MFIC Products
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MFIC Corporation
offers one of the world’s premier fluid processing systems by delivering about ten
times as much energy into a flowing liquid stream than any other processor, resulting in
smaller, more uniform product component structures, giving customer’s products a
competitive quality advantage in stability and performance
Technology
Scientific Technical Instruments
(MFIC-OTC)
MFIC Corporation
30 Ossipee Road
Newton, MA 02464-9101
Phone: 617-969-5452
Irwin Gruverman
Chairman and CEO
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
August 31, 2006
Bio of
CEO,
IRWIN J. GRUVERMAN, P.E.,
Irwin J. Gruverman has extensive management, financing and
technology experience with scientific product organizations, with emphasis on
engineered products, diagnostic tests, and radiopharmaceutical imaging products. He is
the Founder of MFIC Corporation, (formerly Biotechnology Development Corporation)
and is its CEO and Chairman. MFIC’s Microfluidics subsidiary is a leading supplier of
high pressure/ high shear fluid processing systems and methodology to the biotechnology,
pharmaceutical, electronics, food, cosmetics, home products and chemical process
industries.
He is a Founder of and was Chairman of North American Scientific, Inc., a leader in
producing brachytherapy radiation sources for treatment of cancer and other proliferative
disorders and of equipment and software for Intensity Modulated Radiation Therapy
applications to precisely treat cancer.
Irwin J. Gruverman was the General Partner of G&G
Diagnostics Funds, L.P., having a venture arm of Searle (a Monsanto Company) as the sole
Limited Partner. The Funds invested mainly in medical diagnostic opportunities in the
U.S. and Europe, and provided early stage funding and advisory services for more than 50
ventures. In 10 years of operation, the Funds aided more than 15 early-stage investees in
reaching profitable public status. The Fund was distributed in 2001.
He was Executive Vice President of DuPont's New
England Nuclear Division until 1982, in charge of health care activities, and was
responsible for the development and commercial success of Thallium-201 as an imaging
diagnostic for heart disease assessment. He operated a profitable $100,000,000 business
employing 1200 people, which was acquired in 1981 by DuPont. Achievements included
establishment of a multi-cyclotron facility to produce medical radioisotopes and the first
commercial linear accelerator designed for manufacture of such radioisotopes
Mr. Gruverman is a Professional Engineer, with substantial
experience in radioisotope applications in medicine and industry, and the application of
chemistry, biotechnology, physics and engineering disciplines to commercial
opportunities.
He is a graduate of The Cooper Union (B.S. Chem. Engg. - 1954) and MIT (M.S. Nucl. Engg. -
1955), and has completed post-graduate executive management courses. Mr. Gruverman has
applied a knowledge of venture funding approaches and public financing to launching
and/or financing of more than 60 technology-based enterprises.
He has authored more than 100 technical articles, presentations and papers, mainly in
the fields of formulation science, isotope methodology, engineering applications,
biotechnology applications in medicine, agriculture and the chemical industry, and
analysis of business/high technology funding options.
Mr. Gruverman is a member of Sigma Xi (Experimental Science Society), Tau Beta Pi
(Engineering Honor Society), American Chemical Society, Society of Nuclear Medicine, and
other professional groups.
Company Profile:
MFIC Corporation (MFIC-OTC) is the world leader in high performance applications of fluid
processing. Microfluidizer® materials processing systems, made by its
operating subsidiary, Microfluidics Corporation., operate at the highest available
pressures, utilizing a proprietary, unique fixed geometry interaction chamber which can
subject the fluid stream to shear energy densities up to 10 times that of other
processors. The uniform nanostructures created allow preparation of commercial products
having unmatched uniformity, stability and reliability. Examples include injectable
emulsions and suspensions (such as anesthetics and vaccines), liposomal encapsulation,
inkjet inks, high end coatings, catalysts, semiconductor planarization media and color and
flavor emulsions for soft drinks. In addition, in the biotech industry, Microfluidizer®
processing systems are a standard means of cell disruption for recovery of proteins
produced by biotechnology processes and are widely used in genomic and proteomics
applications, in the biotechnology and pharmaceutical industries. Systems are available in
all sizes from laboratory to full-scale production. Scaleup of laboratory results is easy
and is guaranteed.
Microfluidics manufactures 3
levels of Microfluidizer® material processors; laboratory, pilot manufacturing
and large scaleup production units. Processors offer operating pressures from 2,500 psi up
to 40,000 psi in applications ranging from industrial processing of chemicals, inks and
pigments to cleanroom applications for manufacture of injectable drugs and vaccines. These
include Homogenizers, Table Tops and Floor Models. The scaleup processors include the M700
and M710 Series, the M210EH electric-hydraulic processors.
New Products
and Applications:
MFIC Corporation has
introduced a new, patented High-Pressure Microfluidizer MicroReactor, (MMR) from their
Microfluidics operating subsidiary. It continuously produces uniform nanoparticles with
phase purity previously unachievable with conventional batch reaction technology. This
degree of reaction chemistry control can lead to cost-effective product improvements and
the development and manufacture of new nanomaterials in scalable quantities. Applications
for the new technology include improving the performance of catalysts, planarization
polishing media, superconductors, abrasive silica, recording media, photographic media and
pigments. It also may be used in the development and production of unique pharmaceutical
products, particularly for solubilizing pharmaceutical actives, which are difficult to
formulate. These are nanoparticle suspensions or other nanostructured materials, with
potential use in injectables, transdermals, topicals, inhalation agents, intranasal and
oral formulations.
Microfluidics has in recent
times announced new and significant products and product advancements and options for
their Microfluidizer processor systems. A significant announcement was the introduction of
the new M710 Microfluidizer high throughput production processor system. This 100 H.P
variant of the established M700 line has materially enhanced Microfluidics’
competitive position in terms of pricing and performance in all industries and
applications that the company serves. In addition to biotechnology and pharmaceutical
production, this product targets markets such as foods, chemicals and personal care, by
offering pricing that is competitive with traditional homogenizers. The introduction of a
digitally controlled, Constant Pressure option provides uniform processing pressure in
multiple-piston high pressure systems, which is expected to lengthen component life and
reduce total operating costs. The rather recent introduction of real-time process
displays, program logic control (PLC) and instrumentation, data acquisition and automation
systems (SCADA), afford near-absolute control, monitoring and archiving of operating
conditions and data. The new M700 Microfluidizer Containment System is utilized for the
processing of highly toxic cancer drugs and other hazardous materials. The M700
Microfluidizer Split System (separating the power source from the mixing/processing
apparatus) accommodates demands of limited space within clean rooms and for noise
abatement within pharmaceutical production facilities. In conjunction with this system, a
Level II Steam Sterility Option was also introduced for all our pilot and production
systems used for production of injectable and other pharmaceuticals. This option enables
compliance with stringent regulatory production requirements. The Ultra Clean in Place
(UCIP) option improves the ability to clean in place (CIP) Microfluidizer processor
systems between product batch runs or before storage. This capability differentiates the
company’s Microfluidizer materials processor systems from all other competitive
products. All these features and options are available on the M-710 production systems.
CEOCFO: Mr. Gruverman, you have been doing interviews with us
now for several years, will you tell us about your new and exciting news?
Mr. Gruverman: “We just finished our 2nd
Quarter of the year, which was our best sales quarter ever. We delivered about $3.9
million worth of goods, which is an increase of 24% over the corresponding 2005 2nd
Quarter, and for the half year it was an increase of about 24%. This great start in 2006
has direct causes. About seven or eight years ago, we made an acquisition, which did not
integrate as well as we hoped, mainly because of market factors we could not control. We
experienced substantial losses and were deep in debt. We sold off that business at a
substantial loss in 2004 and then restructured the company and its finances using a new
commercial finance facility and some new capital that we were able to raise in a private
equity sale. For the past 2½ years, we have been investing that capital in the company.
For the most part, we invested in R&D, spending more than $3 million over that period.
We have been investing as well in our marketing and sales efforts and other functions of
the company. Having done that, we expected that we could come up with some new products
and enhancements to our existing products, which would interest people in our principal
markets in buying larger equipment for manufacturing purposes as well as expanding the use
of our equipment in their formulation development work. As you know, our equipment is
among the world’s premier fluid processing systems. The reason it is so effective is
that we deliver approximately ten times as much energy into a flowing liquid stream as any
other mixer, such as a homogenizer, can achieve. That results in smaller, more uniform
formulations of components that do not want to stay mixed, but which, when properly
formulated and properly processed, do stay intimately mixed, are very stable, have
desirable properties for the product and give people who use them a real
competitive advantage over others using less sophisticated equipment. Our prices are
value-based and competitive, and our margins reflect that; our margins are in the 55%
range. We are able to aggressively support R&D and marketing/sales programs. We had
difficulty in bringing a lot of our top-line down to the bottom-line, because of this
focus on rebuilding the company after a long period where we had no available capital.
Therefore, our results over the last few quarters have not been sterling, but the last
quarter began to show what we could do as we completed some of our reinvestment programs.
We are planning to continue the reinvestment plan and so our bottom-line will be affected,
although this should lessen as sales grow. Last quarter our bottom line was positive and
we had strong cash flow. The bottom line was impacted by a lot of the new financial
regulations, which caused us to take some charges, many of which were non-cash. These
reflect the concern of the financial markets with activities that were undertaken by Enron
Corp. and others, and resulted in costly new regulations for all public companies. The
effect on small companies can be devastating but we think we can manage our way through
it. We have been able to do so to date and we will continue to do so, being fully
compliant with Sarbanes-Oxley at the times that are required. We are pleased with the
record level of sales during the second quarter of 2006; our backlog has grown to almost
$4 million. We think it will grow substantially beyond that in the current quarter. We are
succeeding in gaining customer orders, largely on the basis of enhancements and new
products that we developed over the past couple of years and are currently selling. Most
of our sales are to the biopharmaceutical sector, almost 80%. There we are very well
entrenched and established and many of the enhancements that we have created have to do
with meeting good manufacturing practices in the pharmaceutical and biotech areas. These
include constant pressure control on the flowing liquid so that you get very uniform
results and less wear on the equipment, level of controls and ability to acquire and
archive operating data, lower cost of ownership of the equipment and the ability to
process on a totally sterile basis. In addition, MFIC offers the ability to sterilize in
place, clean in place, and to contain materials that are toxic in the environment and to
operating personnel. Importantly, our equipment is actually power efficient even though it
operates at very high-power consumptions when it is on-line. You can generally do things
with our equipment in a much shorter amount of time than it would take with conventional
equipment; overall we typically use less energy to process a particular amount of product.
That tells you some of the reasons for our optimism and excitement. We are also looking to
the future and diversifying our activities into areas that are extensions of our core
competencies. For example, we have started two collaborations in the last year or so. One
is with the University of Massachusetts at Lowell, where they have a major center for
Nanoprocess Engineering and Nanomanufacturing. They selected us as the core technology to
apply, realizing that we have been enabling nanomanufacturing for many years. They
recognized that, tried the equipment and selected us as their core technology. We have
entered a collaboration with them and supporting at seed level some projects that they are
doing in various areas of nanoscience. In addition to that, we have made available to them
a lot of equipment, which they otherwise would not be able to access. It works as a
showcase for us. A lot of people come to visit them and do work at that center of
excellence. They can see our equipment and how well it functions; we think that will pay
off handsomely. It will also pay off because of the investigators that use the equipment,
do the work, and publish widely, which we encourage.
The second collaboration that we are about to enter into is with a food ingredient
company, which has a strong presence in the food and beverage market and believes that our
equipment is the best tool that they have found for Nanoprocessing. What they are trying
to do is enrich foods with nutraceuticals and other healthful ingredients as well as to
make better products like premium ice cream and soy milk, which when processed with a
Microfluidizer® processor, tastes more like regular milk than other types of soy milk and
is not gritty. We are hoping for strong results from that collaboration. The third area
where we are investing in the future has to do with our Multiple Stream Mixer Reactor,
(MMR). We are still at a modest level of spending attempting to push this into industry.
It is a disruptive technology because it replaces manufacturing systems that have been
around for a hundred years or more. One of the things we do with the MMR is continuous
chemical reactions. We perform chemical reactions in a flowing system, and complete the
reaction in milliseconds compared to hours that may be required to complete the process in
a batch reactor. Much better control is possible - we make fewer impurities and we get
much better control and uniformity of products. The capital costs and operating costs are
substantially lower than those for the large numbers of batch reactors required to make
commodities or large volume chemicals. Another area in this space is alternative fuels. We
are encouraging groups to try to use our technology to produce bio-diesel and to optimize
ethanol extraction. You can see we have been very busy over the years trying to secure our
core business, which I think we have fully succeeded in doing, as well as trying to expand
our reach in areas where our technology might make a difference.”
CEOCFO: You have an
increase in business and sales and your numbers are up, is that due to finding new
customers or selling more products to existing customers?
Mr. Gruverman: “It is both. We have raised the
average-selling price of the equipment that we ship by focusing more on large projects,
mainly in the pharmaceutical industry but also in coatings. As you may recall, our
equipment is used to make much of the inkjet ink in this country and abroad. We have been
providing equipment to produce nanosuspensions for many years and our equipment is pretty
much the standard of excellence in that field. Much of the equipment that we sell is used
for biopharma and coatings applications. We are starting to see some progress in the food
industry. Only a few percent of our sales is in food and flavors. We are also addressing
other areas where our market penetration has been minimal. We recently hired a consultant
to help us find strategic partners for our MMR and continuous chemical reactor technology,
and they are making some progress. We are hopeful that we may have candidates for
collaboration in place for that before very much longer.”
CEOCFO: Do you have a
razor/razor blade model?
Mr. Gruverman: “We call it an annuity concept. About 35%
of our sales are replacement parts and that is growing. It is a significantly profitable
part of our business, so yes, we do have that type of a model and we stay in contact with
our customers through their need for replacement components as well as enhancing our
ability to talk to them about new concepts and equipment on a frequent basis. Our sales
force in this country is four employee managers and about sixty independent agents. We
supervise and train them and we have frequent meetings with them. They are always grateful
to have new material to talk about and they do a good job. In Europe, we have a sales
center near Frankfort and they supervise a wide range of agents and distributors. We
operate Applications Labs in Newton, MA, Irvine, CA, and Frankfort, Germany. Customers
send or bring samples for testing on our systems – we run hundreds of tests annually
and find that this activity is a powerful sales stimulator. We have distributors in Korea
and Japan and agents throughout the Pacific Rim, including Singapore, Mainland China,
Taiwan, and India. About half our sales are outside the United States.”
CEOCFO: Are there any
countries where you are not active which you would like to become active in the future?
Mr. Gruverman: “We would like to do more in Central and
South America, and we have begun a relationship with a fairly widespread firm who is going
to attempt to do that for us. We are not familiar with that part of the market and they
are.”
CEOCFO: What impresses
me most about your company is that your products are used in the production of so many
things that are commonly used in America today.
Mr. Gruverman: “We think that we are making one of the
current and important contributions to the state of American manufacturing. In addition,
we are making a difference in the way American manufacturing is contributing to the world
economy.”
CEOCFO: It sounds like
you are getting into fuel as well!
Mr. Gruverman: “It is early days for that; I am not sure
how successful we will be. The main issue we face is that our equipment has never been
justifiable for commodity products. We have not built systems over two hundred horsepower.
System cost and power consumption may be barriers. We have limited our design outputs to
hundreds of gallons an hour. An example is wastewater processing where we do a good job in
sterilizing wastewater, but the economics are not there. As far as fuel is concerned, the
economics were not there a few years ago; it is much closer to being reasonable now with
the increase in the cost of oil and gasoline. I think we will have something to say in
this area; in particular, we can make a real contribution to bio-diesel production and to
ethanol extraction and those are both under intense study. We are studying the economics
carefully to determine if we have a contribution to make. We do not want to introduce our
technology in an area where the economics are not right. The early indications are that we
can be economic if the price of oil does not decrease significantly from present
levels.”
CEOCFO: The
pharmaceutical industry is still where you produce your greatest revenues is that correct?
Mr. Gruverman: “Almost 80% of revenues come from the
pharmaceutical and biotech sector.
We want to maintain a strong financial posture going
forward so we can minimize dilution for investors. We have succeeded in doing that; today
our current ratio is over 3.5. We have adequate cash in the bank and a strong balance
sheet. We do not see any need to raise capital in the short-term unless we have an
advantageous event like a great opportunity to acquire another company that enhances our
business. We have strong leadership in those sectors where we are active. We have about a
10% penetration of the potential in the biopharmaceutical area that would use our
equipment and less than 1% in the other areas, so we have lots of room to grow. One of our
objectives is to increase that market penetration. We think we can achieve sales in excess
of $30 million in several years by core business growth. This could be enhanced
considerably if MMR and Continuous Chemical Reaction Technology begin to take hold, but we
are unable to estimate timelines here. We want to continue our leadership position in
fluid processing technology and establishing our Continuous Chemical Reaction technology
model in cost effective and superior manufacturing methods. We think we can achieve a 15+%
pretax operating profit.
The reinvestment effort we are doing will be continued, and we expect the effect on
profitability to diminish. That will enable us to grow the bottom line. We are focusing
the resources that we have accumulated on accelerated growth and enhancing margins.
Finally, I think we owe it to our investors to list on a national exchange; we do not
qualify for an exchange now because our stock is selling well below the $3.00 level that
is required to get on AMEX, and that is probably where we would apply. I believe and our
management team is convinced that our stock price is unreasonably low. I think people
would want to see us continue a few quarters like the one we just finished before they are
convinced we can demonstrate productivity and the ability to generate earnings. Our sales
curve is bumpy, which is characteristic of capital equipment companies; this is less of a
concern as our sales levels increase. All of that is in the value proposition. The
management team has grown in the past few years. We have added a vice president of
engineering and a vice president of R&D. We also have a new VP of sales and marketing
and we have brought in a strong person to help us to improve our supply chain so that we
can increase our margins further. The value proposition is exciting and
compelling.”
CEOCFO: The last time we
spoke, you mentioned a plan to expand maketing and selling efforts.
Mr. Gruverman: “ We have done quite a bit in MMR, and
the Continuous Chemical Reaction technology area. I have presented a number of papers and
published extensively on the area now and we have seen positive feedback
from my efforts. Other people here, in particular Mimi Panagiotou, who is the PhD.
chemical engineer who runs our R&D effort, and I plan to continue to publicise our
efforts in the technical community with journal articles, press releases, and other
efforts. Our new VP has enhanced our sales force, in the US and Europe.
One other trend we have seen in the last few Quarters is a substantial expansion of the
number of laboratory devices that we sell. People buy a laboratory Microfluidizer® in
order to help them develop a formulation or product and once they qualify that, they come
back to us and buy the production equipment. That is an important trend. We saw sales of
laboratory units grow about 53% in the first six months of 2006, compared to 2005. We are
making good progress and we will continue to keep pressure on our performance and
particularly on building for the future. This does impact the bottom line. I think the
shareholders are getting a good deal in that way because we are reinvesting it on their
behalf and we are being successful in the effects of that reinvestment. It does not all
show on the P&L statement, but I think that if investors visit our website and analyze
our results in depth, they will agree with us that we are doing the right thing.”
CEOCFO: Tell us where
MFIC stands with the competition.
Mr. Gruverman: Many companies that provide mixing and
processing equipment have similar kinds of reach. At our website you will see something
about the competitive activity, but it generally is at pressures no more than about 18 or
20 thousand PSI and it is by conventional homogenizer techniques which are much less
effective and efficient than what we do. We operate at much higher pressures; we can go to
40,000 PSI, and generally, we can get an order of magnitude more energy into the flowing
liquid stream than other technologies. Yes, other people address a broad scale market as
we do. We think we are unique in the high technology end of fluid processing. We believe
that we are a world leader in that sector, though many other people compete there. In
recent years, due to the R&D and product enhancement investment program we have
carried out, we are able to compete effectively with equipment that is significantly
inferior to what we make. On that basis, we believe that we continue to gain market share
because MFIC’s equipment is demonstrably better at a price that is comparable to
other people’s offerings.”
CEOCFO: Is there anything you would like to add in closing?
Mr. Gruverman: “We believe that our stock is
undiscovered. Part of our problem is that we are a Bulletin Board stock and that market is
closed to a lot of investing groups. We do not get as much attention as we should. I think
people are overlooking the value of the underlying technology. They are overlooking the
earnings ability because it is masked by the massive use of our cash flow to support our
future growth and well-being, and secondly, by recent financial accounting standards and
Sarbanes-Oxley costs that are hidden, many of which are non-cash, but which impact the
GAAP bottom line without affecting much else. We have a challenge to make people
understand the nature of our company and that our value should reflect the investment in
future performance, as well as our net profit line.”
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