Highlights from SenoRx's IPO Filing (SENO)

SenoRx filed an S-1 with the SEC last week with the proposed ticker (SENO). Banc of America and Citigroup are underwriting the deal. Highlights from the filing (all excerpts are from the full SEC filing):

Company Description

We develop, manufacture and sell minimally-invasive medical devices for the diagnosis and treatment of breast cancer. Our initial product focus has been diagnostic devices, such as biopsy systems and breast tissue markers. We also are developing therapeutic products that we will seek to commercialize beginning in 2007, including a radiation balloon for localized radiation therapy and cutting devices for both excision of tissue and cosmetic reconstruction. With the emergence of clinicians coordinating multi-disciplinary patient care through integrated breast centers, we believe that our ability to provide a broad array of products will enhance our competitive positioning. Many of our products rely on our proprietary tissue cutting technologies, which include both mechanical and radiofrequency cutting mechanisms. Since we launched our first products in 2002, we have established over 1,000 customer accounts.

Our flagship diagnostic product, the EnCor system, is a minimally-invasive, vacuum-assisted breast biopsy system. EnCor allows users to obtain multiple biopsy samples with a quick, single probe insertion. In contrast to existing competitive systems, EnCor is the only “open/closed” tissue collection system, providing the operator with a clear view of tissue samples through a proprietary transparent collection chamber, and the ability to either open the chamber to examine and remove one or more samples or to continue uninterrupted collection of multiple samples. Our EnCor system incorporates novel programmability, and we designed the system to be compatible with the most commonly used imaging modalities, including x-ray, ultrasound, and magnetic resonance imaging, or MRI. With its ease of use and functionality, we believe that EnCor can play an important role in the paradigm shift from invasive open surgical procedures to minimally-invasive biopsy procedures.

We received clearance for the EnCor system from the U.S. Food and Drug Administration, or FDA, and conducted marketing preference testing in late 2004. We subsequently progressed with a full commercial launch in November 2005. As of March 31, 2006, we had an installed base of nearly 200 EnCor systems and we had sold more than 25,000 disposable probes. In launching the EnCor system, we first targeted our customers using our ultrasound-guided, vacuum-assisted biopsy system launched in 2003, the SenoCor 360, because both the EnCor and SenoCor handpieces are compatible with the same modular console. More broadly, we intend to leverage our base of over 1,000 customers as potential EnCor customers. Our tissue markers, which we first introduced in 2002, are competitively differentiated given their visibility under ultrasound, bioresorbability and compatibility not only with our biopsy devices, but also with other companies’ devices.

Key Financial Data
Revenues were $13.8 million in 2004, up to $19.25 million in 2005. Gross margins fell from 53.3% to 47.5% in these years. First three months revenue of 2006 were $5.8 million, up from $4.75 in the comparable period last year. Gross margins were down, though, from 55.7% to 47.1% in this period. The company's net loss grew from $6.8 million in 2004 to $8.6 million in 2005; first quarter loss grew from $1.5 million in 2005 to $2.3 million in 2006.

CEO Background:

Lloyd H. Malchow. Mr. Malchow joined us as our President and Chief Executive Officer and director in May 1999. From 1993 to 1999, Mr. Malchow held various positions at Penederm, a publicly traded drug delivery company acquired by Mylan Laboratories in 1998, including Chief Executive Officer, President and Chief Operating Officer. Prior to Mr. Malchow’s employment with Penederm, Mr. Malchow held various positions at Allergan, a pharmaceutical and medical device company, including vice president positions in sales and business development for Allergan’s ophthalmology and dermatology divisions, Skin Care Division General Manager and Operating Committee member. Prior to this time, Mr. Malchow was the Vice President, Sales at the American Medical Optics Division of American Hospital Supply, a provider of medical supplies and medical devices. Mr. Malchow earned his B.A. in Government from Carroll College, his M.A. in Public Opinion Research from the University of Maryland and his M.B.A. from Pepperdine University.

Key Competitors

1. Johnson & Johnson (JNJ)
2. C.R. Bard (BCR)
3. Hologic (HOLX), via recent acquisition of Suros Surgical Systems. Suros was acquired for $240 million.

Notable Issues To Watch For

Single Product: Lion's share of the company's revenues are from disposables associated with their breast biopsy system. The company does have an additional product in the pipeline for the removal of lesions; they expect to file for FDA approval in 2007.

Margin erosion: Gross margins have dropped in the past year. For the decline in Q1 2006 over Q1 2005, the company attributes this decline to "decrease in gross profit as a percentage of net revenues was primarily attributable to an increase in direct labor, overhead and materials associated with increased product sales, integration of new components into our manufacturing processes for our EnCor system and increased costs associated with scrapping obsolete component inventory due to design enhancements and modifications"