One majhor market factor not mentioned is the reduction in reimbursement for imaging. This makes the purchase of the Fonar system in a stand alone imaging center very very risky from the financial standpoint.
FONAR President's Message to Shareholders - March 2007
MELVILLE, N.Y., Mar 22, 2007 (BUSINESS WIRE) -- FONAR Corporation (FONR-NASDAQ), The Inventor of MR Scanning(TM) has issued its annual President's Message to Shareholders.
DEAR SHAREHOLDERS:
FONAR has been at the forefront of magnetic resonance imaging (MRI) research and development since 1978. In recent years, we developed and commercialized an MRI scanner whose unique physical configuration enables it to scan patients in any position or posture. Conventional MRI scanners can only scan patients lying down, i.e. in a single, static, non-weight-bearing position. With the introduction of the FONAR Walk-In Full-Range-of-Motion Multi-Position(TM) UPRIGHT(TM) MRI, patients can be scanned in their positions of symptoms, including normal, weight-bearing postures. When we first envisioned the product, we believed that it would revolutionize the field of diagnostic imaging. I am pleased to report that now with 142 scanners sold and 116 installed, reports from our users consistently confirm our expectation that this product is indeed beginning to revolutionize the industry.
PENETRATING THE HOSPITAL MARKET
I am pleased to report that we are now making inroads into the hospital market. Prior to our development of our new product, FONAR had very limited success in penetrating the hospital market because it was extremely difficult for FONAR to compete with the giants of industry who dominated and continue to dominate in the sale of medical equipment to hospitals. Now, however, these same giants don't have any products to offer hospitals that can compete with the FONAR scanner. As hospital surgeons and radiologists in need of full range of motion weight-bearing imaging come to recognize the tremendous value of our product for their practices, there is only one supplier that hospitals can go to - FONAR.
In 2006, the state of Tennessee awarded a Certificate of Need (CON) permitting Wellmont Bristol Regional Medical Center hospital to purchase and install a FONAR UPRIGHT(TM) MRI in Bristol, Tennessee. Morgan Lorio, M.D., a spine surgeon who championed the effort to bring the product to Bristol, Tennessee, said that the new FONAR technology which "permits the fully-loaded spine to be evaluated in its dynamic state will greatly increase the accuracy of our surgery."
In September 2006, St. Maartenskliniek in Nijmegen, the Netherlands, the country's largest orthopedic hospital, placed its order for the FONAR UPRIGHT(TM) MRI. Dr. Paul Pavlov, Director of the St. Maartenskliniek and Chairman of Spine Surgery at the internationally acclaimed Spine Centre said, "Once FONAR made available upright weight-bearing MRI imaging technology, owning one for the St. Maartenskliniek 'Spine Center' was not optional, but mandatory. For our hospital to continue to engage in spine surgery without it, once this new technology became available, was unacceptable." He added, "We did not regard the utilization of this new technology, from our patient's perspective, as optional. It was mandatory."
Toward the end of 2006, St. Vincent's Carmel Hospital installed Indiana's first FONAR UPRIGHT(TM) MRI. James Hardacker, M.D., orthopedic spine surgeon at the hospital, said, "The major significance of the FONAR UPRIGHT(TM) Multi-Position MRI is that it allows for more definitive and improved diagnoses."
LANDMARK SALE TO MULTI-STATE DIAGNOSTIC IMAGING PROVIDER
In February 2007, FONAR sold an UPRIGHT(TM) MRI to the Center for Diagnostic Imaging (CDI) of Minneapolis, Minnesota. Founded by distinguished Spine Radiologist Dr. Kenneth Heithoff in 1981, CDI was one of the first outpatient imaging providers in the country. CDI currently owns and operates 39 diagnostic imaging centers in eight states - Minnesota, Wisconsin, Illinois, Indiana, Kansas, Missouri, Washington, and Florida.
THE FONAR MARKETING STRATEGY
The focus of the sales and marketing efforts is to stimulate demand and awareness of FONAR products among patients, surgeons, referring physicians, radiologists, independent MRI practice owners, and hospitals. FONAR continues with its multi-pronged marketing strategy to significantly accelerate growth in revenue streams for MRI scanner equipment sales and services and related revenues.
FONAR's marketing strategy includes initiatives in the following areas: advertising campaigns; trade show and industry event participation; third-party endorsements in the form of medical research and professional testimonials; direct sales efforts for U.S. market penetration; and distribution channel partnerships.
1. ADVERTISING - In a continuing effort to reach consumers and physicians with the message of the unique advantages of its product, Tom Attea, former partner and creative director of Leapfrog Communications, Inc. has joined FONAR full time. Mr. Attea holds the newly created position of Vice President of Advertising. He heads FONAR's new in-house advertising agency and is responsible for the strategic and creative development of FONAR advertising. The FONAR in-house agency was created to allow FONAR to reach both physicians and patients with advertising that is both effective and cost-effective. Our goal is to make the FONAR UPRIGHT(TM) Multi- Position(TM) MRI "must have" technology. We're concentrating on reaching physicians and radiologists with a compelling series of advertisements throughout the year. The advertising will demonstrate why physicians need the UPRIGHT(TM) MRI to deliver state-of-the-art medical care and why radiologists need it to serve physicians with the most accurate images. Our goal is to create demand for the FONAR UPRIGHT(TM) MRI at a level that makes having its unique diagnostic benefits, not a choice, but an urgency. We want to turn the FONAR business from a "push" business, where we must sell the UPRIGHT(TM), to a "pull" business, in which physicians, radiologists, and hospitals are calling, with urgency, to purchase the machine. We plan to reach our audience in the leading publications that serve them and to reach them every month, at times even more frequently. We plan to reach orthopedic surgeons and neurosurgeons in Spine magazine, primary care physicians in JAMA, and radiologists in Radiology magazine, as well as other leading publications. We've also created a special virtual community for our sales force, where new advertisements will be available immediately for them to download and utilize in their sales calls. And we're creating an individual Web site for each HMCA imaging center, to achieve an immediate and enormous increase in our on-line presence.
2. TRADE SHOW PARTICIPATION - Given its recognition as an MRI industry innovator, the developer of the first MRI, and the only company to offer Position(TM) Imaging (pMRI(TM)) with the FONAR UPRIGHT(TM) MRI, FONAR exhibits at the annual meetings of the most important major surgery and radiology societies: The American Academy of Orthopaedic Surgeons (AAOS); North American Spine Society (NASS), American Association of Neurosurgery (AANS), The Congress of Neurosurgery (CNS), and the Radiological Society of North America (RSNA). In March 2007, FONAR launched its first full-fledged marketing effort in the Middle East with its participation at the 3rd Annual International Surgical Conference in Abu Dhabi in the UAE. There was a great deal of interest.
3. THIRD PARTY ENDORSEMENTS IN THE FORM OF MEDICAL RESEARCH AND PROFESSIONAL TESTIMONIALS - In an effort to educate and inform all parties associated with the MRI industry, as well as patients, FONAR is continuing its direct mail campaign providing specific case reports to approximately 10,000 physicians. These case reports show MRI pathologies, particularly of the spine, seen by the FONAR UPRIGHT(TM) MRI but not visible with the conventional, recumbent MRI. Accompanying the images are testimonials from distinguished surgeons explaining how the FONAR UPRIGHT(TM) MRI's images changed the surgery that was planned and improved their patients' outcomes.
4. DIRECT SALES EFFORTS FOR U.S. MARKET PENETRATION - FONAR has a direct sales force for U.S. distribution. The team consists of industry veterans who are well versed in the benefits of UPRIGHT(TM) Imaging, including important peer-reviewed studies that attest to the diagnostic value of multi-position imaging. In the U.S., FONAR employs 20 regional sales representatives. In addition, there are highly experienced sales support and management personnel stationed at the Company's corporate headquarters in Melville, New York.
5. DISTRIBUTION CHANNEL PARTNERSHIPS -- Tecserena GmbH of Germany has been FONAR's European distributor since the beginning of 2006. The sales force of Tecserena formerly represented Hitachi in Europe. We are pleased that Tecserena has already sold three FONAR UPRIGHT(TM) MRIs. The first is operating in Cologne, Germany; the second is now being installed at St. Maartenskliniek, the largest orthopaedic hospital in the Netherlands; and the third will be installed in a diagnostic outpatient center in Hanover, Germany. Alfred Schlemmer, managing director of Tecserena said, "The FONAR UPRIGHT(TM) Multi-Position(TM) MRI is a one-of-a-kind product, a product that we firmly believe will become a standard in MRI diagnostics in Europe, especially of the spine. There is nothing like it. Our basic marketing strategy is to educate the medical community about the unique diagnostic capabilities of the FONAR unit. Once the marketplace understands them, sales follow."
SALES CHALLENGES
As has been the experience of every other manufacturer of MRI equipment, FONAR sales have been suffering from the effects of the Deficit Reduction Act (DRA) of 2005. The January 1, 2007 implementation of the DRA effectively reduced Medicare's reimbursement for MRI services by 17% - 48%, depending on the service provided. To make matters worse, since contracted fees with many commercial payers piggyback Medicare fees, MRI providers will see decreases in payments from them as well. Naturally, this has had a negative effect on new MRI equipment sales across the country.
It is important to know, however, that in the past, Medicare has implemented reductions in reimbursement amounts for MRI procedures that were subsequently retracted. It is for this reason that many potential buyers of MRI equipment have adopted a "wait and see" posture. As of this writing, legislation to put a stop to the imaging cuts that went into effect on January 1 was introduced in the House on February 28, 2007. The bill, which is similar to the 2006 "Access to Medicare Imaging Act" that attracted 142 cosponsors, calls for a two-year freeze on the cuts.
Hopefully, this new bill will become law. However, even if it does not, FONAR is confident that once the initial impact of the DRA is absorbed, it is expected that the medical community will move forward with the purchase of equipment that it needs, despite the DRA. And the medical community does need the FONAR Walk-In Full-Range-of-Motion Multi-Position UPRIGHT(TM) MRI. The good news is that FONAR is once again seeing serious interest in purchasing our product. We are seeing prospective buyers finally coming off the fence, and we are looking forward to a substantial increase in sales.
NEW PRODUCTS
At the annual meeting of the Radiological Society of North America (RSNA) in Chicago, the largest medical meeting in the United States, FONAR exhibited the FONAR 360(TM). The FONAR 360(TM) is a room-size MRI that can be used for conventional diagnostic imaging or, in the future, for intraoperative MRI. The FONAR 360(TM), unlike any other MRI, is one that doctors can walk inside of. The patient is positioned on a surgical table that is located immediately on top of one of the MRI's two magnet poles. This design allows 360-degree access to the patient for an entire physician team.
The FONAR 360(TM) exhibit at RSNA was a replica of the unit installed at Nuffield Orthopaedic Centre (NOC), an Oxford University Teaching Hospital, in Oxford, England. Eugene McNally, M.D., NOC Consultant Radiologist, said, "We intend to exploit the unique imaging capability of the FONAR 360(TM) within our regular radiology practice. We think it will be an attractive option for claustrophobic patients and offer open field imaging at a higher field strength than most other open systems in the UK. We also plan to explore the possibilities for using this revolutionary magnet to support MRI-guided interventional procedures."
There was a great deal of interest in the FONAR 360(TM) product on the floor of the RSNA exhibit and we look forward to the impact this exciting product will have on the medical community and, of course, on FONAR.
HMCA
Our subsidiary HMCA (Health Management Corporation of America) continues to provide FONAR with a steady source of revenue in fees from managing UPRIGHT(TM) MRI business in New York, Florida and Georgia. We are actively searching for additional locations in New York and Florida so that we may add to this important source of revenue.
CONCLUSION
We believe that although we have suffered some setbacks, FONAR has a very bright future. Why? Primarily because we have a product that physicians desperately need to improve the outcomes of their patients * a product that only FONAR can provide. As our product continues to gain acceptance, our scientists and engineers continue to improve it, our customer service organization grows to accommodate our ever-increasing installed base, and our sales and marketing team has the strategy, the skill and the organization to sell, we see a bright future for our company.
I would like to acknowledge the support of our faithful shareholders who share our vision, the FONAR team for its unwavering dedication, and our customers for their loyalty. The opportunities and challenges we face strengthen our resolve to achieve the goal of medical excellence and financial success for FONAR.
Sincerely, Raymond V. Damadian President and Chairman
About FONAR
FONAR(R) was incorporated in 1978, making it the first, oldest and most experienced MRI manufacturer in the industry. FONAR introduced the world's first commercial MRI in 1980, and went public in 1981. Since its inception, FONAR has installed hundreds of MRI scanners worldwide. Their stellar product line includes the FONAR UPRIGHT(TM) Multi-Position(TM) MRI (also known as the STAND-UP(TM) MRI), the only whole-body MRI that performs Full Range of Motion(TM) (ROM) Multi-Position(TM) imaging (mpMRI(TM)) that enables patients to be scanned in numerous weight-bearing positions, i.e. standing, sitting, in flexion, in extension and, in particular, in the position that generates symptoms, so that a picture can be obtained of the actual pathology giving rise to the patient's symptoms (e.g. pain). The scanner also performs all the scans of a conventional MRI with the patients in the usual lie-down position. The FONAR UPRIGHT(TM) Full Range of Motion(TM) (ROM) Multi-Position(TM) MRI often sees the patient's problem that other scanners cannot, because they are lie-down only. Approximately 85% of patients are scanned sitting while they watch a 42" flat screen TV. For more information please visit: www.fonar.com
The Inventor of MR Scanning(TM), Full Range of Motion(TM), STAND-UP(TM), UPRIGHT(TM), Multi-Position(TM), pMRI(TM), True Flow(TM), and The Proof is in the Picture(TM) are trademarks of FONAR Corporation.
This release may include forward-looking statements from the company that may or may not materialize. Additional information on factors that could potentially affect the company's financial results may be found in the company filings with the Securities and Exchange Commission.
SOURCE: FONAR Corporation
FONAR Corporation Daniel Culver, 631-694-2929 Fax: 631-390-1709 invest2007@fonar.com http://www.fonar.com
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