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Trimedyne's Prospects Growing Brighter, but a Stockholder Wants Chairman's Job

February 07, 1988|John Charles Tighe

Trimedyne has become a talked about number on Wall Street, with stock in the Santa Ana-based maker of laser catheters up 44% so far in 1988.

With news that good, Trimedyne founder, chairman and perennial promoter Marvin Loeb usually is delighted to have investors calling. But investor interest last week focused on removing Loeb from his top spot in the company.

Trimedyne shareholder Irving Harris, a Chicago businessman and philanthropist, announced that he would like to sit on Trimedyne's seven-member board and be named to Loeb's position.

While Loeb is Trimedyne's largest stockholder, with 10% of the 6.3 million shares outstanding, Harris heads a group that has become the second largest holder. He notified the Securities and Exchange Commission last week that he and his associates have recently increased their ownership in Trimedyne to 7.4%, or 468,800 shares.

Harris' increased interest comes as Trimedyne's board is seeking to replace President Michael Henson, who resigned recently after taking the company from its early stages through its first profitable year.

Harris, who also is an investor in four other Loeb companies, said Trimedyne needs more experienced management on its seven-member board. While conceding that Loeb is an expert at starting companies, the 77-year-old Harris contends that he (Harris) is more experienced in managing maturing companies.

Loeb, who has started more than 24 technology companies, said Friday that board members have commissioned an international search for Henson's successor. He also said he doesn't intend to step down as chairman.

Three board members consistently support Harris; three are in Loeb's corner, and one often swings from one side to the next depending on the issue, according to analysts.

Even though Loeb is the top stockholder, several analysts said that his support is weak among the company's institutional investors, and they predicted that Harris will be successful in winning Loeb's spot.

The analysts said a Harris victory could be a big bonus for Trimedyne shareholders.

"Loeb has a great ability to start a company. But it's good that others are taking an interest in the leadership," said Frank Ingersoll, a medical technology analyst with Knibb Securities in San Antonio.

Trimedyne, which went public in 1982, gained investor attention last March when it won Food and Drug Administration approval to market its laser catheter to treat arteriosclerosis in the legs.

The announcement sent the stock to an all-time high of $20.125, and it caused institutions and industry analysts to become interested.

But Trimedyne, like many growing technology companies, was hit especially hard by the fourth-quarter stock market decline, which sent the company's stock to a 12-month low of $8.50 per share in December.

The stock began to climb again in January, however, and shot up after Trimedyne announced earnings of $1 million, or 17 cents a share for its fiscal 1988 first quarter, which ended Dec. 31.

"I expected them to have 8 cents to 10 cents per share. And then they announced 17 cents," Ingersoll said.

Trimedyne opened the year at $9.75 per share and closed Friday at $14, down 25 cents for the week.

Institutional investors, such as pension funds, mutual funds and insurance companies, have more than doubled their stake in the company in the past year. In early 1987, 11 institutions held 305,000 shares, and near the end of the year, 18 institutions owned 770,000 shares.

Not everyone feels that the company is an automatic winner--Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, said that some in the field "believe that a new and better technology is in the pipeline.

But there seem to be more analysts who believe, like Ingersoll, that Trimedyne "is no longer a pipe dream. It's become quite an operating company. . . . It's one of my favorite stocks."

Federal approval to use its laser technology to treat coronary diseases would give the company its biggest market yet, according to Larry Feinberg, a medical technology analyst at Drexel Burnham Lambert in New York. "Cardiologists tell me that treatment is going to head toward lasers."

Ellen Hexter, a medical technology analyst in New York at Deutsche Bank Capital, said Trimedyne could earn as much as $4.7 million, or 90 cents per share, in fiscal 1988. In fiscal 1987, the company's first profitable year, Trimedyne earned $440,000 on sales of $12.3 million.

"They're constrained now by the number of lasers they can get their hands on," Hexter said.

The analysts said they expect the stock to continue strong, and Ingersoll said the stock could be boosted even more if a larger company acquired Trimedyne.

Ingersoll said Trimedyne shares might be worth $30 to an acquiring company.

Loeb said that no one is making takeover overtures but complained that he has been unsuccessful in persuading the board to adopt anti-takeover measures.

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