AMICAS, Inc.

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AMICAS, Inc.

20 Guest St., Ste. 200
Boston, Massachusetts 02135
U.S.A.
Telephone: (617) 779-7878
Toll Free: (800) 490-8465
Fax: (617) 779-7879
Web site: http://www.amicas.com

Public Company
Incorporated: 1996 as InfoCure Corporation
Employees: 687
Sales: $111.5 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: AMCS
NAIC: 511210 Software Publishers

AMICAS, Inc. provides practice management software systems to the healthcare industry, focusing on the radiology market. It offers both Windows-based and Java/browser-based systems, featuring a comprehensive medical records system, document imaging and management capabilities, custom reporting and decision support systems, web-based and wireless report distribution, picture archiving, and a billing system. The public company trades on the NASDAQ and, until early 2005, was known as VitalWorks, Inc. Since the sale of its medical division to Cerner Corporation, the company has relocated its headquarters to Boston.

Founders Entering the Medical Software Field in the 1980s

The company was founded by Frederick L. Fine and James K. Price, who had been fraternity brothers at the University of Georgia. The former earned a degree in Economics and the latter a degree in Marketing. After graduation, both went to work for two years as sales reps at Moore Business Systems, provider of practice management systems. They split up, with Fine becoming a regional manager with Informatics General Corporation, which produced accounting software, and Price serving as healthcare sales manager of a practice management systems supplier, Executive Business Systems. In 1985 the two young men decided to team up and launch a business to develop and market computer systems aimed at small doctors offices, rather than hospitals and medical groups. They were turned away from a number of Atlanta banks, but ultimately secured funding from the Small Business Administration, which agreed to lend them $250,000. They founded International Computer Solutions, Inc. (ICS) in 1985 and set up shop in a small office in Atlanta, initially sharing the same desk.

Over the next 13 years, Fine and Price built up ICS's business, so that by 1996 it was providing DOS, Windows, and Unix-based practice management systems to about 2,500 healthcare providers. Ready to take the business to the next level, in November 1996 they formed InfoCure Corporation, VitalWorks' predecessor, to acquire ICS and several other medical software companies and to become a vehicle for acquiring additional companies serving small medical practices. It was an area ripe for consolidation and neglected by the major players in the field. In addition to ICS, InfoCure's five other founding companies included DR Software, Inc., an Atlanta-based company founded in 1983 to provide practice management systems to medical practices with just one to two providers; KComp Management Systems, Inc., a Los Angeles company founded in 1995 that catered to mid-sized dental and oral surgery practices; Healthcare Information Systems, Inc., a Kansas City, Kansas-based provider of UNIX-based practice management systems to mid-sized medical practices and clinics, founded in 1984; Rovak, Inc., a St. Elmo, Minnesota, company founded in 1984, providing practice management software primarily to orthodontists and oral surgeons; and Health Care Division, Inc., a company founded by Fine and Price in 1996 to acquire Charlotte, North Carolina-based Info Systems, which provided IBM AS/400-based practice management systems to mid-sized and large medical practices and clinics. The six companies had a combined established customer base of 17,000 doctors.

The acquisition of the founding companies coincided with InfoCure's initial public offering (IPO), which was completed in July 1997 and netted the company nearly $7 million. InfoCure used about $2.9 million to pay the cash portion of the purchase price for the six founding companies. All told, the founding companies were acquired for $10.9 million in cash and 3.7 million shares of InfoCure stock, plus the assumption of $2.3 million in debt. Just prior to the IPO, InfoCure also added the business of Millard-Wayne, Inc., when the holding company for ICS acquired the Atlanta-based company. Founded in 1977, Millard-Wayne sold IBM AS/400-based practice management systems to mid-sized and large medical practices and clinics, adding another 2,000 healthcare providers to InfoCure's customer base.

Late 1990s Acquisition Binge

After completing its offering, InfoCure was soon on the acquisition trail again. In October 1997 it added three companies: Professional On-Line Computer, Inc., a Michigan company providing medical management software to radiologists and others; Commercial Computers, Inc., provider of practice management systems in south Florida; and SoftEasy Software, Inc., a Philadelphia, Pennsylvania-area software company serving podiatrists. Not only did InfoCure grow its customer base, it also increased its talent pool by successfully retaining key technical and administrative personnel, a practice the company would attempt to follow in all of its acquisitions. Before 1997 came to a close, InfoCure made two more acquisitions: Pace Financial Corporation, a Cincinnati company with offices in Minneapolis and Rochester, Minnesota, marketing a proprietary medical office information system running on the IBM AS/400 platform; and the orthodontic practice management system business of Halis Services, Inc. Also of importance in 1997, InfoCure launched InfoFunds, a program to provide customer financing and drive additional sales.

In January 1998 InfoCure continued to act as a consolidator, adding Micro-Software Designs, Inc., which primarily served oral and maxillofacial surgery practices, and Medical Software Integrators, Inc., provider of practice management systems to anesthesiology practices. Later in the year, InfoCure acquired the Healthcare Systems division of the Reynolds and Reynolds Company, adding practice management systems geared toward radiology and anesthesiology practices. Then, to close the year, InfoCure acquired Radiology Management Systems, Inc., a Santa Monica, California-based company serving radiologists.

InfoCure picked up the pace in 1999, adding more than a dozen companies to the fold. In February it acquired Macon Systems Management, LLC, targeting dermatologists, and OMSystems, Inc., serving orthodontists. In June InfoCure acquired Strategicare, Inc. and its Disc Computers Systems, Inc. subsidiary, which provided practice management software for general medical practices. Three more acquisitions followed in August: Ardsley, M.I.S., serving orthodontists; Medfax Corporation, primarily serving radiologists; and Scientific Data Management, Inc., which provided practice management software for general medical practices. In November 1999 InfoCure bought Datamedic Holding Corp., which focused its business on ophthalmologists and oncologists. InfoCure then ended the year with a flurry of deals. It added the dental businesses of National Data Corporation; Zila, Inc., which marketed its services under the Practice Works name; Kevin Kozlowski, Inc.; Unident Corporation; and InfoLogic, Inc. InfoCure also acquired Prism Data Systems, Inc., a provider of software to ophthalmologists, and CDL Healthcare Systems, Inc., which catered to general medical practices. In addition, InfoCure acquired VitalWorks Inc., a company that delivered practice management software to general medical practices through a browser-based interface over the Internet on a subscription basis. To help pay off some of the debt incurred in making these acquisitions, InfoCure conducted a secondary offering of stock in 1999, raising $112 million. The price of the company's stock continued to rise, prompting a 2-for-1 split in August. In this way it kept the price low to attract more investors while increasing the number of shares in circulation.

Much of the stock's growth was due to the potential of adding the power of the Internet to the company's mix. In July 1999 InfoCure signed an agreement with a subsidiary of Sybron International Corp., the largest supplier of dental products in the world, to allow InfoCure customers to buy orthodontic supplies online worldwide. It also reached an agreement with Hewlett-Packard to offer its software on HP personal computers and handhelds through Qwest's fiber-optics network. By now, InfoCure was serving orthodontic customers in Australia and 11 European customers, and hoped to apply its experience with Sybron to radiology and anesthesiology. It also wanted to expand into other practices, such as ophthalmology, dermatology, and oncology, while spreading its international reach, especially into Latin America. The addition of VitalWorks also marked a significant turning point for InfoCure. It formed VitalWorks.com and began moving the entire company toward an application service provider business model, so that now instead of buying software from InfoCure, customers rented access to the applications on a monthly or yearly subscription. To aid in making this transition, InfoCure forged an alliance with Qwest Communications International Inc. to offer the VitalWorks applications online to physicians, allowing them to handle billing and claims processing and connect to pharmacies and insurance companies. Rather than incurring major upfront costs in buying practice management software, paying as high as $100,000, physicians could now receive the services by paying a more manageable subscription price. The new strategy also included spinning off VitalWorks with an offering of stock in 2000. Moreover, the company wanted to package its dental practice business into another eCommerce subsidiary, PracticeWorks.com, which also was to be spun off with a public stock offering.

Company Perspectives:

AMICAS is all about people. Nowhere else will you find a more dedicated, more driven group of men and women. It's our people that make us special, and in turn make our products and services special.

In early 2000 InfoCure lined up additional help in making its transition to a Web-based business when WebMD agreed to invest as much as $100 million in VitalWorks.com. WebMD paid $10 million upfront to acquire a 10 percent stake in Vital-Works.com, and was slated to invest another $90 million after the IPO, including $40 million in cash. Also of significance, InfoCure gained access to WebMD's transactions technology. The two parties agreed to jointly research and develop a way to integrate their technologies. For WebMD the alliance was advantageous because it desired access to InfoCure's base of customers, now totaling about 100,000 physicians.

VitalWorks was scheduled to sell 20 percent of its shares in a May 2000 offering, but the IPO was postponed because of poor market conditions for Internet stocks. In the meantime, InfoCure beefed up PracticeWorks by acquiring six new dental practice management companies. Making the transition to a Web-based business proved difficult, however, as InfoCure was hit with major restructuring charges. Sales were also adversely impacted by changes in government regulations covering patient privacy that had been delayed by more than a year and caused customers to put off adding practice management software until there was more clarity on the new requirements. The company reported a 15 percent drop in sales for the second quarter in 2000 and investors punished the stock, which lost 87 percent of its value from January to August 2000, dropping from a high of $37.38 to less than $5. In August 2000 InfoCure elected to cut 40 percent of its workforce, some 400 employees, in order to weather the storm.

New Century, New Name

InfoCure changed direction in the fall of 2000, announcing that VitalWorks would not be spun off. Instead, PracticeWorks would be spun off to shareholders and InfoCure would then assume the VitalWorks name and concentrate solely on providing management information technology and e-health services for medical practices. In March 2001, PracticeWorks was spun off to InfoCure shareholders, with James Price leaving to become PracticeWorks' chief executive. Also at that time, Frederick Fine turned over the CEO post to Joseph M. Walsh, who had been the head of one of InfoCure's acquisitions and had served as InfoCure's president since May 2000. Another CEO of an acquired company, Steve Kahane of Datamedic, became the company's chief strategic officer. Fine stayed on as InfoCure's chairman, but in June 2001 he gave up that post as well to Walsh. In August 2001 InfoCure assumed the Vital-Works name.

VitalWorks fell out with WebMD in 2001, leading Vital-Works to sue for breach of contract, alleging that WebMD refused to pay agreed-upon rebates. The matter would be resolved later in the year, with WebMD paying $2.5 million to VitalWorks to settle all claims. Over the next year or two the company also had to deal with several shareholder lawsuits related to some of the companies InfoCure bought during its acquisitions binge.

After suffering through two years of significant losses, Vital-Works returned to profitability in 2002, posting net income of $24.1 million on revenues of $114.8 million. Sales fell off in 2003 to $111.5 million and net income dropped to less than $8 million, but also during the course of the year the company made an acquisition that changed the direction of the company once again. In November 2003 it acquired Boston-based AMICAS, Inc., which developed Web-based diagnostic image management software, the addition of which allowed Vital-Works to offer radiologists a complete radiology data management system. The radiology sector of the company's business was so strong that in 2004 management decided to devote all of its attention to it.

VitalWorks first rearranged its management team, with Kahane replacing Walsh as CEO, while the latter stayed on as chairman. The company then announced that it planned to move its headquarters to Boston, where the company now had a significant presence because of the AMICAS operation. This decision would make more sense in light of the agreement the company announced a few weeks later that it was selling its medical division to Cerner Corporation for $100 million. In this way, the newly named AMICAS could focus all of its efforts on the radiology business. How the company would fare in a new home with a new business plan remained very much an open question.