Possis' water jets create earnings stream
Terry Fiedler
Star Tribune
Published Nov 26 2001
After years of being overlooked, Possis Medical was suddenly
the belle of the ball when CFO Eapen Chacko met with
institutional investors on the West Coast this summer.
Possis got a "universally positive" reception, Chacko said, in no
small part because its stock price had increased almost
four-fold since the end of 2000, to about $12 share.
But along with the praise came the requisite whining.
"They said they wished I had called them when the stock was
$3 a share," Chacko said. "I told them I did, but they wouldn't
take my calls."
Possis, based in Coon Rapids, is increasingly tough to ignore.
Possis continues to be one of the top-performing
small-capitalization stocks of any type for 2001.
It reached a 52-week high of $15.72 on Tuesday, which put it
up more than 240 percent on the year.
Also this month, Possis was named to Deloitte & Touche's list
of North America's 500 fastest-growing technology
companies. The company's revenue growth of 1,172 percent
between 1996 and 2000 put it at No. 405.
The Nov. 13 issue of Popular Science named the company's
main product, the AngioJet blood-clot removal catheter,
among the top 100 innovations in 2001.
Possis is considered a pioneer in promoting devices to clear
blood clots prior to angioplasty.
The AngioJet catheter features tiny water jets inside that fire
backward, creating a low pressure zone and a suction that pulls
clots out of heart and leg arteries.
More notably, this spring Possis reported its first quarterly
profit since 1992. The company is expected to earn about $4
million on a sales increase of 40 percent to $42 million in the
year ending next July 31. That compares to a loss of $3.3
million ib the previous fiscal year and a loss of $10.6 million
the year before that.
Profitability and stock performance have gone hand in hand.
"Since the Internet bubble burst, investors have become more
wary of companies that are not making money," said Chad
Simmer, an analyst with Miller Johnson Steichen Kinnard.
With back-to-back profitable quarters in the last fiscal year
"investors realized profitability was here to stay."
Possis turned a third consecutive profit, about $940,000, in the
quarter ended Oct. 31. Sales increased 46 percent to $9.6
million.
The company's drive toward profitability gained urgency in the
last year because of what Chacko called increasingly
"draconian" pricing of deals in a down market and rising board
and management sentiment that the company needed to
change its ways.
"Our cash position demanded it," said Robert Dutcher, the
company's CEO. "We couldn't go out into the market for
equity money. Our future was in our own hands."
So, even as sales were growing rapidly, the company cut 27
employees -- 12 percent of its work force -- in January in an
effort to save $2 million a year.
At the same time, management decided there were some things
the company couldn't do without. Possis maintains a direct
sales force, rather than going through a distributor, and it
manufactures its products at its Coon Rapids headquarters
instead of farming the work out.
Simmer credits Chacko, a former Dain Bosworth stock analyst
and former vice president of investor relations at Fingerhut,
for bringing more financial discipline to the firm.
At Fingerhut, Chacko was a key player in the transformation
of a financing business into a new publicly traded company,
Metris Companies. He joined Possis in 1999 as director of
investor relations before being named chief financial officer in
September 2000.
"I think Bob Dutcher has done a great job of getting the vision
out there, and Eapen Chacko has done a fabulous job of
making the company more efficient," Simmer said.
Product evolution
Possis has been around seemingly forever in one form or
another. It was incorporated in 1956 by engineer Zinon Possis
as a design and consulting firm, and went public in 1960. Over
the years, the company and the man had a hand in everything
from factory-automation equipment to mechanical
heart-valve patents, for which it received $20 million in
royalties from Little Canada-based St. Jude Medical. The
payments stopped in 1995.
Zinon Possis, who died in 1993, also developed a water cannon
that could cut metal. That business was divested in the early
'90s.
Possis Medical now uses pressured water technology to vacuum
blood clots.
Dutcher, a 17-year Possis veteran, is a co-inventor of the
device, which has been in development since 1994.
Originally, Possis experimented with a water jet to directly
break apart blockages, but that approach was too dangerous
because the arteries could easily be damaged, too.
The current AngioJet system uses a file-cabinet sized power
drive unit that creates 10,000 pounds per square inch of water
pressure.
The drive unit can cost $35,000, while a disposable pump and
catheter set for coronary arteries costs another $1,475.
The company estimates that 10 million people suffer from
blood clots every year. Blood clots can lead to heart attacks,
strokes and amputation of limbs.
Main hospital pitch
Dutcher estimated the market for Possis' blood-clot devices at
about $215 million, most of it in the coronary area. He expects
the coronary market to double in five years.
Possis' main pitch to hospitals is that the AngioJet can remove
a blood clot in coronary patients in minutes rather in the 12 to
24 hours required for drugs to break down a clot, saving a day
of hospital care.
Dr. Randall Stark, director of the catheterization lab at Unity
and Mercy hospitals in the Twin Cities, calls the AngioJet the
best device of its kind for removing clots.
At the same time, he said it remains a "niche" product for
coronary procedures that might be used in 5 percent of all
angioplasty surgeries at Mercy and Unity. Stark noted that
increasingly powerful clot-busting drugs provide stiff
competition for the AngioJet, although there are some cases in
which the patient can't tolerate the drugs.
Stark said Possis faces less competition in treatments involving
other parts of the body and that AngioJet may be able to play a
more significant role in such treatments.
For now, Possis can enjoy some of the rewards of its previous
work. AngioJet systems are in 85 of the top 100 cardiology
centers in the country and 84 of the top 100 radiology centers.
Sales of disposable catheter sets to those customers form a
lucrative market.
With growth comes new challenges, though not unpleasant
ones.
"Now we have to be an emerging earnings company," Dutcher
said, "rather than [a research and development] company."
-- Terry Fiedler is at tfiedler@startribune.com .
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