Irvine-based SenoRx Inc. was among the bigger initial public offerings in Orange County in 2007, raising $45 million and seeing its shares rise 30% in its first couple of months of trading.
This year, the maker of devices for treating and diagnosing breast cancer has seen its shares fall some 73% with a recent market value of about $40 million.
Part of SenoRx’s decline has come with the broader Wall Street downturn. But SenoRx’s slide has far outpaced the S & P; 500’s 45% decline for the year.
Some analysts like SenoRx’s breast cancer focus. But a legal fight with a larger competitor has weighed heavily on the company.
Investors also are wary of smaller medical technology companies that can’t withstand a down economy as well as their larger competitors, according to analysts.
Smaller medical companies are getting their “butt kicked right now,” said Junaid Husain, an analyst with San Francisco-based Soleil Securities Group.
“There are not a lot of investors who want to throw their money in these small-cap stocks,” he said.
Wells Fargo & Co. is the top shareholder of SenoRx. The San Francisco-based bank held about 1.6 million shares, or 9% of the device maker, as of June 30 according to the latest reported ownership data.
SenoRx is focused on growing revenue, improving operating profits and turning its first net profit in its 10-year history rather than worrying about Wall Street, Chief Executive Lloyd Malchow said.
“The markets are going to do what they’re going to do,” he said. “What we need to do is build this company to make money.”
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EnCor: used to biopsy possible breast cancer growths |
One of SenoRx’s main products is tied up in court over patent infringement allegations. The company’s facing off with Hologic Inc., a Bedford, Mass.-based competitor.
Cytyc Corp., which Hologic bought earlier this year, sued SenoRx in January alleging SenoRx’s new Contura catheter for treating breast cancer infringes upon the patent of a Cytyc catheter used to deliver targeted radiation to a tumor.
Distraction
That legal entanglement could be scaring investors away, according to analyst Husain.
“In this market, no one wants to invest in a (company) that has even a smidgen of hair on it, and this one has quite a bit of hair on it,” he said.
SenoRx’s Malchow declined to talk about the litigation. Earlier, the company said it plans to defend itself and called the litigation without merit.
The companies recently asked a judge to set a trial date.
Analysts are concerned about SenoRx’s ability to fight Hologic in court.
“Hologic, being Hologic, has the financial wherewithal to kick little ol’ SenoRx in its knees,” Husain said.
Hologic had sales of $1.7 billion for the 12 months ended Sept. 30 and a recent market value of $3.4 billion.
By contrast, SenoRx has said it expects its full-year revenue to come in at $46.5 million to $48.5 million.
SenoRx has two core products.
Besides Contura, which was introduced in January and delivers radiation to break down cancerous tumors, it makes EnCor, a device that allows doctors to obtain multiple breast biopsy samples with a single-probe insertion.
SenoRx also sells “consumables”,or disposable parts that are used in procedures with EnCor and Contura. Medical device makers often look to consumables as a main source of revenue and profits.
Besides Hologic, SenoRx competes with an even bigger player, Johnson & Johnson. Fred Burbank, a medical doctor who is SenoRx’s chairman and cofounder, invented Johnson & Johnson’s Mammotome breast biopsy device.
SenoRx’s breast biopsy business is growing at a 30% yearly rate, according to Husain.
“It’s a nice, solid business and breast cancer doesn’t care about the recession,” he said. “So there’s always going to be consumable flow.”
Profits have been elusive. SenoRx lost $1.7 million on revenue of $11.3 million in the third quarter.
Citi Investment Research analyst Amit Bhalla called SenoRx’s third-quarter “mixed,” noting that a modest revenue shortfall from lower breast biopsy device sales was offset by a strong gross profit margin and lower operating expenses.
As for 2009, Malchow said the company’s goals included increasing its gross profit margin, managing its cash and reaching profitability. SenoRx had an accumulated deficit of $75.5 million at the end of 2007.
The company is focusing on its core products EnCor and Contura and a mix of “line extensions,” or enhanced versions of the first two products, Malchow said. It also is working on new products.
Deals for other companies won’t be a part of SenoRx’s growth story for now.
“The idea of acquiring companies right now is sort of off the table for a lot of people. You can’t raise cash and everybody’s stock prices are down,” Malchow said.
SenoRx, which has 145 workers, sells its devices domestically with a sales force that swings from 60 to 110 people. It concentrates on selling to cancer centers, which Malchow said have created “an efficient, consolidated way for us to reach the market.”
Internationally, SenoRx works with distributors in Canada and more than 20 other countries it sells into, Malchow said.
