Advanced Mammography launches risky IPO

Advanced NMR's Advanced Mammography subsidiary launched its initialpublic offering late last month, raising nearly $8 million throughthe sale of 1.29 million shares at $6 a share. In the process,the company found itself on center stage in the financial community--asa prime example of IPO excesses.

The Wall Street Journal decried the "speculative frenzy"exemplified by the offering in its influential "Heard onthe Street" column. This developer of dedicated MR mammographysystems does not yet have a prototype--much less a product. Itis losing a great deal of money and could not even convince auditorsthat it is able to continue as a going concern, the Journal pointedout.

Regardless, stock in the company rose 29% in value during thefirst week of its listing. Advanced Mammography trades on theNASDAQ exchange under the symbol Mamo. Parent Advanced NMR, itselfa long-standing R&D company in fast MRI, retained 76% of itssubsidiary stock after the offering. Company executives are sharedbetween the firms.

Advanced Mammography lost nearly $2 million in the three monthsfrom its inception in July through the end of September, accordingto the IPO prospectus. The company had no dedicated personnelthrough September, but planned to have over 30 people hired bythe end of this month.

Computer simulations have been run on potential prototypes,and Advanced Mammography has initiated construction of a prototypefor a possible magnet. Because the system will use a low-fieldmagnet, a radio-frequency coil that sits as close as possibleto the breast will need to be designed, the IPO prospectus said.

The firm's first prototype will be of a single-breast scanner,although the company is considering developing a dual-breast system.One problem with the single-breast system is caused by limitationsin gadolinium contrast administration--doctors would have to wait24 hours to image the second breast since the gadolinium fromthe first administration would be absorbed into the body in thetime it takes to image the first breast.

Gadolinium contrast has not yet been approved by the Food andDrug Administration for breast imaging applications. Problemsin commercialization would occur if contrast approval does notcome before the imaging system is approved.

Advanced Mammography may also incur delays if the FDA decidesthat the system is not substantially equivalent to existing MRIdevices and thus requires a more rigorous premarket approval certificationfor market.

Advanced NMR's initial objective is to design an MR mammographysystem that will sell for between $400,000 and $600,000, the prospectussaid. Such a system will likely be too expensive to compete with$80,000 x-ray mammography machines in screening applications.In this case it would be used for imaging high-risk patients andas an adjunct to biopsies.

Eventually, though, the firm expects that economies of scaleand engineering improvements will drop the price closer to $300,000.This could make routine MR mammography screening commerciallyviable, the prospectus said.

MR mammography would have an advantage over x-ray mammographyin its ability to detect smaller lesions and determine malignancyof tumors, the firm said. Advanced Mammography's goal is to builda system that will:

• screen better than x-ray technology, thus allowingearlier detection of cancer and better imaging of dense breasttissue in younger women; and

• avoid biopsies by detecting malignancies at the sametime as the screening.

The system's success will depend on how well doctors and regulatorsare convinced that clinical advantages outweigh what are stillexpected to be higher procedure costs than conventional mammography.

While the technology would not, at present, fall under theMammography Quality Standards Act of 1992, it could do so in thefuture. This would require certification of MR mammography facilities.Purchasers might also hit obstacles in obtaining certificatesof need to purchase the system in some states, the company said.

Ultimately, the technology has high clinical and commercialpotential--if the advantages of MRI can be transferred to a systemthat is significantly less expensive than whole-body MRI systemsand not much more expensive than x-ray mammography.

Advanced Mammography was created to maintain a separate focusfor the new technology effort, as well as to provide financingindependent of the parent company's still-struggling Instascanecho-planar fast-MRI product, which is an upgrade for GE 1.5-teslaSigna MRI systems (SCAN 7/15/92). But investors in the new firmstill run a high risk that Instascan will not fly.

Although GE has brought Instascan into its product line, thegiant imaging vendor is developing potentially competing high-speedtechnology (SCAN 12/16/92). Other large MRI suppliers may alsodevelop similar technology of their own "thereby renderingANMR's principal product obsolete or otherwise unmarketable,"the prospectus said.