Radiation therapy product maker North American Scientific Inc. is hoping that a breakthrough breast cancer treatment not only will revitalize the company's fortunes, but also stave off delisting from the Nasdaq National Market.
Problems integrating a 2003 acquisition and a maturing market for its core prostate cancer treatment product line left the Chatsworth-based company unable to meet growth forecasts, triggering a sell-off that over time has shrunk its market capitalization below $37 million.
North American's shares, which generally traded above $10 in 2002, have fallen 43 percent in the past year alone, closing at $2.19 on April 12.
"We frankly just disappointed people by not hitting our numbers and I can't blame any shareholder for losing some confidence in the company," said Chief Executive Michael Cutrer.
On March 16, North American received a warning from Nasdaq that based on its fourth-quarter filing the company was not in compliance with the minimum $10 million stockholders equity requirement for continued listing on the Nasdaq National Market, generally comprised of large- and mid-cap companies.
The company could move to the Nasdaq Small Cap Market, but instead it expects to submit a plan to Nasdaq officials on how it intends to achieve compliance to remain on the larger market. As an alternative to the shareholder equity requirement, the company could achieve National Market compliance by maintaining a $50 million market cap.
Cutrer said that could be achieved by keeping the share price around $2.80. And to that end, company officials last month announced an initiative to adapt its prostate cancer line to also treat early stage breast cancer, with the new brachytherapy product scheduled to launch at a major radiology oncology meeting in November.
Brachytherapy is a minimally invasive procedure in which radioactive material, sealed in titanium capsules the size of a grain of rice, are implanted into cancerous tissue to deliver a short-range dose of lethal radiation. The targeted approach minimizes the amount of radiation that surrounding healthy tissue might receive.
The approach is being used by a handful of other companies to treat early breast cancers in conjunction with surgery and chemotherapy, but the most commonly used procedure can take up to six weeks and involve inserting multiple catheters into the breast to deliver and later remove the radioactive seeds. North American Scientific's approach would take only five days using a special multi-channel catheter that can insert either low-dose or high-dose seeds in up to a dozen locations in a tumor with only one incision.
The market for the targeted catheter approach once it is approved by the U.S. Food and Drug Administration is potentially huge. With the American Cancer Society estimating 211,200 new cases of invasive breast cancer treatments annually and up to 80 percent of those being diagnosed in the early stages, Cutrer sees a $500 million U.S. market opportunity for minimally invasive approaches.
CIBC World Markets analyst John Calcagnini estimates that even if North American Scientific captured only 20 percent of the early-stage breast cancer treatment market that would mean at least $82 million in additional revenue.
In addition to growth potential from the breast cancer products, managers have been taking steps to cut costs and increase efficiency in the division it gained with its 2003 cash-and-stock acquisition of NOMOS Corp., which was valued at $56 million at the time.
NOMOS made products for targeted external radiation therapy for a variety of solid tumors, but following the acquisition missed several target dates on products that North American Scientific had factored into its revenue projections.
"The NOMOS integration was a challenge and unfortunately it took longer than we had anticipated, and as a result cost us some money but most importantly it cost us time and new product introduction," Cutrer said.
More recently, North American Scientific reported a net loss of $2.7 million for its first quarter ended Jan. 31 compared to $3.6 million a year earlier. The $7.5 million in sales was down 8 percent from a year ago, in part coming from a drop in its non-medical radiation business.
"NASI has done a good job of controlling operating expenses," Calcagnini said in a note to investors. "However the company needs to improve the sales picture to get to positive cash flow."
Calcagnini, who is the only analyst covering the company, has a speculative rating on North American Scientific shares. He projects losses of $8.7 million in fiscal 2006, dropping to $6.5 million in fiscal 2007. The company expects it will be cash flow positive by the end of fiscal 2006.
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