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VALLEY BUSINESS | FAST-GROWING TECH COMPANIES

A Promising Path for Cancer Therapy

Medicine: A Chatsworth radiopharmaceutical firm is riding high, and looks for even greater success with an upcoming acquisition.

September 12, 2000|JENNIFER PENDLETON | SPECIAL TO THE TIMES

CHATSWORTH — Growing public awareness of prostate cancer has been a boon to North American Scientific Inc., a maker of radioactive "seeds" used in a relatively new treatment for localized prostate cancer called brachytherapy.

Prostate cancer struck 180,000 American men last year and claimed 37,000 lives, intensifying the search for new and improved treatments for the disease.

Powered by brisk sales of its high-margin seeds--rice-sized iodine and palladium pellets used in brachytherapy--North American Scientific's 1999 earnings of $3.4 million (on sales of $12.8 million) were a threefold increase over 1998.

The company earned $1.5 million in the third quarter ended July 31, and analysts are projecting net income of $5.7 million on $18.1 million in sales when fiscal 2000 ends Oct. 31.

The accounting firm Deloitte & Touche recently named North American Scientific to its Los Angeles "Fast 50," a ranking of the fastest-growing high-tech firms in Southern California based on percentage of revenue growth from 1995-'99. And Ernst and Young hailed North American Scientific's 44-year-old president and chief executive, Mike Cutrer, as one of the "Los Angeles Entrepreneurs of the Year" (in the health-care/life sciences category) in June.

Clearly, the company is chugging along nicely, but some analysts think greater glory lies ahead. Shortly, North American Scientific will acquire Theseus Imaging Corp., a Boston-based developer of a new imaging agent called Apomate. This radiopharmaceutical, which allows doctors to evaluate a patient's response to chemotherapy, among other applications, could boost North American Scientific from a small medical device firm into a specialty pharmaceutical power, they say.

"That's going to be a blockbuster," John Calcagnini, an analyst with CIBC World Markets, said of Apomate.

Today, sales of the radioactive seeds are North American Scientific's engine, accounting for 82% of company sales in the third quarter.

Three and a half years ago, the company was a $3.5-million industrial firm making reference sources used to calibrate instruments to detect radioactivity. The company has been profitable since fiscal 1993, its second year of operation.

But as a public entity, North American Scientific needed to push into new, larger business segments.

Cutrer targeted the fledgling brachytherapy seeds market because of the company's expertise in radioactive sourcing.

Prostate cancer--the second-most prevalent form of cancer among men, behind skin cancer--has become a hot topic in recent years, as high-profile men, such as Gen. Norman Schwarzkopf, New York Mayor Rudolph Giuliani and Intel Corp. Chairman Andy Grove have gone public about their conditions. This openness has led to increased discussion about treatment options.

"We call that the 'Betty Ford effect,' " Cutrer said.

Standard care for prostate cancer that hasn't spread outside the gland is the surgical removal of the prostate. That frequently leaves patients incontinent or impotent, or both. So growing numbers of patients are opting for localized radiation treatments, which have similar efficacy rates to surgery, according to 10-year studies.

In brachytherapy, physicians inject tiny radioactive pellets, or seeds, that emit radiation directly into the tumors. This treatment costs less than surgery because the procedure is done on an outpatient basis.

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Last year, the company moved into its 24,000-square-foot corporate headquarters in an industrial park in Chatsworth. Here it manufactures its palladium brachytherapy seeds in a series of all-white halls and rooms that could pass for discarded sets from Stanley Kubrick's "2001: A Space Odyssey."

There's an eerie quiet surrounding a fully-automated assembly line manned by a handful of technicians in lab coats and safety glasses. The company has 51 employees in all and a 16,500-square-foot facility in North Hollywood where it makes other products.

Less than four years ago, before brachytherapy became a popular treatment option, North American Scientific had only 12 employees. Cutrer, a chemist by training, has spent considerable energy attracting management and technical staff by offering stock options to all employees.

Cutrer, a low-key man, isn't one for uttering bold statements about the company's purpose or dreams of wealth and power. Instead, he quietly focuses on the bottom line. Colleagues say he delegates responsibility to key managers. "We have a lot of people here who like what they do," Cutrer said.

Cutrer had never been an entrepreneur when he hooked up with scientist/venture capitalist Irv Gruverman a decade ago. Gruverman, now chairman of North American Scientific, helped Cutrer raise capital and Gruverman's large reputation in the radiopharmaceutical field helped the enterprise gain credibility on Wall Street.

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