Cytocare overcomes class action suit

August 12, 1992

Cytocare squelched a class action suit in May that had been promptedby the firm's declining fortunes in the lithotripsy market anda corresponding drop in stock price. A Santa Ana, CA, federaldistrict judge granted the firm's summary motion to dismiss

Cytocare squelched a class action suit in May that had been promptedby the firm's declining fortunes in the lithotripsy market anda corresponding drop in stock price. A Santa Ana, CA, federaldistrict judge granted the firm's summary motion to dismiss thecase, said Errol Payne, chairman and CEO.

The Irvine, CA, parent of Medstone was determined to fightwhat it considers an abuse of the legal system, Payne told SCAN.He questioned the characterization of the case as a "shareholders'"suit.

"These kinds of suits are brought by law firms on behalfof one or two plaintiffs that they synthesize out of thin air.We were prepared to go to trial, and never intended to pay thesepeople five cents. What they are doing is paralyzing society,"he said.

Cytocare is a healthy company, with over $12 million in cashand no debt, Payne said. The firm is positioning itself to restartgrowth with a number of urological products, including monoclonalantibody diagnostic and therapeutic agents and a disposable, side-firinglaser catheter for use in prostate disease.

Medstone followed Dornier four years ago in obtaining Foodand Drug Administration marketing approval for renal applicationsof extracorporeal shockwave lithotripsy (SCAN 4/27/88). The firm'sstock price skyrocketed after an initial public offering as investorslooked to the substantially larger gallstone market.

Biliary hopes were dashed, however, as surgeons were attractedto the more invasive but less expensive laparoscopic cholecystectomytherapy, and the FDA never approved biliary applications of ESWL.

"We exploded because of the expectation of lithotripsybeing a very sweet business. In fact, the first year we were outwe earned $8 million and had $25 million in revenue. It was spectacular,"Payne said.

Payne was one of Medstone's founders in 1984. He left the companybriefly, returned in 1985, and then left again shortly after theIPO in 1988. Always a board member, he returned to active controlof the company after the class action lawsuit was filed.

While more limited than biliary, renal lithotripsy does providea healthy U.S. business base for Cytocare, Payne said. The firmwill lease, rent or sell the lithotripters, depending on the desiresof the physicians. The business provides a steady income streamof disposable sales and procedure fees.

"We treat about 10,000 patients per year in the U.S.,"Payne said. "That has been growing every year at about 15%per year since we started in this business."

Gallstones remain a potential market overseas. Cytocare hadattempted to sell systems through GE-CGR in Europe, but this distributionarrangement broke down with some hard feelings last year (SCAN11/20/91). The strongest lithotripsy competitors, including Dornierand Siemens, are European-based.

The U.S. firm has had better luck introducing its system inJapan and other international markets. The Medstone lithotripterwas approved for biliary applications in Japan in April, Paynesaid.

"Around the world, gallstones are treated often (withESWL) because people would prefer a noninvasive approach first.It might only be 25% to 50% effective, but they want to try it,"he said.

BRIEFLY NOTED:

  • Strong growth in sales of medical imaging accessorieswas instrumental in lifting Picker International's overall revenuesby 10% in fiscal year 1992 (end-March). The major medical imagingvendor, a subsidiary of GE Co. (GEC) of the U.K., reported overallrevenues of $897 million for the year, up 10% from $814 millionlast year. Profits before tax and interest increased 17%, from$47 million in 1991 to $55 million.

Picker's Health Care Products division, which distributes awide range of radiology accessories, contrast and other medicalimaging supplies, realized the strongest growth in revenues, rising21% from last year. Health Care Products has been successful innegotiating supply contracts with large hospital chains and obtainingexclusive distribution agreements with manufacturers, Picker said.