Medical imaging firm sold to US company but operations to remain Canada

VisualSonics, a rapidly growing Toronto-based developer and manufacturer of micro ultrasound imaging systems, has been sold to SonoSite Inc, Bothell WA, for US$71 million as it expands from the pre-clinical to clinical markets for its innovative products. A 1999 spin-off from the Sunnybrook Health Sciences Centre, the firm, its 100-plus employees and manufacturing will remain in Toronto for the foreseeable future as it draws on the resources of its new parent to double current output.

VisualSonics was founded by Sunnybrook senior scientist Dr Stuart Foster, based on his pioneering research into utilizing high-frequency transducers for ultrasound detection that makes tiny physiological details visible. The company has cornered its niche market with its technology installed in 700 labs around the world. Although SonoSite is US-based, company officials are describing the sale of the privately held firm as a Canadian success story since its knowledge and people assets will remain — and expand — in Toronto.

"We design, outsource the manufacture of the boards to Canadian companies and assemble the final product at Young and Lawrence," says Sam Ifergan, owner of Toronto-based Hargan Ventures, an early-stage investor in VisualSonics. "These are $300,000 machines. They're not high volume and they have 70% margins ... We never considered moving the manufacturing because it's intimately tied to the engineering and the R&D. We'll keep it in-house and we do all the transducers in house."

VisualSonics is the only firm utilizing extreme high resolution ultrasound imaging technology, designed specifically for non-invasive preclinical research. It operates at five times the centre frequency of a conventional ultrasound and is protected by more than 150 patents, allowing labs at hospitals, universities, pharmaceutical and biotechnology firms to conduct genetic research, phenotypic study and drug development. Foster's leadership in the technology's development was recognized in 2006 with the Ernest C Manning Foundation's Award of Distinction.

Hargan has invested $1.5 million VisualSonics since 2002 and retained a stake in the firm until its recent sale. During that time, other investors have come on board with an additional $30 million including Vengrowth, National Cancer Institute of Canada, Canadian Institutes of Health Research, Terry Fox Foundation and a US bank.

The firm also took advantage of funding from Sunnybrook's Ontario Preclinical Imaging Consortium (OPIC), which received $7.4 million in 2009 from the Ontario Research Fund — Research Excellence Program. OPIC matches funds from industry and helped to build VisualSonics to the point where it was ready to tackle the clinical trials market.

"Two major issues drove the sale. One major shareholder wanted out and we were getting ready to launch clinical products," says Ifergan, adding that the exit was the most successful in Hargan's history. "So far we have been in the pre-clinical space which is a very nice business with good growth and margins. The clinical space is more expensive so you have to go alone or partner."

Ifergan says follow-on venture capital proved difficult to find and the only logical Canadian buyer for a company like VisualSonics was MDS Inc, but it is going through a major restructuring and has shed all of its divisions except for its medical isotopes business. That left only foreign firms and SonoSite is recognized as a world leader in the bedside and point-of-care field of medical imaging. He says the likelihood of VisualSonics relocating outside Canada is extremely remote due the firm's close relationship with many players in Toronto's life sciences community.

"Toronto is a key locale. We have the collaboration with Sunnybrook and if it weren't for our early adopter base in the city we wouldn't be where we are now," says Ifergan. "Toronto has a great life sciences research foundation but it needs some cash."

Ifergan says the lack of early-stage VC in Canada is a problem that must be solved if other commercialization success stories are to emerge from Toronto's medical research community. "It will take some government intervention to rebuild," he says, adding that the recent early-stage funds announced by Ontario, Quebec, Alberta and others are a step in the right direction.

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