Siemens to buy CTI for $1 billion

Mar 17, 2005

With the goal of expanding its presence in the molecular imaging market, Siemens Medical Solutions is moving to buy its longtime PET partner CTI Molecular Imaging in a cash deal valued at approximately $1 billion.

For Siemens, the deal offers a number of gains, including cost advantages, greater market coverage, and the opportunity to align existing sales forces, as well as yielding benefits in product development, said Markus Lusser, vice president of worldwide sales and marketing for the vendor's Hoffman Estates, IL-based nuclear medicine group.

"We expect to be able to generate a faster pace of innovation, and bring products to market in a shorter period of time," he said.

Siemens and Knoxville, TN-based CTI initially teamed up in 1987, with Siemens taking a 49.6% equity position in the capital stock of CTI PET Systems (CPS), which manufactures PET scanners. That joint venture agreement also included a put/call provision granting Siemens rights to purchase an ownership interest in CPS once the company exceeded certain PET scanner unit sales.

Rather than wait until that threshold was hit, and seeking to gain access to more than just CTI's scanner operations, Siemens elected to acquire CTI and all of its businesses, Lusser said.

"We had a very strong relationship on the scanner side, and that's where we had the joint venture on PET systems and jointly manufactured PET/CT scanners," Lusser said. "But we didn't have a strong relationship in cyclotrons, distribution networks for radiopharmaceuticals, molecular technology development, and microimagers. We basically decided that if we exercise an acquisition of the entire company now, we could generate more synergies than waiting for the put/call option to be effective."

CPS manufactures and distributes the ECAT line of PET and PET/CT scanners, while PETNet Solutions develops PET tracers. CTI Mirada Solutions provides image analysis software. Other CTI units include CTI Molecular Technologies, an R&D unit focusing on biomarkers, and CTI Concorde Microsystems, which sells small-animal PET systems for imaging laboratory animals in medical research.

Siemens doesn't plan to make any significant changes to the structure of CTI, which will operate as a Siemens subsidiary, Lusser said. No decisions have been made yet regarding CTI's management structure.

Siemens and CTI have worked closely since 1987 as a result of the joint venture, with Siemens serving as the exclusive distributor of ECAT scanners from 1987 to 1997. CPS also began distributing systems from 1997 to 2001. In November 2001, CPS elected to open up additional distributor channels, signing Hitachi Medical Systems as another third-party distributor.

Toshiba Medical Systems joined the CPS distributor stable in 2003 for the Japanese market, and in 2004 Toshiba and CPS announced an agreement to jointly develop a line of integrated PET/CT systems for Toshiba to distribute in Japan.

Those contractual OEM relationships will be not be affected by the deal, and will be continued, Lusser said.

CTI's own role in directly distributing CPS systems ended in 2004, following a new sales and service agreement signed with Siemens. From that deal, CTI's U.S. tomograph sales force became a sales agent for Siemens, working under Siemens management.

Scanner sales and service activities outside the U.S. were assumed exclusively by Siemens, except for South Korea and Japan. All PET and PET/CT scanners sold under the new deal were marketed under the Siemens ECAT and biograph labels, and Siemens also began marketing other CTI products and services.

Siemens will commence a cash tender offer within 10 business days to acquire all the outstanding CTI shares for $20.50 per share. Following the completion of the tender offer, any remaining shares of CTI stock will be acquired in a merger at the same price per share, according to the firms.

Each company's board of directors has approved the agreement. The transaction is subject to customary regulatory approvals and other customary closing conditions, and is expected to close in the second quarter.

By Erik L. Ridley
AuntMinnie.com staff writer
March 18, 2005

PET scanner sales pace CTI revenues, February 1, 2005

Revenue, income up for CTI in Q4, November 16, 2004

PET firm CTI acquires ImTek, November 9, 2004

CTI and Siemens retool PET alliance, May 5, 2004