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Algotec adds value for Gerald Schwartz’s Onex

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Tuesday, September 6th, 2011

As reported in IVC:

The medical IT field is hot as President Obama’s healthcare act requires clinics to computerize.

In 2003, medical imaging systems developer Algotec Systems was acquired by Eastman Kodak Inc. (NYSE: EK) for $42.5 million. It was one of the two medical imaging companies Kodak acquired in Israel, the other being Orex Computed Radiography, acquired for $63 million. At the time, Kodak also acquired digital printing developers in what seemed to be the beginning of a beautiful friendship between the US giant and Israeli high tech. However, just four years later, Kodak decided to quit the medical imaging business, and Algotec and Orex were sold together with the rest of the business to Canada’s Onex Corporation (TSX: OCX), controlled by chairman and CEO Gerald Schwartz. Onex was an unknown entity in Israel at the time, which portended poorly for the Israeli firms’ future.
Today, it appears that the sale only benefited the Israeli firms. Kodak’s healthcare unit became Carestream Health Inc., and its owner, Jewish-Canadian Gerald Schwartz, subsequently became a well-known figure in Israel. At one point, he even considered buying the Maccabi Tel Aviv Football Club. He is a generous donor to the IDF, has bought a building on Tel Aviv’s Rothschild Boulevard, and is an associate of Prime Minister Benjamin Netanyahu. Schwartz is ranked 1,140th in the “Forbes” Billionaires List. He is considered one of the world’s prominent pro-Israel billionaires.

Meanwhile, Algotec Systems has done very well as a unit of Carestream. Algotec currently has 150 employees, and it is Carestream’s main IT development center. Dr. Elad Benjamin, the son of Algotec founder Dr. Menashe Benjamin, and who was the company’s VP marketing at the time of the sale, now not only runs Algotec from his Israeli office, but also Carestream’s entire IT division.

Carestream’s IT division has 650 employees and an annual turnover of $200 million. Its customers include insurance giants, such as US HMO Kaiser Permanente, and Israel’s Clalit Health Services, one of the world’s largest health insurers. Carestream operates worldwide, including at 25 hospitals in Saudi Arabia.

Thanks to Obama’s incentives

Onex, which has a market cap of C$3.8 billion, has started to consider floating Carestream. Since then, the expectations from Benjamin’s IT solutions division have grown. “We have an opportunity to grow and add value to Carestream out of proportion to our size within the company, thanks to information technology trends,” Benjamin told “Globes” in an interview. “While the film sector, where some other Carestream units are engaged, is frozen and even waning, medical digital imaging is on fire.”

One of the reasons for the trend is US President Barack Obama’s healthcare incentives program, which includes $2 billion just for computerization. “Today, only 20% of health clinics are computerized,” says Benjamin. “In the coming year, every clinic that switches to a computer system will receive millions of dollars in incentives, and beginning in 2012, any clinic that isn’t computerized will be fined. The race by for clinics to computerize is driving the business of companies like ours.”

However, to reap the rewards, medical computerization companies have to deal with some major challenges. “In the past, a company that was engaged in digital imaging faced one challenge – to present the image,” says Benjamin. “Today, it’s clear that the main challenge is to make that image usable by doctors.

“A hospital generates vast amounts of data, which have to be presented quickly to a small number of decision-makers. The key is to give the doctor better tools that improve his ability to make decisions without feeling that he is overworked.”

Algotec gained this insight the hard way. It once developed a system for doctors that presented a 3D image, but discovered that the doctors didn’t use it because the image needed 3-4 seconds to upload, and the doctor had to view scores more images. “Much of our know-how and patents are for presenting a 300-megabyte image very quickly,” says Benjamin.

Apart from speed, companies in the field have to cope with another challenge – integration.

“A large US hospital has 80-100 different information systems, and we have to make it possible to pull different images from different systems and present them one on top of another. All this has to be possible with a few clicks.”

“Globes”: What about the data being held by the patient, such as on the current DiskOnKey or in a chip in the body in the future?

Benjamin: “The typical patient is a disorganized adult for whom the use of technology is no easy matter. I don’t think the patient will manage the data himself. Google thinks the same and gave up its venture in this field.

“However, the patient definitely wants to be more involved in the management of his or her illness. In the coming years, one of the biggest challenges will be to figure out how to do this.”

In the coming years, Algotec wants to expand into cardiology, ophthalmology, and gynecological imaging.

What are the chances of an acquisition in Israel in these new fields?

“I wish there was something to buy. There is no significant medical computerization activity in Israel.”

There are experts who will swear that this is a thriving field in Israel. What about dbMotion Ltd. and eWave Ltd.?

“I prefer not to respond directly about specific companies, but I’m not excited by what I’ve seen here. Israelis are excellent at health applications for the end-user and in niche computing fields.”

How important is Gerry Schwartz’s involvement in Israel for the continuation of the Israeli development center?

“Gerry is not directly involved in the Israeli operations. He visits a few times a year. When we won a Clalit project he came and congratulated us on the win.

“Fortunately, the R&D center justifies itself, and there is no need to think twice whether it will stay in Israel or not. Gerry Schwartz supports the Israeli activity and he and Onex have taken fire for it in Canada. But most of the fire is because of his political activity and donations, not because of our operations.”