Endocare Inc., an Irvine-based medical device company, has caught Wall Street’s eye thanks to technology that kills cancerous tissue by freezing it. That has the company looking to tap the public market once more.
Endocare officials have proposed an offering of 4 million shares of its common stock, which was trading in the low 20s last week. The company plans to use proceeds of the offering to build up its sales force and for research and development efforts, according to Securities and Exchange Commission filings.
Paul Mikus, Endocare’s chief executive, was unavailable for an interview last week, citing the pending offering.
Endocare shares have been on an upswing since April, when they were trading around 5. The company’s shares have pulled back slightly since the offering was announced Oct. 31.
“It’s an attractive company, with sophisticated technology,” said Kate Sharadin, senior vice president and medical technology analyst with Gerard Klauer Mattison & Co., a New York-based investment bank. “Investors have paid close attention; the stock’s steadily risen.”
Endocare, which employs around 80 people, counted a market capitalization of around $347 million as of late last week.
Bear, Stearns & Co. and UBS Warburg LLC are the lead underwriters of Endocare’s stock offering. San Francisco-based Banc of America Securities LLC and Adams, Harkness & Hill Inc., a Boston investment bank, are the offering’s co-managers. The underwriters are being granted a 30-day over-allotment option to buy 600,000 more shares of common stock from Endocare.
For now, Endocare is linked with a single product: its Cryocare surgical system for prostate cancer treatment. Cryocare targets cancerous tumors and then destroys cancer cells through freezing, “with relatively minimal damage to surrounding tissue,” the company said in its federal filing.
“It is a company with strong momentum in its core business,” said Charles Olsziewski, executive director of UBS Warburg Equity Research’s healthcare group, in an interview.
Endocare’s targeted cryosurgery approach “has been shown to be comparable to radical prostatectomy, the gold standard, and more effective in certain cancers than brachytherapy, the ‘seeds,'” Olsziewski said.
Endocare’s technology is one reason investors have warmed to the company, according to analyst Sharadin.
“Their core technology platform can be used outside the prostate (cancer market),” she said, mentioning that breast cancer and cardiovascular disease were potential markets for the company.
In its filing, Endocare said it believed its cryosurgical technology could be applied across several surgical markets, including tumors in the lung, breast and bones, “as well as the treatment of cardiac arrhythmia, including atrial fibrillation.”
Endocare said that it intended to pursue that strategy by collaborating with “well known medical-device companies.”
For now, prostate cancer is Endocare’s bread and butter. In its filing, the company noted that the market for treating the disease could grow 10% to 15% a year for the next 10 years. Prostate cancer is the most common form of the disease in men. The American Cancer Society predicts there will be about 198,100 new cases of prostate cancer in the U.S. this year, compared with 179,300 new cases in 1999.
For Orange County, the society projected that there would be 1,510 new prostate cancer cases diagnosed this year.
“Over 85% of prostate cancer patients are eligible for our cryosurgical treatment. The U.S. market for prostate cancer treatment for newly diagnosed patients will be approximately $1.3 billion in 2002 and is expected to grow to $2 billion by 2006,” Endocare said in its filing.
Endocare mentioned that it also believes there is a “significant market” for secondary cryosurgical treatment of men with recurring prostate cancer.
But the company also listed market acceptance of Cryocare among one of its risk factors and said it believes that recommendations and endorsements of physicians and patients would be essential to that. The filing also notes that Endocare is planning to have its sales force target urologists.
Endocare has the potential to either grow internally because of its technology and management or become an acquisition target for a larger company, Sharadin said.
Endocare recently reported third-quarter financial results. The company posted a net loss of $1.3 million on revenue of $4.2 million in the quarter ended Sept. 30, compared with a net loss of $2.9 million on revenue of $1.8 million in the prior third quarter.
Endocare was formed in 1990 as a research and development division of Medstone International Inc., which makes devices to treat kidney stones. Medstone, which is based in Aliso Viejo, spun off Endocare in 1996.
A year ago, Endocare raised $20 million in a private placement.
The company received Food and Drug Administration clearance for Cryocare in 1999. Endocare also has European Union approval for the system and has registered it for distribution in Canada, Australia and New Zealand. n
