DUE DILIGENCE
InVision seeks to secure the skies
Baggage scanners draw strong investor interest
By Deborah Adamson, CBS.MarketWatch.com
Last Update: 3:00 AM ET Sept. 26, 2001
Part three of a series of special reports on the ways businesses are reacting to the events of Sept. 11.
NEWARK, Calif. (CBS.MW) -- When U.S. markets reopened after the Sept. 11 terror attacks, investors were feeling relieved, patriotic and perhaps uncomfortable.
But they were also on the prowl for stocks that would benefit directly from the attacks, and they found one: InVision Technologies shares are up more than 300 percent.
InVision was founded in the wake of the 1988 bombing of PanAm flight 103 over Lockerbie, Scotland, to adapt medical technology to screen passenger baggage for bombs. Since then it has grown from 10 employees to 350 and near total dominance in the U.S. market for airport explosive-detection systems.
"This market didn't exist 10 or 15 years ago," said Sergio Magistri, the Swiss-born president and chief executive of InVision. Since Sept. 11, "demand for airport security has been changing rapidly." Last week, the company received a three-year contract from the French government with a potential value of $16 million.
Even before the attacks, the company was moving into overseas markets. This year it sold its first systems in South America and Scandinavia. And InVision was part of an 11-company team that received two five-year deals worth up to $200 million from the U.S. Department of Defense.
Annual sales topped $79 million in 2000, with a net loss of $1.8 million, or 14 cents a share. But the company has been profitable for the past four quarters.
The market for explosive detection systems is currently estimated to be about $200 million worldwide, according to Bernard Gordon, president of Analogic Systems in Peabody, Mass., which sells components to InVision. In the wake of Sept. 11's attacks, that could easily move into the billion-dollar range, based on the tens of millions of bags to be inspected daily in the U.S. alone, he said.
InVision is one of three players in the field, along with Perkin Elmer (PKI: news, chart, profile) and L-3 Communications (LLL: news, chart, profile), Gordon said. "It hasn't been perceived by airlines and governments that there is such a huge need," he said. "But that view is changing."
Investors see the potential. On Sept. 10, the day before the attack, InVision shares (INVN: news, chart, profile) closed at $3.11. A week later when the stock market reopened, shares shot up as high as $11.70 before closing at $8.25. The stock has gyrated wildly since then, closing Tuesday at $9.95, down 80 cents on the day.
But while profits and market potential are crucial to the company's success, there is also an extra responsibility.
As Magistri puts it, InVision is about more than just making money. "It's not purely a business objective but also a humanitarian objective," said the 48-year-old CEO.
Congressional moves
Newark, Calif.-based InVision owes its existence in part to legislative moves after the Lockerbie bombing.
The company came into being after Congress passed the Aviation Security Improvement Act in 1990 to encourage development of counter-terrorist technologies and procedures. The law ordered the Federal Aviation Administration to fund development of explosive detection systems, establish certification standards and test systems for use.
InVision's systems were the first to be certified by the FAA. More than 250 of its machines are in use nationwide. It holds 95 percent of the FAA-certified explosion-detection systems market.
Using the same technology as those in medical CT (computed tomography) scanners, the company's machines use X-rays to find areas of interest inside the luggage. Pictures taken from many angles are compiled to create a single digital image for each area of interest. When a threat is found, the system sets off an alarm.
Had InVision systems been in use in 1988, they may have detected the plastic explosives hidden in a tape recorder on board Pan Am Flight 103.
When TWA Flight 800 exploded off the coast of Long Island, N.Y., in 1996, the White House Commission on Aviation Safety and Security's investigation led to the release of additional funds, including $52 million used to buy 54 of InVision's machines.
Today, InVision has a variety of systems from the more advanced CTX 9000 DSi system -- which can process 542 bags per hour, the fastest FAA-certified system worldwide -- to the mobile CTX 2500. Among its clients is Israel's El Al Airlines, famed for its intensive security procedures.
The company also sees its market expanding beyond airports to places like schools, post offices and government buildings.
In addition, the company's Quantum Magnetics subsidiary uses quadruple resonance technology, a derivative of magnetic resonance imaging used in hospitals, to detect explosives. It is developing a system to automatically detect anti-personnel and anti-tank landmines, concealed handguns and drugs. InVision also is developing a system to detect chemicals that could be used as weapons.
Rivals, shortfalls
Gordon said rival technology from L-3 is catching on. Analogic sells a system called Explosive Assessment CT that goes into L-3's bomb detection machine. This unit can reconstruct the entire contents of a bag in three dimensions. But bomb detection is a small part of L-3's business.
No matter how good bomb detection machines are, the attacks on the World Trade Center and Pentagon show that flying can't be completely secure.
Even if a system warns of a suspicious bag, said aviation security consultant Moses Aleman, a human still needs to follow up on it. And the systems can be bypassed entirely through schemes like posing as an airport employee and hiding dangerous materials or weapons on airplanes.
"There's always a terrorist who will know how to circumvent these things," Aleman said. "It's an uphill battle."
Deborah Adamson is a reporter for CBS.MarketWatch.com in Los Angeles.
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