Shareholders of Cytocare May Appeal : Court: Those who lost money when the firm’s stock price plummeted are upset that a federal judge dismissed their suit.

An attorney for a group of disgruntled shareholders said Monday that he is considering an appeal of a federal judge’s recent decision to throw out a class-action lawsuit against Cytocare Inc., the embattled maker of urologic pharmaceutical devices.

U.S. District Judge Alicemarie Stotler rejected the 2 1/2-year-old lawsuit against the manufacturer of kidney stone pulverizers on May 4, saying that the plaintiffs had not produced sufficient evidence for a jury to make a decision in the case. She had been considering for four months Cytocare’s motion to dismiss the case.

But San Diego lawyer William Lerach, who filed the suit for several hundred shareholders who lost money when the company’s stock plummeted in 1989, said his clients are upset about the ruling and are considering taking the case to the U.S. 9th Circuit Court of Appeals.

“They are disappointed but determined,” Lerach said. “They have suffered substantial (financial) losses.”

Lerach said that his office is “evaluating everything” and that his clients will make up their minds soon. He has 60 days from the date of the ruling to file the appeal.

The plaintiffs filed the class-action suit in October, 1989, alleging that the company, then known as Medstone International Inc., “concealed adverse facts concerning the company’s operations and prospects so that they could inflate the price of the company’s stock.”

The plaintiffs further alleged that the company made claims about the product that were misleading. Also named in the suit are Weeden & Co, the lead underwriter for the initial public offering, and several of Cytocare’s top executives.

But Costa Mesa lawyer Glenda Sanders, who defended Cytocare, said Stotler did not agree with that argument.

“The court determined that it was not so,” Sanders said. “All the counts have been dismissed.”

Sanders said she does not know how much money Cytocare would be forced to pay if an appeal were granted and the firm eventually lost the case. Some of the stockholders, she noted, held thousands of shares.

Company officials were unavailable for comment Monday.

Medstone’s stock went on the market at $13 a share at its initial public offering in June, 1988.

The price quickly rose to $39 a share on stockholders’ expectations that the company’s lithotripsy technology for removing kidney stones would be granted federal approval for use in gallstone removal, a much more lucrative market.

But as hopes dimmed that the Food and Drug Administration would allow the extended use of the technology, the stock began to fall, finally bottoming out at $1.12 a share in early 1991. The FDA rejected the gallstone treatment application in October. 1989.

The company’s earnings also plummeted, from a healthy $8 million profit on revenue of $24.3 million in 1988--when Medstone received FDA approval for the lithotripsy kidney stone removal process--to losses of more than $5.1 million in 1990 on revenue of $11.7 million, and $2.1 million in 1989 on revenue of $14.7 million.

In 1991, the company began to pull out of its decline, reporting a first-quarter profit of $501,534, or 10 cents a share, on revenue of $2.5 million. For the first quarter this year, however, the company’s earnings slipped to $388,596, or 8 cents a share, although revenue rose to $3.3 million.

Cytocare’s stock closed unchanged at $3.75 a share Monday on the over-the-counter market.

Although the company has remained profitable since 1991, the specter of the lawsuit and the charges of wrongdoing continue to make stock analysts and investors skittish.

Mark Matheson, director of research at Cruttenden & Co., a Newport Beach investment bank, said that few, if any, analysts now follow Cytocare, which was once a health-care darling on Wall Street.

If the firm recovers from its legal problems, however, investors may consider it in the future, he said.