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Blood Test Firm to Test IPO Waters

MONDAY BUSINESS | CALIFORNIA DEALIN' / Financing the
State's Emerging Companies

January 04, 1999|DEBORA VRANA | TIMES STAFF WRITER

Careside Inc., a Culver City-based health-care firm developing a blood-testing system that promises to provide results within 15 minutes, plans to raise as much as $31.6 million through an initial public offering.

The company was founded two years ago by two employees of the clinical laboratory division of SmithKline Beecham Corp., who left to start Careside and acquired technology developed at SmithKline. An additional founder has a finance background.

While Careside's product is promising, it has yet to be tested on a widespread basis and faces an uphill battle in being adopted by the medical establishment. And the company has yet to post a profit. Since its formation in July 1996, Careside had lost $14.6 million as of the end of September.

Hospital and commercial laboratories do most of the nation's blood testing, but administrative costs limit their ability to provide results within 24 hours at affordable prices, according to Careside's filing with the Securities and Exchange Commission.

That has given rise to a market for so-called point-of-care blood-testing systems, the company said. Careside hopes to benefit by persuading doctors, home-health-care providers and others to turn to quicker methods of analyzing blood.

"You'll hear this on 'ER' occasionally: 'Where's that blood work!' " said Walter Geiger, a health-care analyst with Clearly Gull Reiland & McDevitt who follows one of Careside's competitors, I-Stat Corp. of Princeton, N.J.

"With these point-of-care blood-testing units you eliminate a lot of the lag time so you can get treatment quicker, instead of shooting for a diagnosis and missing while you are waiting for something to get back from the lab," Geiger said. "Sometimes that's the difference between life and death."

Still, analysts said there are potential problems with the new technology, including the initial costs of the tests, hospitals' resistance to change and their concern about having doctors and nurses learn new procedures associated with buying new technology.

Careside, with just 29 employees, said in its SEC filing that it has received regulatory clearance for 20 blood tests in clinical trials, including those for cholesterol, calcium and glucose, the last of which is useful in diagnosing diabetes.

The company hopes to gain clearance from the Food and Drug Administration for more than 50 tests before launching its Careside System commercially in the fall.

The market for worldwide in vitro testing--which includes testing of all body tissues and fluids--was $18.3 billion in 1997. The U.S. and Canada make up 40% of the market.

Careside has contracted with Apria Healthcare Group Inc., a Costa Mesa home-care provider, along with a doctors group and three hospitals to test the system.

Proceeds from the initial stock offering will be used to develop the system, begin marketing it, buy manufacturing equipment and pay off a loan, the company said.

The three Careside founders--current Chief Executive W. Vickery Stoughton, Executive Vice President Thomas Grove and director Philip Smith--control about 20% of the company. They could not comment because Careside is in the SEC-imposed "quiet period" that prohibits them from touting or publicizing the company before and immediately after a stock sale.

The company's largest shareholder is Kevin Kimberlin, who holds a 20.3% stake. Kimberlin is an executive with Spencer Trask Securities in New York. SmithKline Beecham holds a 4.5% stake.

Careside isn't the only company to develop instant-analysis blood tests.

Competitors include I-Stat and Abaxis, a Sunnyvale firm that does point-of-care routine blood testing for people and animals.

"There's a lot of resistance to point-of-care because it's very different," said Clinton Severson, chairman, president and CEO of Abaxis. "The cost per test is more, but the overhead is zero on these things."

That's because instead of a lab in a hospital staffed by people, the hand-held point-of-care test requires fewer people and far less space. Abaxis has 26,000 customers, with about 80% in veterinary offices. Other clients include the U.S. military.

In its filing, Careside said its system will be able to perform 80% of outpatient blood tests, whereas most devices run by competitors "offer only a limited menu of tests."

Underwriters for the IPO are Fahnestock & Co., Wedbush Morgan Securities and Southeast Research Partners Inc.

Careside has applied to trade on Nasdaq under the symbol CARE.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

At a Glance

Company: Careside Inc.

CEO: W. Vickery Stoughton, 52

Headquarters: Culver City

Offices: Nine

Employees: 29

Business: Point-of-care blood testing

Year formed: 1996

Losses since formation: $14.6 million

Profit: None

*

Debora Vrana covers investment banking and the securities industry. She can be reached by e-mail at debora.vrana@latimes.com.

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