our standard DIS FlexImaging service to new customers. We attribute the overall growth of our business to geographical expansion, increased awareness and acceptance of our services and products, and the shift in the delivery of nuclear cardiology imaging procedures from hospitals to physician offices.  We believe that the increase in demand for our services and products is driven by the desire of physicians to control their patients’ diagnosis and treatment and to retain revenue for services that would otherwise be performed by a hospital or imaging center. The mobile feature of our technology also provides us with a significant advantage in the delivery of nuclear cardiology imaging services.  Historically, our mobile and fixed single head gamma cameras have represented the majority of our camera sales.  During the first half of 2005, the average number of single head gamma cameras we delivered on a quarterly basis declined.  While we believe the market for single head gamma cameras has recently declined as compared to the dual head gamma camera market, we estimate the demand for both fixed and mobile single head gamma cameras will continue in the future.

 

In the first half of 2005, we focused on DIS expansion and various research and development initiatives focused on achieving clinical leadership in our field, and we will continue to do so during the remainder of the year.  Expansion of DIS in the first half of 2005, however, was slower than expected, due primarily to lower than expected productivity from sales personnel hired within the past nine months.  Because we did not expand DIS as rapidly as expected, we did not deploy as many additional cameras into DIS as we had originally anticipated.  Although the majority of our new DIS business continues to consist of cardiologists, an increasing number of new DIS customers are non-cardiologists.  We believe that a moderate lengthening in the DIS sales cycle may be due to this shift in customer profile.  Additionally, consolidated margins were negatively affected by a decline in gross margins resulting from a change in the mix of leasing services provided by DIS.  This decline primarily reflected the impact of lower-margin DigiTech contracts signed in last year’s third and fourth quarters, under which DIS personnel are leased to physicians who own a Digirad camera.  Although the Company re-priced

 

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the DigiTech service in January 2005, the majority of the current DigiTech customers still retain the lower-priced contracts.  DIS continues to experience growth, primarily due to the addition of new physician customers in existing territories.  The number of DIS customers who purchased cameras or failed to renew their DIS contracts for other reasons was consistent with historical levels, excluding the increased level in the third quarter of 2004.

 

We have not yet been able to gain our targeted position in the multi-head camera market with our dual-head Cardius-2 imager or our recently launched triple-head camera.  Acceptance of our Cardius-3 triple-head camera, featuring high count imaging statistics and high patient throughput, has lagged behind our expectations, as we sold only four of these cameras during the first half of the year. Two sales management and two sales representative positions were vacant at the end of the second quarter of 2005.  The delivery of a small number of Cardius-3 cameras and the significant decline in product revenues in the second quarter of 2005 contributed to increased inventories at June 30, 2005 and inventory charges of approximately $0.6 million.  We anticipate only modest manufacturing production volumes during the third quarter of 2005, and expect to experience excess manufacturing capacity.

 

Our market is affected by continuing pressures by third party payors to reduce healthcare expenditures.  For example, several third party payors in geographic locations currently served by us issued guidelines prohibiting our physician customers from obtaining reimbursement for procedures they perform unless they own or lease our cameras on a full time basis.  These and other payors also require physicians and providers to obtain certain accreditations or certifications in order to obtain reimbursement for nuclear imaging procedures.  Should such accreditation or certification requirements become more frequent, non-cardiologists may not be able to obtain reimbursement for nuclear imaging procedures, a trend that could decrease sales in our product and DIS businesses.  Consistent with our commitment to providing high quality services and to comply with what may be an emerging reimbursement requirement trend among payors, we have obtained accreditation of one of our hub locations by the Intersocietal Commission for the Accreditation of Nuclear Medicine Laboratories, and are seeking such accreditation for our other DIS hubs and fixed sites.

 

Looking forward, we expect to continue to invest in research and development initiatives to enhance our system software, improve system sensitivity, reduce product costs and enhance reliability.  Testing of a mobile version of the Cardius-3 imager is also under way, and we believe that this camera, subject to its successful clinical and beta-testing and a measured roll-out into DIS, can provide value to our DIS customer physicians.

 

This excerpt taken from the DRAD 10-Q filed May 9, 2005.

Trends and Drivers

 

Given our strategy to continue to expand the number of areas in which we offer DIS services and the recurring contractual revenue stream from our existing DIS business, we expect DIS revenue to continue to represent the majority of our consolidated revenues and to generate a majority of our consolidated earnings. We expect the majority of DIS growth in 2005 to come from our standard DIS FlexImaging service. We attribute the overall growth of our business to geographical expansion, increased awareness and acceptance of our services and products, and the shift in the delivery of nuclear cardiology imaging procedures from hospitals to physician offices.  We believe that the increase in demand for our services and products is driven by the desire of cardiologists to control their patients’ diagnosis and treatment and to retain revenue for services that would otherwise be performed by a hospital or imaging center. The mobile feature of our technology also provides us with a significant advantage in the delivery of nuclear cardiology imaging services.

 

In the first quarter of 2005, we focused on DIS expansion, margin improvement, customer care and clinical leadership in our field, and we will continue to do so during the remainder of the year.  Expansion of DIS in the first quarter of 2005, however, was slower than expected, due primarily to less productivity from newly hired sales personnel.   Because we did not expand DIS as rapidly as expected, we did not deploy additional cameras into DIS.  This factor, together with less robust product sales, reduced our overall manufacturing volumes and product margins.  Nonetheless, DIS experienced growth, primarily due to the addition of new physician customers in existing territories and the fact that the number of DIS customers who purchased cameras or failed to renew their DIS contracts for other reasons was below the unusually high level we saw in the third quarter of 2004.  We also redeployed several underutilized imaging systems within existing hubs to improve DIS asset utilization rates. Our Cardius-3 triple-head camera, which features high count imaging statistics and higher patient throughput, continues to be well received, and we sold three of these cameras during the first quarter.

 

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Looking forward, we expect to continue to invest in research and development initiatives to reduce product costs, enhance reliability and improve system sensitivity.  Testing of a mobile version of the Cardius-3 is also under way, and we believe that this camera, subject to its successful beta-testing and measured roll-out into DIS in the second half of 2005, may result in improved revenue and higher margins in DIS.

 

This excerpt taken from the DRAD 10-K filed Mar 3, 2005.

Trends and Drivers

 

We expect the majority of DIS growth in 2005 to come from our standard DIS FlexImaging service. Given our strategy to continue to expand the number of areas in which we offer DIS services and the recurring contractual revenue stream from our existing DIS business, we expect DIS revenue to continue to represent the majority of our consolidated revenues and to generate a majority of our consolidated earnings. We attribute the overall growth of our business to geographical expansion, increased market penetration, awareness and acceptance of our services and products, and the shift in the delivery of nuclear cardiology imaging procedures from hospitals to physician offices.  We believe that the increase in demand for our services and products is driven by the desire of cardiologists to control their patients’ diagnosis and treatment and to retain revenue for services that would otherwise be performed by a hospital or imaging center. The mobile feature of our technology also provides us with a significant advantage in the delivery of nuclear cardiology imaging services.

 

In 2005, we will focus on DIS expansion, margin improvement, customer care and clinical leadership in our field.  We will continue to invest in research and development initiatives to reduce product costs, enhance reliability and improve system sensitivity.   Because we own the products that we lease, we have at times been able to translate technical camera improvements into increased margins in our DIS business.  For example, our recently introduced Cardius-3 triple-head camera features high count imaging statistics and higher patient throughput.  We believe that a mobile version of the Cardius-3 now under development, subject to its successful beta-testing in the first half of 2005 and incremental roll-out into DIS in the second half of 2005, may result in improved revenue and higher margins in DIS.

 

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