These are lean times for biomedical companies. But if you're a small-cap public company experiencing a little hard luck, it may feel like a famine.
Merit Medical Systems Inc. reported record gains for 1999: revenue rose 14 percent, income increased 32 percent and earnings per share jumped 10 cents. The medical device company, based in South Jordan, made key acquisitions and continued to expand its product line.Riding the crest of the broader biotechnology stock wave, Merit's stock price peaked this year on March 24 at $11.38. Not bad for a small-cap company.
But in the three weeks since, Merit Medical has had a string of disappointing announcements which, at an already-volatile time in the market, has sliced the company's stock price by two-thirds. On April 17, the company's stock reached a 52-week low, at $4.13.
Merit did have an announcement Wednesday to offset some of the bad news, saying the Food and Drug Administration had given it clearance to market its new line of vessel sizing catheters. Merit was trading at mid-day Wednesday at $4.69.
"A couple of things happened that, combined, really makes this quarter a negative," said Sanjiv Arora, research analyst with Dain Rauscher Wessels. The firm has downgraded its rating of Merit Medical to "neutral" from a "buy."
Two weeks ago, Merit announced lower projected first quarter earnings, due in large part to excess inventory and its transition to a new computer system.
Though the company still expected to be profitable, it stated "net income will be significantly below the $565,000, or 8 cents per share, earned in first quarter 1999."
And on Tuesday, the company reported that it would have to take a $340,000 charge against its earnings because a company it worked with had to suspend operations following a Food and Drug Administration recall.
Merit will announce its first quarter financial results Thursday.
Merit shareholders shouldn't be too anxious to jump ship, said Brian Moss, president of the Utah Life Science Association.
"To my knowledge the company is basically sound," Moss said. "It is a low-cost provider of a number of products and has been expanding its acquisitions in the last several years to widen its market share. Though all of that comes with some risk, it still speaks well for the company that they are looking to grow and expand. They're not trying to hide from the marketplace."
Moreover, Moss said the biotechnology and medical device industries are poised for explosive growth.
Companies like Merit will become more valuable as the baby boomer generation ages, requiring more and better medical care. And Utah is making its name as a player in the industry game. In the association's latest industry directory, 76 Utah companies were listed as medical device firms.
For Dain Rauscher's Arora, the proof of Merit's strength in the long run will been seen in the bottom line -- earnings.
"Merit has had revenue growth in the mid-teen range. That hasn't been their problem," he said. "But it hasn't always translated to consistent growth on the earnings side. That is their challenge."
Merit Medical employs about 1,200 people worldwide and operates manufacturing facilities in Utah, California, Texas and Ireland.
You can reach Jenifer K. Nii by e-mail at jnii@desnews.com