Medical imaging software vendor Merge Healthcare has retained investment bank Allen & Company to explore strategic alternatives “including, but not limited to, a sale of the company or a business combination,” according to the firm.

The stock price rose 9 percent in heavy early trading on Sept. 6 following the announcement, and the company will not comment further at this time. The announcement comes three weeks after Merge announced its new subscription-based revenue model is gaining traction among clients. In late July, the firm released second quarter financial results showing a 13 percent increase in revenue but a $5.9 million net loss, compared with a $1.7 million loss during the same period in 2011. During the first half of 2012, Merge’s revenue increased more than 14 percent to $123.9 million, but net losses more than doubled to $7.7 million.

Merge’s stock price fell more than one-third on May 8 after the company missed expectations for first quarter financial results, and announced a new business model that included the subscription pricing and splitting the company into two operating units.

In addition to a range of imaging software, Merge also sells retail health kiosks and has sold $2.75 million of the kiosks to a party controlled by its chairman, according to the Wall Street Journal blog “Deal Journal.”

The blog notes that the stock price has dropped by one-third this year, and reports investors have wondered if financial results would be worse absent the $2.75 million deal.

Merge recently received a warning letter on its blood pressure monitoring kiosks from the Food and Drug Administration, charging that the devices are adulterated “as the methods used in, or the facilities and controls used for, their manufacture, packing, storage, or installation do not conform with the Current Good Manufacturing Practice requirements.” The letter lists six deficiencies and for each concludes, “We have reviewed your firm’s response and concluded it is not adequate.” The FDA in the letter demands timely notification of specific steps to correct violations and how the company plans to prevent reoccurrences. The warning letter is available here.

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