Iris International Inc. the smaller the better.
The Chatsworth-based company, whose plodding sales over the years were based largely on an automated urinalysis machine that required its very own room, has been turning heads at medical laboratories and on Wall Street with a cheaper, labor-saving desktop system that can pay for itself in two years.
The company’s second-quarter net income more than tripled from a year earlier, to $1.6 million, while revenues grew about 50 percent, to $15.6 million. That sent shares up to nearly $20 in July from under $7 last September. They have since slid, closing $17.55 on Sept. 7.
Over the past 20 years, Iris sold 450 of its older chemistry urinalysis units, which most recently retailed for $150,000 to $199,000. In the two years since the introduction of its smaller model priced at $100,000, fully equipped 564 units have been sold.
Each of the new iQ200 machines generates an additional $20,000 to $30,000 in annual sales in the form of software upgrades, high margin proprietary test kits and other supplies, one analyst said. “This is a classic razor/razor blade story,” said Feltl and Co. analyst Ernest Andberg, who rates the company’s stock a “buy” and is one of just a handful of analysts who cover Iris.
The company’s new system fully automates the two most common components of routine urinalysis: chemistry, which detects glucose, nitrates and proteins; and microscopy, which detects tiny particles, such as blood cells and yeast.
The older machine only performed automated chemical analysis and required trained technicians to perform the visual analysis using an old-fashioned microscope. And with a typical hospital lab performing 120 urinalysis tests a day and 60 percent of those requiring microscopic analysis that required a full-time technician to do the microscopic analysis alone.
That’s become a particular problem, considering the aging ranks of the nation’s medical technicians. The company estimates the average age of a medical technologist at 50.
Iris has a grant from the National Institutes of Health for research that could improve the machine by adding a module that would quickly detect bacteria in urine another labor-intensive process that can take two to three days to complete.
“The future is to automate as much as you can in the laboratory,” said Chief Executive Cesar Garcia, who took over the company in 2003.
Overseas sales of the iQ200 have been limited because the company’s license for its chemistry analysis technology does not include overseas marketing rights. Iris distributes equipment made by Arkray Inc., a Japanese company that sells its own urine chemistry analyzer overseas.
To close this gap, Iris has bought the urinalysis segment of San Diego competitor Quidel Corp. for $500,000.
Quidel’s semi-automated UrinQuick benchtop chemistry technology will be adapted and sold with iQ200’s microscopy unit to overseas customers, except in Japan, where Iris’s marketing agreement with Arkray keeps each company out of the other’s home market.
Iris’s other business segments also show promise. Statspin Inc., the Norwood, Mass. subsidiary that sells centrifuges for specimen processing, grew 37 percent last year. And Advanced Digital Imaging Research LLC, another subsidiary in League City, Texas, is conducting research into imaging and pattern recognition that has potential forensic and law enforcement applications.
While Iris has caught the attention of short-term investors by recording five straight quarters of increased net income, the stock fell 30 percent after the second quarter report when Garcia gave what analysts considered conservative guidance for 2006 and cautioned that third quarter sales may be slower in Europe.
“My job is to manage the company for the long run, not for what the stock does in the week,” he said. “You know what happens in Wall Street. When a stock begins to grow the way we were growing, you attract momentum players.”
Iris’s rapid growth also has brought some personnel challenges. Garcia says he has been fortunate to attract talented upper level managers from larger companies, but the high cost of living in the San Fernando Valley continues to be a barrier to recruiting technical professionals and mid-level managers from outside the area.
