TomoTherapy founder says investors should take long view of company performance

Madison, Wis. - The word “lumpy” isn't often applied to a fast-growing company that has netted more than $180 million in its initial public offering of stock, but Thomas Mackie would like investors to keep the term in mind when evaluating the progress of TomoTherapy.

The Madison-based medical device company scored impressively in the May 2007 IPO, but Mackie, one of its founders and its current chairman of the board and director of research, said its public status creates expectations for consistently stronger quarterly financial performances when the longer view is a better way to evaluate it.

Mackie addressed a recent luncheon of the Wisconsin Innovation Network, where he outlined the competitive advantages the company derives from its Hi-Art radiation therapy product.

He said the company's circumstances require it to educate investors. “Public companies have an expectation, and we're trying to educate the marketplace that we sell high valued pieces of equipment, and so our revenues are based on relatively few numbers of orders,” he said. “They're still significant, but we're lumpy, and so we're looking for the markets to value us on our backlog rather than quarterly sales.”

Buffed up backlog That backlog now stands at about $200 million worth of Hi-Art units, a backlog that probably will clear in less than a year, Mackie said.

The Hi-Art is the marriage of a CT scanner and a radiation therapy device, and its ability to help clinicians precisely target radiation to cancer tumors, and evaluate their size and position on a daily basis while avoiding large doses of radiation to surrounding healthy tissue, has enabled the company to penetrate global markets.

Still, given the small numbers of high valued equipment, it's difficult to be meet quarterly expectations - even though year-end profitability has been recorded for three consecutive years.

“I think simply because we sell small numbers of very high valued equipment, it's very difficult for us to be profitable every quarter,” Mackie said. “One or two push outs crossing the quarter boundary changes our profitability from having a quarter that's profitable to one that's not, and vice versa. So I think it's important to judge our company on a longer time horizon, and we think that our backlog is a pretty good measure of that.”

Financial picture

TomoTherapy reported $156 million in revenue in 2006, and with $95 million in sales and service revenue during the first six months of 2007, the company is on track to exceed last year's numbers.

The University of Wisconsin-Madison spin off company believes a new software product, the StatRT, might help smooth out the lumps. Whereas the Hi-Art is designed to treat the more complicated cancers of the head and neck, lung, breast, prostrate, and bone marrow, the StatRT was developed to treat simpler cancers with a scan, plan, and treat approach that reduces the time of the treatment process.

“We think it's going to be a tremendous boost to our sales,” Mackie said.

In terms of sales channels, the company is trying to expand its capabilities in the large markets of India and China, but still hasn't signed anything definitive in Eastern Europe and is looking at opportunities in the Middle East.

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