Misonix, Inc.

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Misonix, Inc.

1938 New Highway
Farmingdale, New York 11735
U.S.A.
Telephone: (631) 694-9555
Toll Free: (800) 694-9612
Fax: (631) 6940941
Web site: http://www.misonix.com

Public Company
Incorporated: 1967 as Heat Systems-Ultrasonics, Inc.
Employees: 214
Sales: $45.9 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: MSON
NAIC: 339111 Laboratory Apparatus and Furniture Manufacturing

Misonix, Inc., primarily designs, manufactures, and markets ultrasonic medical devices using High Intensity Focused Ultrasound. Applications include the removal of cancerous tumors, laparoscopic procedures (minimally invasive surgery in the abdominal area), neurosurgery and general surgery, plastic surgery, urology, and wound care. In addition to medical products, Misonix operates a Scientific Products Group that uses ultrasonic technology to produce cleaning systems for medical and dental instruments; a fluxless soldering system; a spraying system with a wide variety of industrial applications, including painting and coating, printing, combustion, and optics; ductless laboratory fume hoods; and the company's first product, the Sonicator, a liquid processor that transforms AC current into a 20 kHz signal to power a horn/probe used in the laboratory to mix compounds, accelerate reactions, create emulsions and suspensions, and other applications. Misonix is also involved in air pollution control, offering the MYS-TAIRE scrubber, which provides gas, mist, odor, aerosol, and particulate matter removal for such industries as semiconductor, pharmaceutical, mining and metallurgical, food and beverage, hazardous waste treatment, and process and specialty gases. Based in Farmingdale, New York, Misonix is a public company listed on the Nasdaq.

FOUNDER STARTS COMPANY IN 1955

Misonix was founded in Great Neck, New York, in 1955 by Howard Alliger as a sole proprietorship called Heat Systems. Alliger was born in Brooklyn, New York's Flatus section. Although his father was involved in real estate, he developed a love for science, leading him to enroll at the Cornell University School of Engineering following a stint in the Navy where he studied radar in 1946. Alliger spent four years at Cornell but the fifth and final year of his program proved too difficult and he dropped out. He transferred to Allegheny College in Maxville, Pennsylvania, graduating in 1952 with a B.A. degree in economics.

After college Alliger went to work selling environmental test chambers and ovens to laboratories. During the course of his job he met a man named Stan Jacks who told him that he had invented a "funny looking" ultrasonic probe in his basement and he enlisted Alliger's help in finding a use for it. Alliger took it with him to the laboratories and soon it was discovered that the probe was a good cell disputer, ideal for biochemical laboratories where researchers were interested in determining the inner workings of cells. Alliger now developed the idea of ultrasonic disruption of cells and tissues, eventually leading to his receiving a patent on the Ultrasonic dissector.

Alliger set up shop in 1955 with a secretary in a Great Neck office complex to sell the ultrasonic disintegrator he developed using Jacks's probe, called the Sniffer. Alliger sold the devices, which Jacks manufactured in his basement. The device was sold to laboratories to disintegrate cells, releasing DNA, enzymes, and other cell contents. It was also used to mix liquids, a function the device continues to perform today. Convincing scientists that the device actually did what Alliger claimed it could proved to be painstakingly slow, however. He did not hire his second employee until 1959 and did not move to a new office, in Plainview, New York, until 1963. (The company was incorporated as Heat Systems-Ultrasonics, Inc. in 1967 and moved to Farmingdale, New York, in 1982.) After about a decade, however, every biochemical laboratory in the country was aware of the device and eventually the ultrasonic disintegrator became standard equipment. In the meantime, in 1960 Jacks sold the Sniffer to Branson Instruments, a Connecticut company that was a pioneer in ultrasonic technology for industrial purposes. When Branson began selling to his customers, Alliger started manufacturing the device himself, which in 1962 he called the Sonicator, a product that Misonix continues to sell.

In the 1970s Alliger began looking for further applications of ultrasonic technology. He was interested in developing an ultrasonic device that could be used in the cleaning of dental instruments. This work led him to experiment with chlorine dioxide as a sterilizer as part of the system. Straight chlorine dioxide did not work, but he found a formulation that did and called it Alcide to exploit the chemical. He then discovered that the chemical worked just as well without the ultrasonic device. He formed another company called Alcide, then took it public in 1983 and sold his share of the business.

FOCUS ON MEDICAL DEVICES: 1987

The MYSTAIRE scrubber was another product that was developed to make use of ultrasonic technology. According to an interview with Alliger, the air pollution product was put on the market in the early 1980s and sold to industrial customers. It wasn't until 1987 that the company launched a concerted effort to apply ultrasonic technology to the development of medical devices that could help remove or disintegrate tumors. The company also tried to develop an ultrasonic system to remove plaque and red blood clots from around the heart. Called the Star System (Sonic Transluminal Atheroma Removal), it relied on the insertion of a titanium wire through the chest and into the heart to perform the procedure, but according to Alliger when the wire began to curve it lost power and the concept did not ultimately pan out.

Heat-Systems-Ultrasonics changed its name to MedSonic, Inc. in August 1991 to reflect the new emphasis on the medical field. In that month the company also brought in a new president and chief executive officer. (Alliger had served as president until 1982 and continued to hold the chairmanship.) The new CEO was Michael Juliano, who had experience in the medical devices field with Wright Laboratories, which he co-founded. Juliano now prepared to take MedSonic public. Underwritten by Josephthal Lyon & Ross Inc., the company completed its initial public offering of stock in January 1992, netting almost $8.7 million. The stock was then listed on the Boston Stock Exchange and the Nasdaq. A month later MedSonic used some of that money, about $550,000, to acquire a 81.4 percent interest in Labcaire Systems, Ltd., a United Kingdom-based company that would manufacture some of MedSonic's industrial products and also help distribute some of the parent company's other products in Europe. The remaining interest in Labcaire was acquired over the course of the next several years. Before this acquisition, MedSonic sold about 16 percent of its products overseas through distributors, but it was not a focused effort. Now with Labcaire in the fold, not only would Med-Sonic be able to better support European sales, it would also have the ability to launch medical products in Europe, where regulations were less strict, while seeking approval in the United States.

COMPANY PERSPECTIVES

Misonix designs, develops and manufactures one of the broadest array of Therapeutic Ultrasonic Medical Devices in the world.

The use of the MedSonic name proved to be short-term. In 1993 Medtronic Inc. objected and filed a lawsuit claiming trademark infringement. Although MedSonic did not believe the charge was valid, it was not interested in spending the money or taking the time to make a defense. Instead it agreed to find a new name, and in January 1994 adopted the Misonix Inc. name.

At this stage, the company was beginning to move from the research and development phase to product development in the medical devices industry. Sales continued to come from laboratories and the environmental segment, but Misonix recorded annual losses for several years as it worked to bring commercial medical devices onto the market. While the STAR System proved to be a disappointment, the company had better luck developing a product to use disruptive ultrasound to fragment body fat. In October 1996 Misonix licensed its ultrasonic cutting technology to United States Surgical Corporation for use in devices performing laparoscopic surgery. Plastic surgeons would also find a use for the technology in liposuction procedures, which previously had relied on a high suction vacuum to literally tear out flesh. The procedure also removed a great deal of blood, so that a large percentage of patients required blood transfusions. Ultrasound offered a far less traumatic option.

Misonix underwent changes in management in the mid-1990s. Joseph Librizzi was named president and chief executive officer in March 1995. With a doctorate in applied mechanics and aerospace engineering from Polytechnic Institute of Brooklyn, Librizzi had been with the company since 1986. Next, Alliger resigned as chairman of the board in March 1996, although he stayed on as a director. Despite his 70 years, Alliger now devoted his time to building yet another business, Frontier Pharmaceutical, Inc., which continued his earlier work on chlorine dioxide to develop oral care, skin care, wound care, and surface treatment products.

RETURN TO PROFITABILITY: 1996

Misonix finally hit its stride in fiscal 1996 (the year ending June 30, 1997), when the price of its stock increased from less than $1 to about $8. The company also posted its first profitable year since going public, netting almost $400,000 on sales that approached $10 million. The following year proved even more successful, spurred in large part by the September 1996 introduction of the company's first ultrasonic medical device, the Lysonix 2000, a soft tissue aspirator used by plastic surgeons to perform liposuction operations. It was sold by licensee Lysonix Inc. With this new revenue stream, Misonix was able in fiscal 1997 to increase sales 77 percent to $17.6 million and record a second straight profitable year with net income of $177,000. Moreover, the company declared a three-for-two stock split in September 1997. Not only did the Lysonix 2000 do well, but the ductless fume enclosure outperformed expectations and the Mys-taire product continued to do well too. Unfortunately for Misonix the technology used in the Lysonix system became the subject of a patent infringement lawsuit filed by Mentor Corporation, a cosmetic surgery equipment and supplies company. The matter would wend its way through the court for the next several years, serving as both a distraction and a cloud over Misonix's prospects.

Misonix endured a rough patch in 1998, when a delay in orders sent the company's stock price tumbling from a high of $22.75 to less than $7. But when the fiscal year came to a close, Misonix again realized record results. Revenues improved 52 percent to $26.8 million and net income jumped to more than $5.3 million. The January launch of a second medical device played a important role in the company's continued growth. US Surgical Corporation introduced the Auto Sonix, an ultrasonic cutting and coagulating system used by surgeons.

Despite the overall strong performance of Misonix while he was CEO, Librizzi did not have the confidence of the board of directors, which did not choose to renew his contract when it expired in September 1998. To replace him they brought in one of their own, board member Michael A. McManus, Jr., to take over as chief executive. A former assistant to President Ronald Reagan with a law degree from Georgetown University, McManus was no stranger to the medical field, having worked at Pfizer Inc. as corporate counsel and vice president of strategic planning. He also had experience in law, government, acquisitions, and banking, having served as the CEO of New York Bancorp Inc. and holding positions at Revlon Group and Jamcor Pharmaceuticals.

KEY DATES

1955:: Company founded by Howard Alliger as Heat Systems.
1967:: Company incorporated as Heat Systems-Ultrasonics, Inc.
1982:: Headquarters move to Farmingdale, New York.
1992:: Company taken public.
1994:: Heat Systems is renamed Misonx, Inc.
1996:: Alliger retires as chairman.
2005:: Company proposes spin off of scientific and laboratory businesses.

Misonix's sales slipped to $24.8 million in fiscal 1999 and net income fell below $2 million. In fiscal 2000 the company regained some momentum, improving sales and also making some strategic investments to position the company for continued growth in the ultrasonic field. In November 1999 it paid $1.4 million to acquire a controlling interest in Acoustic Marketing Research, which did business as Sonora Medical Systems. It was a Colorado-based refurbisher of ultrasound systems. Over the next year Misonix acquired the rest of the company. The company also bought a stake in Focus Surgery Inc, an Indiana-based company that was developing medical devices that could destroy difficult-to-reach diseased tissue, in particular prostate cancer. In addition, Misonix invested in Hearing Innovations, Inc., a company developing medical devices that used ultrasound technology to treat deafness and other hearing disorders. (Misonix would acquire Hearing Innovations out of bankruptcy in 2005.)

Revenues rebounded to $29 million in fiscal 2000 and enjoyed modest growth in fiscal 2001 when sales reached $30.8 million. The company launched a new product developed by Sonora, the SONOReal, an ultrasound device that could produce three-dimensional images of babies in the womb. Misonix also continued to expand its capabilities through another acquisition. In February 2001 it acquired Chicago-based Fibra Sonics Inc., a small manufacturer of ultrasonic medical devices, the addition of which gave Misonix entry into three new medical markets: neurosurgery, urology, and ophthalmology.

The September 11, 2001, terrorist attacks on the United States took place during the 2002 fiscal year for Misonix, and the subsequent anthrax attack scares spurred the sales of the company's ductless fume enclosures, which could be used to safely open suspicious letters, and led to a boost in the price of the stock. The year also saw the resolution of the patent infringement lawsuit by Mentor. Misonix agreed to pay $2.7 million to settle the matter. When the year ended, Misonix posted a slight loss in revenues to $29.6 million, but rebounded in fiscal 2003 to record sales of nearly $35 million, due mostly to a sharp increase in the sale of medical devices. Revenues increased to more than $39 million the next year, again led by strong sales in the medical device segment. The pattern continued in fiscal 2005 when revenues approached $46 million. A month after the fiscal year came to a close, in July 2005, Misonix announced that it had hired San Francisco's ThinkEquity Partners to develop a plan to spin off its Laboratory and Scientific segments in order to focus all of its attention on the development of medical devices. Should that plan come to fruition, it would mark the beginning of a new era for the company.