GARY H. BROOKS - POSITRON - (POSC)
CEO Interview - published 12/04/00

DOCUMENT # LAG617

GARY H. BROOKS has served as Director and President of Positron Corporation since January 22, 1999 and served as President on a part-time basis until September 1, 1999, when he moved to the company on a full-time basis. Prior to joining Positron, Mr. Brooks served as Vice President of Finance and Administration, Chief Financial Officer and Secretary for Imatron since December 1993. Mr. Brooks received his BA degree in Zoology in 1971 from the University of California, Berkeley, and an MBA degree in Finance and Accounting in 1973 from the University of California, Los Angeles.

JOHN J. ARIATTI joined Positron Corporation as Vice President of Sales and Marketing in October 1999. A veteran of the medical imaging industry, John has held management positions in sales and marketing with companies such as Philips Medical Otsuka Electronicsl, and was Vice President of Sales at Toshiba America Medical Systems before joining Positron.

ROSS K. HARTZ is Director of PET Technology for Positron Corporation. From 1980 through 1987 he was the Chief Engineer for the PET Project in the Division of Cardiology at the University of Texas Health Science Center in Houston, where the use of Rb-82 as a perfusion agent was first validated. He received a BS degree in Electrical Engineering in 1975 from the University of Arizona, followed by an MS degree in Electrical Engineering with a Biomedical Certificate in 1977 from Washington University.

Sector: Medical Devices

TWST: Could we start out by your giving us a brief overview of Positron Corporation?

Mr. Brooks: Positron Corporation is primarily engaged in designing, manufacturing, marketing and supporting advanced medical imaging devices utilizing positron emission tomography (PET), technology under the trade names PosiCam-HZL and mPower Systems. The systems incorporate patented and proprietary technology for the diagnosis and treatment of patients in the areas of oncology, cardiology and neurology. PosiCam and mPower Systems are in use at leading medical facilities around the world, including the Cleveland Clinic, Yale University Veterans Administration, Crawford Long Hospital, Hermann Hospital, Hadassah Hebrew University in Jerusalem, The Coronary Disease Reversal Center in Buffalo, New York, and the Nishidai Clinic in Tokyo, Japan. Positron started in 1983 and went public in 1995. The company had financial difficulty in 1997. Positron was kept afloat with bridge financing from Imatron Corporation in South San Francisco. In 1999, Imatron briefly took controlling interest in Positron and then re-launched Positron with new equity financing primarily from Europe and Japan. After the equity financing, I left Imatron, where I was CFO, and joined Positron as President. Our Chairman of the Board, Lewis Meyer, is still CEO and President of Imatron, but has been instrumental in the re-launch of Positron.

TWST: Are these diagnostic products?

Mr. Hartz (Director PET Technology): PET technology makes images by detecting gamma rays emitted from the patient. The point of the initial design of the system was to do rubidium imaging of cardiac patients. That was our initial set of customers, and what has sustained us. Our scanner also does oncology and neurology, which are being done at many of our sites. All of these exploding medical markets are very effective uses of our system. The technology has evolved, but still utilizes basically the same principles that we started with. The technology took a long time to be accepted, and as Gary indicated, we fell on bad financial times. We pulled back to being a service organization, maintained our customer base, kept them functioning, and now that we’ve re-launched, we’re actually growing into all three markets. Mr. Ariatti (VP Sales & Marketing): I think it’s important to note that PET images metabolism or function and goes down to the molecule. One of the things that was brought out to the Medicare Advisory Committee for HCFA, just two weeks ago, was that because it goes down to the molecular level, PET is useful for all cancer applications. In addition, you’re going to see more and more where PET is going to be used for drug research as we get more and more into gene therapy.

TWST: Tell us about your markets.

Mr. Brooks: Allow me to give another one minute summary of the markets Positron addresses. Heart disease is the number one killer of American men and women. Some 650,000 Americans will die this year in the United States alone of heart disease. Cancer is the number two killer of American men and women. There will be 1.2 million new cancer cases this year and 525,000 Americans will die of cancer. Stroke is the number three killer of American men and women with 160,000 Americans dying this year. The entire cost of those three diseases in the United States alone is over $300 billion a year, a very large amount. So the real question becomes why do we care? Because Positron PET is the best technique for measuring and imaging the impact of these diseases in the human body, better than CT, better than MR, better than Ultrasound, better than SPECT. PET is the perfect combination of better medicine, better patient care and reduced medical costs. Mr. Ariatti: One of things that Ross was saying was the area that we went into was in cardiac. We are by far the leader in cardiac PET. We’ve done more patients than any other system around. We have systems at Cleveland Clinic, Beth Israel New York, and Crawford Long of the Emory Health System. Using an isotope, rubidium, which has an extremely short half-life, only 76 seconds, allows us to not only do cardiac, but gives us some major advantages in oncology and neurology in the future of PET. Now, with new reimbursement that was given last summer, and additional reimbursement that’s being considered right now by the Secretary of Health, there is an explosion for PET in many different applications, in particular, utilizing an isotope called FDG. FDG is an isotope that has a life of 110 minutes, and it gives some major advantages in cancer, as well as myocardial viability. But it’s only the beginning of PET in that there are many other applications for isotopes that have much shorter half-lives, oxygen 15, carbon 14, that will affect the future in cancer, as well as cardiac. With our patented technology we have advantages of being able to offer all present applications in cardiac, oncology and neurology, as well as being very well poised for the future applications utilizing other isotopes.

TWST: Tell us about the economics of PET in the United States today.

Mr. Ariatti: The areas that PET is most effective in are those of cancer and cardiac. There are 1.2 million new cancer cases every year. Right now there is coverage for about 30% of those who are covered by Medicare. As we speak, HCFA and the Secretary of Health are considering broad-based coverage. In addition, in cardiac, you’re looking at the number one killer in the United States with over 500,000 Americans dying of heart disease a year. In cardiac there are some five million myocardial perfusion studies, done by SPECT, a year. PET, with our technology and our software, has been proven to be more specific than any other modality, including SPECT, in doing myocardial profusion. As a matter of fact, a paper that was given at the American Heart Association in 1999 by Dr. Michael Merhige, showed with the proper use of PET, compared to SPECT, you could actually decrease your coronary artery disease management costs by some 25%, which is a tremendous amount of money. In neurology, in areas of dementia and Alzheimer’s, being able to really show Alzheimer’s in a patient years before the patient begins actually seeing the manifestations of the disease. It gives the doctor an opportunity to utilize drugs that slow down the disease process. It also gives the patient the opportunity to deal with the disease before it gets more debilitating.

TWST: What are your plans for international expansion?

Mr. Ariatti: We’ve already done four systems this year in Japan, three at the Nishidai Clinic, as part of a five unit order, and one system currently in use at the National Institute of Radiological Sciences of Japan. We are also looking at Europe, China and the rest of Asia.

TWST: How much does a system cost?

Mr. Ariatti: $1.750 million fully loaded.

TWST: What are some of the other competitive advantages that Positron offers?

Mr. Ariatti: The major competitive advantages that Positron offers is the technology that we have — Ross explained some of it — that allows us to be able to do all the applications. Competitors are really concentrating on doing FDG for cancer, and doing some neurology. But the short life isotope applications, such as with rubidium in cardiac, they have not been able to do. In addition to that, our cardiac software and our graphic operational interface make our system very easy to use. Right now the thing that is predicted to prevent the growth of PET is really the need for talented people and the availability of trained people. In our system we’ve been able to prove that people can learn very easily. We’ve got one hospital that uses five different technologists that rotate through. So it’s very simple to use, contrary to many of our competitors’ systems that are out there. I think it’s also important to point out that the year 2000 really has been a year of making the market aware that Positron is still in this business. Positron is not just a cardiac PET unit. Positron is a whole body PET unit and offers some major competitive advantages. We’ve been able to get that word out at several trade shows over this past year, from Society of Nuclear Medicine to the American College of Cardiology, the International Clinical PET meeting, and the American Heart Association. Next week, we’re going to the Radiology Society of North America meeting. So that word is getting out. We still have people that come up to us and tell us that they didn’t realize that Positron was still in business or that they didn’t realize that we had a whole body scanner, not just cardiac. We’re doing that through advertising and getting to the marketplace and the focused trade shows.

TWST: Where would you like to see the company in three years?

Mr. Brooks: The primary issue for us is keeping up with the growth and changes in the market. We are seeing some huge growth in PET sales worldwide because of the issues we have talked about; very, very large markets and a very effective tool for addressing those markets. We are looking at the worldwide market for PET to be somewhere in neighborhood of 400 to 450 units per year by 2003, after being 25-30 units per year worldwide, just a couple of years ago. Positron was financially severely limited until last year. We are now back, have already had our biggest unit sales year ever, and that’s only through three quarters. We are definitely on the relaunch path, but we are also competing with GE and Siemens. It will be a tough fight, but we intend to be a player in the PET market. Out of 400 units, I would certainly like to see us reach a 20% market share.

TWST: What major changes do you expect in your market over the next several years, or in the industry for that matter?

Mr. Brooks: The PET industry is going to expand dramatically because of the worldwide explosion. As John said, this is due to reimbursement by Medicare, which is the most significant event in PET’s history. The insurance companies will follow Medicare’s lead. It is also very important to educate the oncologists, cardiologists and neurologists on how to effectively use the technology in diagnosis and treatment. It’s very important that they understand there is a better tool. Mr. Ariatti: I think you’re also going to see where PET is going to be a standard in oncology, not only for staging and diagnosing, but for ongoing follow-up, to be able to determine — you’ve done four chemotherapies; have we gotten all of the cancer and what have we accomplished? In addition, I think, in the area, again, of molecular imaging, we’ll see PET being utilized greatly in the new gene therapy world.

TWST: Will acquisitions, joint ventures, partnerships or alliances play a part in your future?

Mr. Brooks: At this stage, we are 100% focused on growing our own company. We believe that we will be extremely successful that way. I would never rule out future possibilities, but at this point we are focusing internally.

TWST: How is the company taking advantage of the Internet?

Mr. Ariatti: We are advertising basically through our own Website. But the Internet also can be a tool for our customers to exchange large bodies of data back and forth for over-viewing and things of that nature. So we’re looking at taking advantage of that. We’re also looking at technology whereby data can be sent over the Internet to physicians for reading. There are several companies available that could help and aid us in providing our customers with that capability. I think on the education side, being able to continue to upgrade the operators. Presently, our customers are able to do diagnosis, remotely, but not via the Internet. We also can do service remotely where we can continue to check and make sure that the system is up to date, has quality controls and remains reliable. Our reliability is just tremendous. We have a 99% up-time record and a lot of this reliability has to do with the remote diagnostics. Mr. Brooks: The system is very modular and can be repaired quickly by service technicians, as John said, many times via modem.

TWST: What benchmarks or milestones can investors use to judge your progress over the next several years?

Mr. Brooks: Unit sales, the growth in revenue. We’ve sold five systems already this year through three quarters, versus zero last year and zero the year before. What investors ought to be looking for is continued growth in revenues. In addition, some of the press releases that we will be issuing will note the changes in the power of the machine with the addition and expansion of our software. We are finishing up several software programs that will make the system even more powerful, including segmented continuation correction (SCC), iterative reconstruction (IR), post-injection transmission attenuation (PITA), and DiCom communication software. These all mean that we are moving forward and you will see these releases shortly.

TWST: How do you think your R&D expenditures will change in the future, in terms of both amount and emphasis?

Mr. Brooks: We certainly are moving forward in R&D. There were a lot of engineering projects left undone three years ago when the company fell upon hard times. You will certainly see increased expenditures in that area and as we modernize the machine and move forward, you’ll see a tremendous increase in the R&D area. This area belongs to Ross. Mr. Hartz: Just adding to what Gary just said, we’ve basically weathered the storm from our financial turbulence here, and there will be many new technological advances in the future. We are moving ahead and taking advantage of a lot of the computing power that’s available today.

TWST: Where are the risks or general concerns regarding Positron? Does anything about the company keep you awake at night?

Mr. Brooks: When your two biggest competitors are GE and Siemens, you certainly have two extremely large, very formidable competitors. It is critical for us to find and hire quality people, innovate quickly and bring new, solid, price competitive products to market. It is also important that we continue to maintain our high level of service.

TWST: What incentives have you put in place to attract and keep people?

Mr. Brooks: Every employee gets stock options. As the company grows, I would expect the value of their options to follow.

TWST: What should investors look at in your financial reports?

Mr. Brooks: I think top and bottom line growth in the Income Statement and improvements we have made in the Balance Sheet, primarily in Liabilities. This is the best way for investors to see the progress we are making at Positron.

TWST: How do you feel about your current stock price?

Mr. Brooks: Like most other companies traded via NASDAQ or Bulletin Board, we have been pushed down. I think people are going to have to wait and see both as the markets recover and as Positron goes forward. Over nine months, this year versus the prior year, our results have been much improved. If we continue to improve, I think investors will embrace the technology and our stock.

TWST: What two or three reasons would you give long-term investors to buy stock in Positron Corporation Today?

Mr. Brooks: First, PET is the next generation medical technology, where the doctor can actually image metabolic activity, rather than just structure. So it is a huge market. Second, the technology is now being backed by HCFA and the insurance companies and we are starting to see the dramatic growth resulting from this validation and endorsement. Third, despite the fact that Positron fell upon hard financial times, Positron has solid, demonstrated technology in these markets and proven, rock solid, technical support. Our growth has already re-started and we project it to continue. We are addressing a huge market, and we are going to do very well. We believe Positron has the flexibility and technology. Now we are going to go out and sell units.

TWST: Thank you. (RF)

GARY H. BROOKS
 President 
JOHN J. ARIATTI
 VP Sales & Marketing
ROSS K. HARTZ
 Director of PET Technology
 Positron Corporation
 1304 Langham Creek Drive
 Suite 300
 Houston, TX 77084
 (281) 492-7100
 (281) 492-2961 - FAX
 www.positron.com

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This Interview with Gary H. Brooks, President, John J. Ariatti, Vice President of Sales & Marketing, and Ross K. Hartz, Director of PET Technology, Positron Corporation, is accompanied by an Investors Brief containing corporate information.

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