Alliance Imaging Inc., a provider of medical scanning services to hospitals and doctors, is getting deeper into treating cancer.
The Anaheim-based company recently spent $36 million to buy eight cancer treatment centers from Bethesda Resources Inc., a unit of Sonix Medical Resources Inc. of New York.
The centers, which provide radiation treatments, nearly quadrupled the size of Alliance’s cancer treatment arm. But the bulk of its $440 million in yearly revenue,95%,still comes from diagnostic scanning centers for hospitals, doctors’ offices and universities.
Alliance also has trucks offering medical scanning services that visit hospitals and other healthcare providers.
“For the foreseeable future, it will be complementary,” Chief Executive Paul Viviano said of the cancer treatment business, which has about $20 million a year in sales from 11 centers.
Alliance expects to open three to five radiation centers this year, Viviano said.
The company also is looking at other potential deals to boost its radiation business, he said.
“It’s a way to help reposition ourselves for growth,” Viviano said.
Growth has been lacking at Alliance. For the nine months through Sept. 30, revenue fell 10% to $331 million. Profits before taxes and other items were down 12% to $19 million.
The company has seen shifts in two key sources of business,hospitals and the federal Medicare healthcare program.
Hospitals have started taking on scanning services themselves, instead of contracting out for them from Alliance and others.
The story with Medicare is familiar,declining reimbursements for Alliance’s services to patients in the program.
But Wall Street appears to like what Alliance is doing. The company’s shares are up 50% in the past year with a market value of $550 million last week.
For the current quarter, analysts expect Alliance to make $5.6 million, down 8% from a year earlier. Sales are seen coming in at $119 million, up 8%.
“We continue to see value in (Alliance’s) diversification strategy,” said Darren Lehrich, an analyst with Deutsche Bank, in a recent research report.
A concern: contracts Alliance has with hospitals for magnetic resonance imaging that could be vulnerable in the next few years, Lehrich said.
Alliance has sought to stem the tide of lost business with hospitals by teaming up with them to build and operate scanning centers. It runs about 75 centers with hospitals, including at Los Alamitos Medical Center, Orange Coast Memorial Medical Center and Mission Hospital in Mission Viejo.
Government Pressure Point
Meanwhile, government reimbursement “continues to be a potential pressure point” for Alliance, Viviano said.
Congress has started to cut imaging reimbursement as a way to save money on Medicare.
Alliance warned in December that 2008 revenue would be $3 million lower than expected because of reduced payments for imaging procedures such as MRIs and positron emission tomography.
For now, there doesn’t seem to be active talk in Congress about cutting cancer care payments in spite of a large proposed overall Medicare cut by President Bush.
Alliance, which has 470 scanning centers in all, competes with several companies, including smaller players such as RadNet Inc. of Los Angeles and Medical Resources Inc., a privately held company from Bloomfield, N.J.
Alliance’s major competitor is Lake Forest-based InSight Health Services Inc., which has 207 centers.
InSight, which offered its bondholders a majority of the company in exchange for debt forgiveness last year, declined comment for this story.
InSight emerged from a quick bankruptcy last year as a public company with its shares trading on the low-profile Bulletin Board exchange. No analysts follow the company.
It had a market value of $25 million as of last week.
At Alliance, diversification is necessary, according to Viviano.
“When I joined the company in 2003, we had one product,we were exclusively a mobile MRI provider,and that business was under a lot of pressure for a variety of reasons,” he said.
In the past five years, Alliance has built more imaging centers and started offering PET scanning, which allows doctors to see how organs and tissues are functioning.
“It took us less than five years to make those new products into a minimum of $100 million a year in revenue,” Viviano said.
Alliance has similar hopes for its cancer treatment business, he said.
“Today, (cancer treatment) is a $20 million a year business” for Alliance, he said. “A year ago, it didn’t exist.”
