Fred Robertson, CEO of TomoTherapy (Madison, Wisconsin) said the company is “off to a strong start in 2007,” but that may be an understatement.
This week the company released financial results for the first quarter ended March 31, reporting revenue of $51.2 million — an 86% increase compared to $27.5 million for 1Q06. And the financial statements as of March 31 don’t even include the $186 million the company raised in its initial public offering (IPO), which it completed in May.
“I’m very pleased [with our first quarter revenue] it’s difficult to use more enthusiastic wording than that because of the concerns we have of realistic expectations,” Robertson told Medical Device Daily.
Last month TomoTherapy reported the pricing of its IPO of 11,743,420 shares of common stock at $19 a share, (Medical Device Daily, May 10, 2007) $2 higher than the top end of its pricing range reported earlier that week (MDD, May 8, 2007).
While netting $186 million was significantly more than TomoTherapy originally expected to raise in its IPO, Robertson said the company had upsized the offering by 20%.
“So 10% came in pricing and 10% came by increasing the number of shares,” he said.
The company attributes its boost in revenue to customer demand for its Hi Art system and increased production capacity.
The Hi-Art system is a radiation delivery system designed to change the intensity of the radiation beam so that it adapts to the shape of a tumor. Using a computerized tomography scan, the system focuses on killing cancer cells, the company said, with “sub-millimeter accuracy” to kill cancer cells while sparing healthy tissue. As of December 31, 2006, it reported an installed base of 108 Hi Art systems worldwide.
“It’s really a new platform of radiation therapy ... ultimately it’s a better cancer care, and that has driven the market share,” Robertson said.
The company also recently built a new manufacturing plant to meet the increase in customer demand, he added.
The net loss attributable to common shareholders was $131.1 million, or $12.13 per diluted share, compared to a net loss of $10.6 million, or $1.22 per diluted share, for the prior year period. These results include the accretion of redeemable convertible preferred stock of $134.9 million and $9.1 million for the three months ended March 31, 2007 and 2006, respectively.
Excluding the accretion of the preferred stock, income from operations was $6 million and pro forma net income was $3.9 million, or 9 cents per diluted share, for the three months ended March 31 compared to a pro forma net loss of $1.5 million, or 4 cents per diluted share, for the prior year period. Included in the 2006 pro forma net loss was a $2.1 million after-tax charge, or 6 cents per diluted share, for the cumulative effect of a change in accounting principle related to the valuation of preferred stock warrants.
The company said that 1Q07 was also favorably impacted by increased international sales of the Hi Art system at higher average selling prices.
The company’s gross margins improved to 42.6% in 1Q07 from 29.6% in 1Q06. Margins exceeded expectations due to the high average selling prices realized during the quarter. According to Robertson, while TomoTherapy expects to report gross margin improvements in 2007, the company believes that first quarter margin improvement was unusually robust and margins are not necessarily expected to continue at similar levels. Instead, TomoTherapy expects margins to be more in line with historical levels and to gradually improve in the future as it realizes benefits from factors such as: production efficiencies, leveraging its service and support infrastructure and engineering projects targeted at continuous improvement.
“We firmly expect as we go forward that our revenue will mirror the revenue that’s out there in the market place, which is about 40% or 50% revenue coming from international orders,” Stephen Hathoway, the company’s CFO, said Wednesday during the company’s first conference call as a public company. “So I think what happened in the first quarter was just a higher price contract coming through and it really drove up our average sales prices.”
The company also said it is increasing its operating expenses to continue to build its sales and service organizations, and invest in research and development efforts. Total operating expenses were $15.8 million in 1Q07, a 112% increase from the $7.4 million recorded in 1Q06. Included in the financial results for the quarter were $800,000 of expense related to share-based compensation and $1.1 million of expense related to the proton therapy research collaboration with Lawrence Livermore National Laboratory (LLNL; California).
The expected continued growth of TomoTherapy’s business and the nature of selling a high-priced system can cause the company’s quarterly results to fluctuate significantly, it said. For fiscal 2007, TomoTherapy expects revenue of $210 million to $220 million and pro forma net income per share in the range of 15 cents to 20 cents per diluted share.
In other company news, TomoTherapy reported it is entering the proton therapy business through a collaboration with scientists at LLNL. The company said it has agreed to fund continued development of an accelerator that it expects will form the basis of a compact, low-cost proton therapy system. The system, which uses dielectric wall accelerator (DWA) technology, is the result of defense-related research and, with further development, has the potential to bring proton therapy into the medical mainstream, the company noted. LLNL is managed by the University of California (Davis, California) for the U.S. Department of Energy’s National Nuclear Security Administration . LLNL has worked to develop the technology with the UC Davis Cancer Center (Davis, California), which helped finance the early development of the DWA as a proton accelerator for cancer treatment.