Medstone Won’t Press for OK of Its Key Product : Biotechnology: Irvine company’s announcement that it is suspending efforts to obtain FDA approval to use machine for gallstone removal clouds its future prospects.
Raising questions about its future, Medstone International Inc. said Tuesday it has “indefinitely suspended” its efforts to win federal approval to market its medical technology for removing gallstones.
The company said it had been discouraged by the expense and time that would be required to conduct further clinical tests and by an eroding demand for its technology.
The announcement follows closely on the heels of the resignation earlier this month of Freeman Rose, Medstone’s co-founder and co-inventor of the company’s lithotripter machine that was designed to use shock waves to disintegrate kidney stones and gallstones. The scientific community also has raised questions recently about the effectiveness of lithotripters to remove gallstones.
In April of 1988 the company obtained approval from the Food and Drug Administration to market the machine for treatment of kidney stones, causing sales of the machines to soar briefly.
However, Medstone’s sales of lithotripters, which cost about $1.4 million each, plummeted after it became apparent that the company probably would not be able to win FDA approval to sell its lithotripter for treatment of gallstones--which is considered a much larger and more lucrative market.
A cloud has hung over the company’s prospects since October of last year when a physician advisory panel to the FDA refused to recommend Medstone’s lithotripters as a non-surgical alternative for removing gallstones. The panel’s recommendation was considered crucial to obtaining FDA approval. Also, other methods for treating gallstones have been developed that have reduced potential demand for the lithotripter.
After Medstone went public in June, 1988, its stock shot up to a high of $39.50 a share. But the stock has fallen sharply as prospects of FDA approval for gallstone treatments waned and the company faced management turnover and legal troubles. The stock closed Tuesday at $1.63 a share. The trading day had ended when the company made its announcement.
Medstone was also hit by a shareholder suit in October, 1989, alleging that officers withheld unfavorable information about the company’s business prospects. That suit is still pending.
For the nine months ended Sept. 30, Medstone lost $3.7 million on revenue of $8.6 million.
Medstone officials were not available to comment Tuesday on the impact of their decision on the future business of Medstone, which had counted heavily on entering the gallstone market.
However, Medstone’s president, Richard Ferrari, said in a prepared statement, “Although we are disappointed, this action will allow us to focus our lithotripsy marketing efforts on kidney stones, where we have full approval.”
The company also said its board of directors is “exploring new growth opportunities in the health care industry. Internal projects and strategic joint ventures are being evaluated.”
Medstone’s ability to greatly expand its sales of lithotripters for kidney applications is limited in large part because the market has been saturated by competitors who also make lithotripters.
Larry Selwitz, health care analyst for Cruttenden & Co., a Newport Beach securities brokerage, said Medstone officials recently told him their strategy will be to distribute a dozen lithotripters they now have in inventory to hospitals at no cost. The hospitals will pay the company a fee, however, each time the equipment is used. The company so far has obtained orders for five of its machines under this arrangement, he said.
Selwitz said Medstone officials told him that in the meantime they will search out firms that have developed other kinds of expensive high-tech health care equipment that Medstone could add to its product line. He said Medstone has about $9 million in cash with which to go shopping for acquisitions.
Selwitz said he expects Medstone to post a heavy loss for 1990 and rebound next year “to about the break-even point.”
“I don’t think there is the great rainbow out there that people had anticipated,” he said.
Jeff Kilpatrick, an analyst with Newport Securities in Costa Mesa, said in light of Tuesday’s announcement it is “very difficult to evaluate” Medstone’s business prospects. “It’s anybody’s guess,” he said.
