Visicu stock ailing

Slowdown in orders blamed for the poor health of shares of Baltimore company that makes ICU monitoring system


Visicu Inc. had a spectacularly successful initial public stock offering in April, raising $100 million and seeing its share price jump 55 percent on the first day. Only one new stock this year, Chipotle Mexican Grill Inc., registered a larger first-day pop.

In July, the Baltimore company posted quarterly results that one analyst called "stellar" - earnings ahead of expectations and revenue up 80 percent from the prior year.

So why is its stock being hammered, losing about half the value that it had in April?

Shares closed yesterday at $11.90, Visicu's lowest closing price ever. That's down 25.6 percent from the IPO price of $16, putting it in the bottom quarter in the performance of 101 stocks that went public this year, according to according to Renaissance Capital's

The stock's steady slide isn't owed to bad news, the company and analysts say, but to a relative absence of good news - a slowdown in orders for the systems that the Baltimore company develops to remotely monitor hospitals' intensive care units.

Frank T. Sample, president and chief executive officer of Visicu, said that a fluctuation in orders is natural for a product as complicated as Visicu's, and that it doesn't make sense to expect orders to steadily increase quarter over quarter.

Visicu will stick to its long-term strategy, he said.

"We aren't going to do stupid things based on the stock price," Sample said yesterday.

In particular, he said, he doesn't plan to give discounts late in a quarter to clinch new contracts, so "We don't get hit by somebody beating us down on price so we can meet our quarter." Also, he said he doesn't want to encourage hospital customers to rush new units into service rather than phasing them in. "People have to learn how to use these," he said.

Analysts, however, said it's not surprising that shares would decline if new orders slow down.

"We value it off cash flow, and that's very sensitive to the number of customers they're able to sign up now," said Matt Perry, an analyst for Wachovia Securities in New York.

Fluctuations in the rate of new orders aren't anything new for Visicu, a smallish company that depends on a few large orders. Over the year that ended June 30, for example, it activated monitoring centers at 10 hospital systems. At that rate, two orders in a quarter is below average, but three is above average.

In fact, the dollar value of orders booked in a quarter has tended to bounce around, according to David T. Veal, an analyst at Morgan Stanley Research in New York. (Both Morgan Stanley and Wachovia participated in the Visicu IPO as underwriters.) With $6.4 million in bookings in the second quarter, Visicu ran well behind the pace of $11.7 million in the second quarter of 2005. But that was better than three of the previous nine quarters, according to a report by Veal.

In the report last month in which he called the second quarter "stellar," Veal wrote, "We do not believe a soft bookings number in a single quarter to be a cause for panic."

Also driving down Visicu's share price, Veal said, were one general factor - an overall slide in health care technology stocks - and one factor specific to Visicu: comments by executives that their sales cycle was lengthening, potentially meaning slower-than-expected growth in the future.

Already, Visicu said it can take nine months to make a sale as a hospital studies whether it wants to change the way it takes care of intensive care patients.

After initial sales to "early adopters" (the institutional equivalent of people who are quick to buy the latest electronic gear), Visicu is making its pitch to more risk-averse hospitals, which might take even longer, said Vince Estrada, Visicu's senior vice president and chief financial officer.

Patent challenges by two potential competitors also are giving hospitals pause, Estrada continued, although the intellectual property cases are probably not affecting sales overall.

Visicu's monitoring system was invented by two Johns Hopkins intensive care specialists, who started the company in 1998. It's based on research showing that intensive care patients do better when overseen by a specialist called an intensivist. However, there aren't nearly enough intensivists to staff all the intensive care units in the country.

The Visicu system extends the reach of intensivists by setting up a control room, allowing one intensivist to monitor units in several different hospitals. The system sounds alarms when vital signs change on a patient, and enables doctors to see and talk with the patient and to scan medical records. Generally, hospitals use it at night to supplement live coverage during the day.

Hospitals pay Visicu a licensing fee to use the software - with some payment upfront - and a service fee over the three-year life of each contract. A typical contract is for about $2 million, according to Veal.

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