Beleaguered Medstone Changes Name, Direction

Medstone International, a medical equipment maker plagued by problems that soured a once-enthusiastic investment community, announced Monday that it is changing its name to Cytocare and is looking for new lines of business.

Medstone will begin trading Wednesday under its new name on the over-the-counter market. The company said its business of making machines called lithotripters that are used to pulverize kidney stones will be spun off into a new subsidiary that will inherit the Medstone name.

Cytocare officials said the reorganized firm “will develop and acquire health-care projects outside of the medical capital equipment business.” Medstone founder Errol Payne was elected Cytocare’s chairman and chief executive officer.

Company executives did not return phone calls Monday.

Medstone stock, which has fallen out of favor after a brief romance with Wall Street, closed unchanged Monday at $1.38 per share.

“What have they got going for them? Anyone can say they are going to acquire and develop health-care projects,” said Mark Matheson, director of research at Cruttenden & Co., a Newport Beach investment bank. “This just seems like a start-up development company that doesn’t have any great competitive advantage to it.”

Medstone has $10 million in cash and no debt but must overcome a soiled reputation. In November, the company suspended its efforts to win federal approval to market its lithotripters for the treatment of gallstones--a market that was once considered to offer significant promise for the company. Medstone’s stock peaked at $39.50 a share in June, 1988, but began to plummet when prospects for its lithotripters soured.

The company’s stock was the biggest-percentage loser in 1990 among Orange County securities tracked by a Costa Mesa investment firm, plummeting 82.3%. What’s more, the company was hit with a shareholder lawsuit in October, 1989, that alleges that company officers withheld unfavorable information about the company’s business prospects. The suit is pending.

Since November, two of the company’s key executives have resigned. Freeman Rose, the company’s co-founder, left in November. Richard Ferrari, who joined the company as president in April, resigned a month later.

For the third quarter ended Sept. 30, Medstone lost $2.3 million on revenue of $1.7 million.