No. 6 – ENDOLOGIX Inc..
By COURTNEY BAIRD
Irvine-based Endologix Inc. moved up three spots to No. 6 on this year’s list of fastest-growing public companies.
The company reported $33 million in revenue for the 12 months ended June 30, a 532% increase in the past three years,the fastest growth of any pureplay medical device maker on the list.
“We are taking market share in a large and growing market,” said John McDermott, chief executive and president for Endologix.
In 2007, Endologix reported three-year growth of 445%.
Last week, New York hedge fund operator Elliott Associates LP made an unsolicited $98 million buyout bid for Endologix. The company’s board is reviewing the offer.
Endologix makes aneurism-fighting devices and it is best known for its Powerlink sytem,a minimally invasive device where a special type of stent graft is delivered through a catheter to keep abdominal aortic aneurisms from rupturing.
Last month, the Journal of Vascular Surgery published the results of a six-year follow-up study on patients who had received the Powerlink stent graft. Among other things, the results showed that 98% of patients who received the treatment lived, that device performance was “excellent” and that there were no “graft failures, no stent fractures (and) no aneurysm ruptures.”
The Powerlink system has been available in Europe since 1999 and received FDA approval for use in the U.S. in 2004. The company also sells it in South America and Japan.
Despite Endologix’s heady growth, the company isn’t profitable.
For the year ended June, the company lost $14 million, up from a loss of $17 million a year earlier.
The company isn’t yet cash flow positive, although it projects that it will be in the first half of 2009, according to McDermott.
“We believe we’ve got sufficient liquidity to get to cash flow positive without any additional equity financing,” McDermott said.
For the six months ended June, more than half of the company’s operating expenses were for marketing and sales. The company sells primarily to physicians, usually vascular surgeons.
“Over the last few years, we’ve built a direct sales force in the U.S.,” McDermott said.
The company has about 50 direct sales representatives, he said.
It also has some new products in its pipeline. It is expecting to launch a device to treat specific aneurisms, according to McDermott.
It also will introduce a product that “makes the delivery of the Powerlink graft much easier and more intuitive,” he said.
McDermott joined the company in May, replacing Paul McCormick, who stayed on as a director.
Prior to starting at Endologix, McDermott was president of Bard Peripheral Vascular, a division of New Jersey medical device maker C.R. Bard Inc.
McDermott said he was attracted to the job because Endologix has a “great technology platform with good long-term clinical results and a lot of growth opportunity.”
The company had a recent market value of about $90 million.
The stock has sagged during the past year, dropping as much as 65%.
Not including the recent stock market crash, Endologix’s stock has decreased about 35% in the past year.
The company has 126 employees in Orange County, a 20% increase from a year ago. Companywide, Endologix has 188 employees, an 18% jump.
The company started as Cardiovascular Dynamics Inc. In 1999, it combined with Radiance Medical Systems Inc., which then combined with then-private Endologix.
Michael Henson, a well-known OC device investor, was involved with both Radiance and Endologix.
THE NUMBERS
Three-year growth: 532%
12-month sales through June: $32.7 million
Yearly loss: $14.4 million
Recent market value: $90 million
Employees: 188 total, 126 in OC
Company: medical device maker
No. 7 – Avanir Pharmaceuticals Inc.
By VITA REED
Avanir Pharmaceuticals Inc. considers itself a development-stage drug maker but has been able to boost its revenue during the past three years through licensing and research deals.
Aliso Viejo-based Avanir, which is working on a drug to treat a neurological disorder, came in at No. 7 on this year’s list of fastest-growing public companies here.
Avanir posted 369% revenue growth during the three years ended June 30. The company went from $2.8 million in 2005 revenue to $12.9 million in the 12 months ended in June.
Avanir, through a spokeswoman, declined a request to talk about its growth.
The company’s grown its revenue even though it sold off a product,schizophrenia drug FazaClo,in 2007. Avanir sold FazaClo to Ireland’s Azur Pharma Ltd. for $42 million.
Avanir had acquired FazaClo in 2006 through a $29 million deal for Alamo Pharmaceuticals LLC.
A key source of revenue for Avanir is Abreva, a cold sore medicine licensed by GlaxoSmithKline PLC.
Avanir started marketing and selling activities with Glaxo-SmithKline for Abreva in 2000.
The company also gets revenue from research and de-velopment for other companies and from government research work.
Avanir also is working on its own branded drugs, notably Zenvia for treating involuntary emotional expression disorder, which causes uncontrollable laughing and crying outbursts.
The company has began enrolling patients in a third-stage clinical trial for Zenvia with an eye toward Food and Drug Administration approval in the second half of 2010.
In the past, Avanir had seen some setbacks with Zenvia.
Those included a 2006 letter from the FDA saying that Zenvia could be approved, but expressed concerns about whether Zenvia’s active ingredient,an enzyme inhibitor that helped to increase the availability of another drug,could lead to heart problems.
Regulators asked for more testing. Avanir cut 16% of its workers in an effort to reduce its cash burn rate.
In early 2007, Avanir said that the FDA asked it to hold a new clinical trial to test a revised Zenvia formulation.
Avanir got some good news in April, when it raised $40 million through a sale of stock to investors. Avanir said it was using the money to fund its Zenvia work.
Financials
On its latest quarterly conference call, Avanir said it anticipates running through $23 million to $25 million in cash in the 12 months ended in September, but should have enough money on hand to fund its operations and Zenvia’s development through the FDA’s decision date, Christine Ocampo, its vice president of finance, said.
Avanir’s stock, like that of other smaller drug makers in a difficult market, is down significantly. The company’s shares have lost 60% of their value since January, giving it a recent market value of $40 million.
In August, the company received a letter from the Nasdaq exchange saying that its stock could be subject to delisting as a result of failure to comply with a $1 per share price.
Avanir has until Feb. 9 to regain compliance.
The drug developer didn’t lay out a plan to regain compliance in a release and also said the company was expected to continue trading on Nasdaq for at least the next six months.
Avanir has 17 workers in Orange County and 21 overall. The company got its start in 1988 and previously was based in San Diego.
Avanir moved its corporate headquarters from San Diego to Aliso Viejo in 2006 to tap “commercially oriented, profit-oriented, aggressive business types” from OC.
A year later, Avanir launched a restructuring aimed at allowing it to keep developing Zenvia. Avanir closed its San Diego research facility and was aiming to lower its annual operating costs from $75 million to $20 million.
Avanir’s also seen turnover in the executive suite. Eric Brandt, who became its chief executive in 2005 after a stint as Allergan Inc.’s chief financial officer, left in 2007 to become chief financial officer of Broadcom Corp., the Irvine-based chipmaker.
Keith Katkin, who had been Avanir’s senior vice president of sales and marketing, replaced Brandt as Avanir’s chief executive.
THE NUMBERS
Three-year growth: 369%
12-month sales through June: $12.9 million
Yearly loss: $100,000
Recent market value: $39 million
Employees: 21, 17 in OC
Company: drug maker
No. 8 – Clarient Inc.
By VITA REED
Clarient Inc.’s tests for detecting breast and other types of cancers are pushing its sales growth.
The Aliso Viejo-based diagnostic testing company clocked in with sales of $57.2 million for the 12 months ended June, up 290% from the same period in 2005.
Clarient, which provides diagnostic testing of organs, tissues and molecules for pathologists, oncologists and drug makers, ranked No. 8 on the Business Journal’s annual list of fastest-growing local public companies.
Clarient came in at No. 13 last year.
Clarient’s performance, including 16 consecutive quarters of revenue growth, is a testimony to execution, said Chief Executive Ron Andrews Jr., who has overseen the company’s transition from a medical instrument maker to a testing company since his arrival.
Clarient “saw clearly an opportunity to provide academic-level molecular testing to community-based clinicians to help manage cancer cases locally,” Andrews said.
In particular, Clarient’s revenue surged 71% in the second quarter to $16.9 million from $9.9 million in the second quarter of 2007. Clarient said that particular boost came from running more tests, what it called a “favorable service mix” and higher Medicare reimbursement rates.
Clarient has made its mark in cancer testing. The company’s diagnostic business puts it in competition with U.S. Labs, an Irvine-based unit of Laboratory Corporation of America Holdings, and Quest Diagnostics Inc., which operates the Nichols Institute in San Juan Capistrano.
Clarient has 150 employees in OC and 208 companywide. The company was founded in 1993.
Clarient began a restructuring and business shift that led it to its current position nearly five years ago.
In its past life as ChromaVision Medical Systems Inc., it was based in San Juan Capistrano and made laboratory instruments that doctors used to help manage breast cancer cases.
The company, however, came close to running out of money at the end of 2003, which prompted the business change, Andrews said.
Safeguard Scientifics Inc., a Wayne, Pa.-based venture capital firm that was Clarient’s majority shareholder at the time, brought in Andrews and other managers and led a $21 million stock sale to raise funding.
Under Andrews’ leadership, Clarient moved to its 78,000-square-foot corporate headquarters in Aliso Viejo in 2006.
Clarient is working toward profitability.
The company posted a narrowed operating loss of $1.7 million for the second quarter, compared with a $2.7 million operating loss a year earlier.
Clarient had a recent market value of about $120 million.
THE NUMBERS
Three-year growth: 290.2%
12-month sales through June: $57.2 million
Yearly loss: $12 million
Recent market value: $120 million
Employees: 208 total, 150 in OC
Company: medical testing products
No. 9 – Acacia Research Corp.
By SARAH TOLKOFF
Newport Beach-based Acacia Research Corp. has grown as it collects on patents it’s acquired in the past few years.
The company makes money by acquiring patents, striking licensing deals and collecting a cut of the royalties from companies that appear to be infringing on them.
Acacia also offers its patent enforcement services to small companies, medical re-search groups, hospitals and universities for a fee.
The company has seen sales grow 221% in the past three years through June. That’s slower than the 2,225% growth rate it saw on this list a year ago, but sizeable enough to keep it within the top 10 of the Business Journal’s list.
For the 12 months through June, Acacia posted sales of $38 million, up from about $12 million for the same period ended in 2005.
Acacia now owns 99 patent portfolios, up from 81 a year ago. More of those patents are generating revenue than before, according to Chief Executive Paul Ryan.
“It takes about a year and a half to start generating money once we’ve acquired the patents,” he said.
About 42 patent portfolios now are generating revenue, up from 25 a year earlier, according to Ryan.
Recent licensing deals include those with Samsung Group, Motorola Inc., Brother Industries Ltd. and Hewlett-Packard Co.
Acacia has 45 workers, all patent experts, lawyers and engineers. It splits sales and licensing fees with the original developers of the patents it holds.
The company’s unusual business model has caused critics to peg it as a “patent troll” that uses the courts as a means to shake down unsuspecting companies.
Acacia views itself as a champion for the underdog,helping small companies, especially those without massive legal resources, get paid for their technologies.
“Small tech companies want to earn revenue from their patented technologies, just like the big companies do,” Ryan said. “People who have patents understand that we are the go-to company if they want to generate licensing revenues.”
About half of Acacia’s business comes from scouting for patents that may have been infringed. The other half comes from companies looking to protect patents they own.
Despite growing sales, Acacia’s stock is off more than 80% in the past 12 months on a recent market value of about $72 million.
“Our stock price is low right now,” Ryan said. “We have $45 million in cash but our whole market value is less than it was five years ago.”
The company has been losing money based on higher operating expenses and charges for stock compensation and patent amortization charges.
The company’s goal is to add about 25 new patents a year to its lineup.
THE NUMBERS
Three-year growth: 221%
12-month sales through June: $37.7 million
Yearly loss: $20 million
Recent market value: $72 million
Employees: 45, all in OC
Company: patent holder, licensor
No. 10 – MASIMO CORP.
By COURTNEY BAIRD
Medical device maker Masimo Corp. traveled a long road to its No. 10 spot on this week’s Business Journal list of fastest-growing public companies.
Masimo makes devices that use sensors attached to a patient’s finger or toe to measure many substances including oxygen and hemoglobin, which carries oxygen in the blood.
Most of Masimo’s revenue comes from recurring sales of sensors that work with its devices. The business model has helped the company increase its revenue by 217% in the past three years through June.
For the 12 months ended June, Masimo reported revenue of $280 million, up from $88 million in 2005. Its 12-month profits were flat at $42 million, but Masimo still was the most profitable company in the top 10 on the Business Journal’s list of fastest-growing public companies.
It’s one of just two profitable companies in the top 10.
Masimo’s reoccurring revenue model and new products are driving growth, Chief Executive Joe Kiani said.
“The innovation side is increasing our market potential from a $1 billion market to over a $3 billion market,” Kiani said.
Products
In May, the FDA approved the company’s noninvasive continuous hemoglobin monitoring device.
Prior to Masimo’s device, doctors had to measure hemoglobin levels by drawing blood that had to be analyzed by a lab, adding a delay before any medical decisions could be made.
Continuously monitoring hemoglobin is important for patients who are at risk for blood loss, such as those in the operating room or intensive care unit, according to the company.
One analyst believes hospitals and doctors will rapidly adopt Masimo’s hemoglobin monitor.
“Our surveys of physicians indicate that Masimo’s new noninvasive hemoglobin monitor may be adopted briskly,” said Sean Lavin of Lazard Capital Markets LLC.
The device “has the potential to change medicine,” Lavin said.
Masimo’s hemoglobin monitor is part of its Rainbow SET product line, which uses sensors to measure a variety of things including hemoglobin, oxygen, carboxyhemoglobin,a compound formed when someone inhales carbon monoxide,and methemoglobin,a dangerous substance formed when patients take certain drugs.
The products essentially are a pulse oximeter, a device that measures oxygen levels, but that also can measure other substances. Hospitals can purchase the device and then add the ability to measure other substances by purchasing additional software.
Masimo originally made a name for itself with its pulse oximeter.
In 1989, Kiani and friend Mohamed Diab began working in Kiani’s Mission Viejo garage to upgrade the conventional pulse oximeter, which gave false alarms about 70% of the time, usually due to patient movement.
Eventually, Kiani and Diab came up with a technology that cut down on false alarms by using a series of algorithms to differentiate types of blood flow.
“We were fortunate to create the solution that people thought was impossible,” said Kiani, an Iranian immigrant who earned a master’s degree by the time he was 22.
Masimo tangled with Nellcor Puritan Bennett Inc., a division of Covidien Ltd. that had about 89% of the pulse oximetry market. In 1999, the two started battling over patents.
Seven years later, Masimo settled all litigation with Nellcor, winning a $265 million settlement, $65 million in advanced royalties and an agreement that Nellcor would pay Masimo royalties for its technology.
At the time, the settlement was a major boost to Masimo’s revenue.
Another major boost came when the company landed deals with two large hospital purchasing groups,Premier Inc. of San Diego and Novation LLC of Texas,that buy medical supplies for their member hospitals.
Masimo initially struggled to get its products sold by the purchasing groups, which used Nellcor’s devices instead.
Eventually, Kiani said Masimo became a “poster child” for what some considered unfair practices by these buying groups when the New York Times published a story about bigger companies monopolizing sales. Shortly thereafter, Kiani testified be-fore the Senate about antitrust laws.
A Senate subcommittee later criti-cized Novation and Premier for only making deals with larger companies.
In 2007, Masimo went public with one of the most successful initial public offerings that the county had seen in years, raising $233 million.
“Masimo has done better than I expected, but it took us much longer than I had expected to get here,” Kiani said.
THE NUMBERS
Three-year growth: 217%
12-month sales through June: $279.5 million
Yearly profit: $42 million
Recent market value: $2 billion
Employees: 1,325 total, 418 in OC
Company: medical device maker
