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Winnipeg Free Press - PRINT EDITION

Medical devices' fortunes not quite as good as gold

By: Martin Cash

Posted: 11/17/2011 1:00 AM | Comments: 0 (including replies)

The recent fortunes of a couple of local companies help put a face to the current state of global economic uncertainty.

On the one hand, San Gold Corp., a small gold miner that has invested heavily in a legacy gold mine in Bissett, just turned its first quarterly profit.

Modest though it was -- $1 million on $32 million in sales -- longtime CEO and current executive chairman Dale Ginn said it's just the start.

There is no better indicator the global financial system is held in such low regard than the inexorable rise in the price of gold.

When San Gold effectively acquired the mine site in 2004, gold was trading at about $400 an ounce. On Wednesday, it was $1,776.

San Gold was proud to announce this week that after aggressive investments in equipment, mine improvement and the most intensive exploration program in the country, its production cost has fallen to below $800 an ounce.

It's not hard to imagine why the company was not turning a profit before.

On the other end of the spectrum of economic dynamics of the day is IMRIS Inc., the Winnipeg company that makes expensive, sophisticated image-guided surgical devices.

It has been in the market about as long as San Gold. While it turned a profit more quickly, IMRIS has now lost money for the past three quarters.

IMRIS has both the benefit and challenge of having the market to itself.

It has been said IMRIS's competition is its own gadgets, or the decision not to buy its gadgets.

In that analysis, the competition for IMRIS is ferocious.

With a price point for its equipment of between $4 million and $12 million -- and the knowledge the neighbouring hospital is not buying a lower-cost version (because such a thing does not exist) -- it's not hard for IMRIS's customers to delay their decision to buy an IMRIS gadget.

"Money to deploy for purchases of that scale is softening worldwide," said Douglas Loe, an analyst with Byron Capital Markets in Toronto.

The uncertainty over public-sector funding has meant IMRIS's customers' confidence has decreased.

IMRIS CEO David Graves said, "The current macroeconomic situation is causing lengthy examination of large capital purchases in hospitals, which we believe is negatively affecting time frames required to close new orders."

But that is not to say those hospitals won't eventually come around.

IMRIS -- and the equity analysts who follow the company -- say they believe there is little doubt about the positive impact IMRIS's equipment has on patient outcomes.

And even with an eight-figure price tag, Loe said hospitals can see a return on investment in about four years.

IMRIS has redoubled its efforts to better manage its sales funnel, which always had a lengthy time period, now made longer by economic uncertainties.

In addition to bearing down on managing the backlog-sales process, it has also rebranded its product offerings and continues to push through research and development on two new products.

So it may be safe to say both companies are doing exactly what they should be doing, but their fate is being decided by the changing economic winds.

They are both also at the mercy of the fickle market reaction. IMRIS shares fell by close to 20 per cent earlier this week when it reported a 57 per cent decline in revenue for the quarter.

San Gold shares barely moved after it reported its first-ever profit and provided guidance the company would become even more productive over the coming years.

IMRIS still has $200 million of business in its backlog. So the demand remains. It just needs the climate to warm up.

San Gold's prospects are even more obvious. Its employment base of 400 workers and another 200 on contract is more stable than ever.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition November 17, 2011 B6

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