Possis Medical, Inc. (POSS)
2002 Interview with:
Eapen Chacko, Vice President of Finance and CFO and
Robert G. Dutcher, Chairman, President and CEO

Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
Thrombectomy System the AngioJet(R) for removing blood clots

 

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Up, up, and away with AngioJet®

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Healthcare
Medical Equipment
& Supplies
NASD: POSS

Possis Medical, Inc.

9055 Evergreen Blvd NW
Minneapolis, MN 55433
Phone: 763-780-4555

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Eapen Chacko, Vice President of Finance and CFO (Left) and
Robert G. Dutcher, Chairman, President and CEO (Right)

Photo “Minneapolis Star Tribune”

Interview conducted by:
Diane Reynolds, Co Publisher

CEOCFOinterviews.com
May 2002

Biography of Eapen Chacko, VPF/CFO

Mr. Chacko joined Possis Medical in September 1999 as Vice President of Investor and Public Relations. He became Chief Financial Officer in September 2000. Prior to joining Possis Medical, Mr. Chacko was the Director of Investor Relations for Fingerhut Companies, Inc., one of the nation’s largest direct marketing and online retailers, now a division of Federated Department Stores, Inc.  While at Fingerhut, he worked on the initial public offering of Metris Companies, Inc., an information-based financial services company; the IPO was the most successful IPO of a Minnesota company in 1996.  He also worked on business acquisition teams while at Fingerhut.  Mr. Chacko gained his investor relations experience as a consumer of those programs, having been both a buy-side and sell-side equity analyst in a fifteen-year career on Wall Street.  He was named a Wall Street Journal All-Star Analyst for his stock picking prowess in 1995. As a senior consultant at Merrill Lynch Economics, he provided forecasting, business analysis and strategic consulting services to Fortune 250 companies.   He has also had extensive international experience as a senior officer with the United Nations Development Program before entering the investment business.

A native of New York City, Mr. Chacko earned his undergraduate degree in economics and statistics from Columbia College in New York City.  He holds a master’s degree in economics and operations research from The Johns Hopkins University in Baltimore, Maryland. He also spent a year studying international economics at the University of York in England, and he completed advanced finance courses at the Stern School of Business at New York University.

He has taught economics at The Johns Hopkins University and at Towson State University. Mr. Chacko has been a guest lecturer in Finance at the University of St. Thomas in Minneapolis.  He is a member of the Financial Executive International Twin Cities Society of Securities Analysts, the Association for Investment Management Research, the Public Relations Society of America, and the National Investor Relations Institute.

A Brief Description of Possis Medical, Inc.

Possis Medical, Inc. develops, manufactures and markets pioneering medical devices for the large and growing cardiovascular and vascular treatment markets.   Its primary product, the AngioJet® Rheolytic ™Thrombectomy System, removes blood clots that cause acute, often life threatening events.  The company has a portfolio of three FDA approvals and clearances for the AngioJet System: for native coronary vessels and bypass grafts, peripheral arteries in the legs and kidney dialysis access grafts.

Ceocfointerviews: Tell my readers, what is this company and how it stands today?

Mr. Chacko: We are the leader in a category of medical therapies called “Mechanical Thrombectomy,” that is we remove blood clots from a patient’s vessels, through minimally invasive techniques.  Blood clots usually arise from some underlying disease process in the body, and they can reduce, or cut off, blood circulation, thereby causing critical events like heart attacks, or amputation of a leg that has gone cold from impeded circulation.  Our proprietary technology removes blood clots rapidly, safely, effectively, and in a cost-efficient manner.   That’s the value we provide to our physician customers.

Ceocfointerviews: Does it require less time and less equipment to actually do the procedure?

Mr. Chacko: Once activated in the body, our AngioJet catheters remove clots in minutes or seconds, compared to hours with some common drug therapies that seek to dissolve the clots.  In an economic assessment of Rheolytic Thrombectomy, Dr. David Cohen of the Harvard Clinical Research Institute concluded that AngioJet treatment saved heart patients $3,500 per patient of in-hospital costs, and that these savings were maintained at 1 year of follow-up.   Our marketing research shows that these savings can be $5,000 or more per patient when compared to current treatment regimens.

Ceocfointerviews: Blood clots do reoccur, after using the AngioJet, how often do they reoccur or is there a less percentage by using this procedure versus using the other procedure?

Mr. Chacko: We are an adjunctive therapy so we don’t address the underlying disease process of coronary artery disease, so we do not reduce the restenosis rate with our therapy.  However, when our device is used to clear the occluded vessel of clot before a balloon angioplasty, stent deployment and the administration of GP IIb/IIIa inhibitors, the patient may get a better long-term result than if we had not been used. 

Ceocfointerviews: How many products do you have approved by the FDA and out on the market?

Mr. Chacko: The FDA has approved the marketing of our products for native coronary arteries and coronary bypass grafts.  We are the only mechanical thrombectomy device approved for use in the heart .   We are also cleared to remove blood clots from the peripheral arteries of the leg. We are the only mechanical thrombectomy device cleared for peripheral arteries. We also help to treat people who have end-stage renal disease.  Those people have to get repeated dialysis because their kidneys are failing.   After a while their native vessels collapse from repeated puncturing, and a graft is put in to gain access for their dialysis.  These grafts clot over, and the AngioJet is cleared for removal of clot from these dialysis access grafts.  In the dialysis access graft indication, we compete with a number of other devices and drugs, but we believe we probably have one of the leading market shares in that indication as well.

Ceocfointerviews: Is this done on a global basis or just here in the US?

Mr. Chacko: Currently, the vast majority of our sales are in the U.S. through our own, dedicated sales force.  We have some European sales through distributors, and we are currently seeking approval from the Japanese Ministry of Health and Welfare to market our product for coronary indications in Japan.  

Ceocfointerviews:  This company was founded 1952.  It’s been around for a long time.  Has it always been involved with this type of procedure or was it involved in another area?

Mr. Chacko: It’s evolved considerably.  Our founder, Chris Possis, was a second-generation, Greek immigrant who enlisted in the army as a paratrooper and came back out with a degree in engineering.    He founded his own company, Possis Corporation, as an engineering manufacturing and services company.  We manufactured specialty equipment for companies in a variety of industries from automotive to food services.  After conversations with a surgeon at the University of Minnesota who told of the need for a mechanical heart valve, Chris invented and patented the first, bi-leaflet, mechanical heart valve. That was the origin of our entry into the medical field, and eventually Chris brought in our current CEO Mr. Dutcher came in to develop a business out of medical device inventions like the heart valve.  The AngioJet System came out of that effort, and eventually Possis Medical succeeded the original company, Possis Corporation. 

Ceocfointerviews: How much is this company spending on R&D?

Mr. Chacko: At the end of our current fiscal year ending July 30th, we will be running R&D expenses at approximately ten percent of our revenues. 

Ceocfointerviews: Is the manufacturing done at your plants or do you partners?

Mr. Chacko: We control all of our catheter manufacturing in-house, and we assemble our drive units in-house from component sub-assemblies.  We do everything in about 50,000 square feet, and we are able to monitor processes and control quality.  In addition to strong patent protection of our intellectual property, we also have a number of trade secrets associated with our products.  We are ISO 9001 certified, and all of our products currently carry the CE mark.   

Ceocfointerviews: How about the marketing process, is it done strictly by the company?

Mr. Chacko: Yes, it is.  Our marketing department is located in our corporate headquarters, while our sales force is located throughout the country.  We divide the country into twenty-one territories, and we have about 56 salespeople, and four sales executives, including a VP of U.S. sales.  In a territory, we have at least one salesperson and one clinical specialist.  The salespeople are experienced professionals from companies like Johnson & Johnson.  Our clinical specialists have come from the coronary cath labs and radiology labs, and so they have intimate knowledge of how our customers think and what’s important to them.  Territories with more procedure potential get more clinical specialists per salesperson.  The team looks to place or sell a drive unit, open the account, service the account and grow utilization of disposables within the account.  This is quite a challenge, given the geographical spread, level of competition from drugs and devices, and the challenge of changing clinical practice.  

Ceocfointerviews: So you work with other companies as far as your products are concerned.

Mr. Chacko: No, right now we do not, but we are open to doing so in a way that speeds adoption of our therapy, leverages our sales force, and improves our financial returns. 

Ceocfointerviews: I think one of the hardest things to do is educate the medical community on what is new and upcoming.

Mr. Chacko: Yes, and no.  The interventional community are like children in FAO Schwartz.  They are barraged by device companies with messages about new “toys,” and they always like to have the newest and the best.  We have to cut through all the marketing static and get our message across: we provide value for you the physician, for your practice and for your patients.  On the other hand, in other parts of the community, there is lots of inertia.  If you have been working successfully under pressure eighteen to twenty hours a day with certain techniques, it is very difficult for you to sit there and listen to a salesperson from a small medical device company say, “Look doctor there may be a better way to treat your patients with the AngioJet”.   So, that’s been tough for us but we have clearly turned the corner.  Now the trick is, is to keep the momentum going. You’re right, that is exactly what we spend our time doing, and I think that we’re doing a good job.

Ceocfointerviews:  It is awfully hard especially some of the older doctors who are set in their ways.

Mr. Chacko: It certainly can be.

Ceocfointerviews: Once they become a customer of yours, can they buy the products on line or go through your office?

Mr. Chacko: I came from a company that made significant investments in online purchasing.  Online purchasing for hospitals is not a significant enterprise right now. We actually perform a service for hospitals in that we hold inventory for them. We don’t have a minimum order amount or a minimum commitment; if you want to order one, ten or fifty catheters, you can call an 800 number, page your rep or clinical specialist 24 hours a day; if they don’t have a disposable unit in their trunk stock, we ship out of Minneapolis overnight, if that’s what the customer wants.

Ceocfointerviews: Looking at this company, there is a lot going on and you are spending a lot in R&D, you are a small company, but does this company have the cash/credit available to make the impact it wants to?

Mr. Chacko: We have, because of the changes made in the business model about a year ago, the answer is, “Yes, we do.”  If we wanted to grow faster, then we would look at additional equity funding, and we believe that option would be viable given our performance and the interest in medical device companies.  However, right now, we are funding our growth strictly through internal cash flow.

Ceocfointerviews: You mentioned inventory.  How are you able to control the inventory with all of the changes and improvements that are taking place?

Mr. Chacko:  If you look at our releases over the last three or four quarters, our sales are growing 40% to 47% year over year and five to six percent, quarter to quarter, while our working capital growth has been virtually zero.  We’ve done a fantastic job controlling that inventory.  We’ve had some new products and we’ve done a nice job bleeding down one product’s stock and introducing another one.  I think we’ve done an exemplary job here.

Ceocfointerviews: Growth of this company is internal.  Are there any acquisitions or partners as an alternative for growth in the future?

Mr. Chacko: We have not actively sought out acquisitions, but a meaningful acquisition for a company this size poses outsized risks, both in terms of managing and developing another technology, marketing it, and integrating it; we don’t have any experience with those activities.   A partner that would bring a complementary culture, marketing mass, and similar call points would be very interesting, and this is something we are looking at for accelerating our future growth. 

Ceocfointerviews: To a potential investor sitting with you now, what would you say to him/her?

Mr. Chacko: Our product makes a difference in people’s lives. The number of people that we can help is large and growing, because we help people with heart disease, peripheral vascular disease, and end stage renal disease.  In so far as people care about that, it is something they should look at.   We’re not a me too product, or a tiny improvement on a competitor’s product.  Our product makes a big difference.  Someone gets up and walks out of the hospital from one of our operations or someone’s leg is saved from amputation, that’s number one.

Next, we have proven that we have a viable business around that concept.  We have a very clean balance sheet, with no debt, and our asset value is probably understated because we do not value our patents on the balance sheet as larger companies do.  We have significant deferred tax assets that we will be recognizing, probably this fiscal year.  We control our design, manufacturing, and sales internally.  We have a proprietary technology platform, with strong patent protection, and we have done much of our clinical and regulatory approval to support our growth. 

The risk for a new investor is execution.  If we don’t meet our sales and earnings goals in one quarter, the market will punish our stock disproportionately, because we are a relatively, small, illiquid stock with no strong market makers. We would tend to be a relatively high volatility stock. We don’t have a dividend, so it’s a pure growth story. 

I think those are the kinds of risk the investor would have to understand.  The flip side to the risk is return, and we have very high potential returns because of the large markets we serve, our proprietary technology, and the value we can bring to our customers. 

Ceocfointerviews: What have you brought to the table since you’ve joined the company?

Mr. Chacko: On the investor relations side, I believe that I brought a very high degree of professionalism and service to our individual and institutional shareholders, and to our analysts.  I have communicated pro-actively, consistently, and clearly.  I have also brought their concerns in to our management and Board.  I believe that an effective IR officer has to function both as a partner to the CEO and as a “shareholder ombudsman.”  I believe that I can point to our record level of institutional ownership, increasing analyst coverage, and declining short interest as evidence of this.

On the public relations side, I have been able to get some great placements in publications as varied as Red Herring, Prevention Magazine, The Grey Sheet, Wall Street Transcript, Investors Business Daily and The Week.  We have built some strong bridges to media around the country, including our home market in Minneapolis.  I think that this will stand us in good stead as we move forward.

Finally, in my position of CFO, I focused the Company’s attention on our business model eighteen months ago, which was very prescient given the failure of most technology company models in the interim.  Robust revenue growth, continuing losses, and an addiction to private placement financing were eventually going to bring this company to its knees and keep a wonderful technology platform from taking its rightful place in the sun.   Through our reduction in force, shifting of R&D priorities, and strong internal messaging to the organization, we were able to galvanize our people into driving us to profitability for the first time in history and to keep that growing.  I am extremely proud of that leadership contribution. 

Ceocfointerviews: Do you have any closing statements for my readers?

Mr. Chacko: I’d say I’m grateful that a publication with your readership is interested in our story. That would not have been true a year ago,so that tells me that we are on the right track. Again, keep an eye on us and watch what we do.   We’re a good company, and we have good sound values.   We have added value for our shareholders,  and that’s our goal going forward.  So, in so far as people looking for a good medical device story, look at Possis Medical.

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AngioJet® Rheolytic ™Thrombectomy System

 

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Catheters

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