Summary


Business:

Mfg. of blood analysis equipment

Headquarters:

Culver City

CEO:

W. Vickery Stoughton

Market Cap:

$39 million Dividend Yield: N/A*

Total Liabilities:

$4.7 million P/E Ratio: N/A

Long-Term Debt:

$1.2 million

* Careside Inc. does not pay dividends.

Investors who stuck it out with startup Careside Inc. finally may be getting some relief.

The Culver City manufacturer of blood-testing equipment saw its stock peak in March 2000 at nearly $14 a share, only to have it drop to under $2 last December. Since then, the stock nearly doubled in price, only to slip back again after manufacturing problems with its signature product, among other concerns.

The American Stock Exchange issue is now trading above $3 after word that the kinks have been worked out of its Analyzer, and sales gains following a series of marketing and distribution agreements.

“There was a reliability problem and that took a lot of wind out of their sails,” said Ronald Opel, an analyst with H.C. Wainwright & Co. Inc., who rates the stock a “buy.” “Now, they are starting to place units.”

Opel is among two analysts who follow the company. The other, with Dougherty & Co. LLC, rates it a “strong buy.” Both investment banking houses have underwritten private placements following the company’s June 1999 IPO.

Careside, according to Chief Executive W. Vickery Stoughton, wants nothing less than to be the blood-testing equivalent of what the personal computer was to the mainframe it wants to decentralize it to doctor’s offices.

Billion dollar market

The company’s $10,000 Analyzer, about the size of a fax machine, is a miniaturized version of the $400,000 equipment labs use to test batch samples of blood.

While it’s not yet capable of running esoteric tests, the company estimates that the machine, and a companion piece of equipment costing $11,500, can perform 59 tests that account for 80 percent of blood tests ordered by doctors and 50 percent of those ordered by hospitals.

That’s a $1 billion market that the company believes it can tap into by playing on health care providers’ desire to get faster test results and save money by doing blood tests themselves.

But Careside, which began aggressively selling the system starting in March, has not had it easy since being spun off from SmithKline Beecham in 1996.

In order to take advantage of the hot IPO market, the company went public in June 1999, selling shares at $7.50 apiece. But it was only able to raise half of the $30 million it wanted because of a relative lack of interest in the medical device market, said James R. Koch, chief financial officer.

Stoughton also acknowledged that he underestimated the time and money it would take to bring the product to market. Since the IPO, Careside has had to raise another $25 million in private placements. The latest placement, in June for $10 million, led to uncertainty among stock market investors who feared dilution, Koch said.

Moreover, while the company’s first hand-built Analyzers performed well in pilot tests, beta testing of the manufactured machines turned up flaws last year. That required Careside to redesign a circuit board setting back the product launch by nine months.

Break even goal

Stoughton said such problems are not unusual, but are preferably uncovered while a company is still private and out of the glare of analysts. “We went public a year too early,” he admits.

Careside hopes to have 700 Analyzers on the market by the end of 2002, producing enough revenue for the company to break even. Each test performed on the Analyzer requires a separate disposable cartridge the company is selling for $3.40 a unit.

Careside reported a loss of $3.4 million (30 cents a share) for the first quarter ended March 31, compared with a loss of $4.2 million (54 cents) for the like period a year earlier. Cash now stands at about $6 million, Koch said. The company may need to raise up to $10 million more before reaching break-even, Stoughton said.

At $184,000, revenue didn’t reach significant levels in the first quarter, but now that the company has ramped up marketing it expects revenues to rise, Koch said.