Ultrasound ablation company Focus Surgery files Chapter 11

Firm may be sold to Takai for $1.5 million

Focus Surgery's effort to commercialize its ultrasound ablationtechnology is about to come to an end. The Fremont, CA, companyfiled for Chapter 11 protection from creditors on Feb. 9 in aCalifornia federal court, and has signed an agreement to sellits technology to Takai Hospital Supply, its Japanese distributor.

Warning signs of Focus Surgery's distress began appearing lastyear, when it announced that it had cut its work force by 40%and that it was exploring financial alternatives (SCAN 9/27/95).The cutbacks capped a string of money-losing financial quarters.

Focus Surgery was hamstrung primarily by its inability to marketits Sonablate 200 system in the U.S. The technology uses high-frequencyultrasound to treat cases of benign prostatic hyperplasia.

The company was working on a premarket approval (PMA) applicationfor the technology, but the Food and Drug Administration's regulatoryreview process took longer than expected. Focus had been marketingSonablate systems in Europe and the company recently receivedregulatory clearances for the product in Japan.

Some of the company's investors eventually decided to pullout of the firm rather than continue to sustain losses, accordingto Richard Redett, Focus Surgery's new president. Redett is acorporate turnaround specialist who was brought in to divest thecompany.

"This technology requires a lot of funding," Redettsaid. "It needed substantially more funding to get whereit needed to go. The investors just said, `We can't do it anymore."

Redett estimated that Focus Surgery's total debt stands atabout $500,000. That amount could be eliminated if the sale toTakai goes through, he said. As part of the bankruptcy process,however, any other company interested in purchasing Focus Surgery'sassets could bid on the technology. The first hearings on theChapter 11 filing are scheduled for March.

Focus Surgery was one of three companies, including C-arm manufacturerOEC Medical and ultrasound vendor Diasonics, to emerge from thesplit of Diasonics in 1993 (SCAN 2/24/93). The timing of the splitmay have hurt Focus Surgery, as it occurred before the subsidiaryhad any products available on the U.S. market.

The timing makes sense, however, when viewed in light of laterevents, in which Diasonics was sold to Elbit. Jettisoning theFocus Surgery unit, which had been generating red ink while strugglingto commercialize a product, made Diasonics a more attractive acquisitioncandidate.

In any event, Focus Surgery was a company with promising technologythat may have been a few years ahead of the market.

"They were just a little ahead of themselves," Redettsaid.