Radiation Therapy Services, Inc.

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Radiation Therapy Services, Inc.

2234 Colonial Boulevard
Fort Myers, Florida 33907
U.S.A.
Telephone: (239) 931-7275
Toll Free: (800) 437-1619
Fax: (239) 931-7380
Web site: http://www.rtsx.com

Public Company
Incorporated: 1997 as Radiation Therapy Regional Centers, Inc.
Employees: 980
Sales: $227.3 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: RTSX
NAIC: 621111 Offices of Physicians (Except Mental Health Specialists)

Radiation Therapy Services, Inc., is a Fort Myers, Florida-based company that operates more than 75 cancer treatment centers, mostly under the 21st Century Oncology name. Because cancer mostly strikes the elderly population, the company focuses on two dozen markets with a high concentration of older people located in 15 states: Alabama, Arizona, California, Delaware, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island, and West Virginia. The company offers a full range of services, including Image Guided Radiation Therapy, a way to provide radiation oncologists with an accurate image of a tumor at the time of treatment; Intensity Modulated Treatment Planning to help radiation oncologists to vary radiation levels as necessary; Respiratory Gating, a noninvasive method to control breathing to allow for an accurate treatment of cancer in the lung and upper abdomen regions; 3-D Conformal Treatment Planning, helping radiation oncologists to plan treatments with the use of three-dimensional images of a tumor; Patient Targeting System, an aid in isolating tumors to limit the effects of radiation on nearby organs; Stereotactic Radiosurgery to deliver the extremely high levels of radiation needed to treat brain cancer and similar lesions; High-Dose Rate Remote Brachytherapy, a technology that delivers a high dosage of radiation direct to the cancer for an extended period of time; and Low-Dose Rate Brachytherapy, which delivers lower doses of radiation for an extended period. Radiation Therapy Services is a public company listed on the NASDAQ.

FIRST CLINIC OPENS: 1983

Radiation Therapy Services was founded as a single clinic in Fort Myers, Florida, by Dr. Daniel E. Dosoretz, Dr. Michael J. Katin, and Dr. Howard M. Sheridan. Born in Argentina, Dosoretz was the key figure of the three. After graduating from the University of Buenos Aires School of Medicine, he came to the United States to serve his residency in Radiation Oncology at the Department of Radiation Medicine at the Massachusetts General Hospital, Harvard Medical School, where he was named chief resident of the department. In 1981, according to Forbes, he "set up shop in Fort Myers, Fla., home to hordes of Medicare patients with no access to the latest cancer-zapping machines." Partners Katin, Sheridan, and Dosoretz opened a clinic that was different than what had been the norm for cancer treatment centers. Instead of dank offices in the bowels of some large city hospital, the Fort Myers clinic was patient friendly, according to Forbes, "complete with atriums that let sunlight into the treatment centers." Sheridan was responsible for the planning of the first clinic. A graduate of Tulane Medical School, he had been practicing interventional radiology and diagnostic radiology in Fort Myers since 1985. Katin had worked with Dosoretz at Massachusetts General and had come to Fort Myers with his colleague. Katin held a medical degree from the University of Pennsylvania Medical School.

In 1984 the partners opened a second clinic, organized as a separate business, in Cape Coral, Florida. With a presence in Lee County, they expanded into Charlotte County, when a third clinic opened in 1986 in Port Charlotte, Florida. A year later a second Fort Myers location was added. The four clinics each included $1 million linear accelerator machines, and were complemented by their accommodating atmosphere; they attracted the attention of doctors around the country who came to tour the facilities.

FIRST ACQUISITION: 1991

With four separate businesses in hand, the partners made their first acquisition in 1991, picking up an existing center in Punta Gorda, Florida, also in Charlotte County. After another center was internally developed in 1992 in Englewood, Florida, the partners made another acquisition, picking up a clinic in Plantation, Florida, in Broward County in 1993. Also in that same year, two more Florida clinics were started from scratch, in Naples (Collier County) and Arcadia (DeSoto County). When 1993 came to a close the nine mutually owned treatment centers combined to generate pro forma revenues of more than $14 million and net income of $1.2 million.

More Florida centers were added to the roster over the next three years. A pair of Broward County clinics were acquired in 1994, located in Coral Springs and Deerfield Beach. In 1995 the first hospital-based unit opened in Lauderdale Lakes, Florida, where the company managed the radiation therapy center for the Florida Medical Center, receiving professional fees for the services of its radiation oncologists. Another hospital-based unit was added in 1996 in Hialeah in Dade County, Florida, allied with Palmetto General Hospital. Also in that year an internally developed unit opened in Sarasota, Florida, in Sarasota County. Revenues during this period increased to nearly $22.2 million in 1996 and net income topped $1.6 million.

By this time the physician-owners, who included Drs. Peter H. Blitzer, James J. Rubenstein, and Graciela R. Garton, owned stakes in an unwieldy collection of 26 corporations, a dozen general partnerships, and one limited partnership. In April 1997 all of these entities were brought together to form a Florida corporation under the name Radiation Therapy Regional Centers, Inc. Several months later, in February 1998, the company assumed the name of one of the subsidiaries, becoming Radiation Therapy Services, Inc. The reorganization of the business also set the stage for expansion beyond the Florida market. In 1997 Radiation Therapy Services acquired a pair of existing treatment centers located in Las Vegas, Nevada, and opened a new center in Yonkers, New York. A second Yonkers unit was added through acquisition in 1998, and in that same year a pair of hospital-based operations were opened in Utica, New York. In addition, the company opened a Venice, Florida, center.

COMPANY PERSPECTIVES

Radiation Therapy Services, Inc., is a leading developer and operator of radiation therapy centers. These centers, which are freestanding and hospital based, provide a full spectrum of radiation therapy services to cancer patients, including conventional external beam radiation treatments as well as advanced services such as prostate seed implants (brachytherapy), 3D conformal treatment planning, image guided radiation therapy (IGRT), intensity modulated radiation therapy (IMRT) and stereotactic radiosurgery.

After posting revenues of $29.3 million and net income of $2.1 million in 1997, Radiation Therapy Services took steps to go public, not only to raise funds to take the company into new regions, invest in new technology, and pay down debt, but to also provide its 20 stakeholders with an opportunity to cash in some equity after many years of nurturing the business. In a preliminary step, CEO Dosoretz brought in a new chief financial officer, David Koeninger, the former vice-president and corporate controller for Anthem Blue Cross Blue Shield in Cincinnati. Radiation Therapy Services then filed with the Securities and Exchange Commission to make an initial public offering (IPO) of stock. Yet at the time Wall Street was enamored with technology and Internet stocks and there was not enough support to warrant the offering. As a result, the IPO was postponed, then shelved indefinitely when the technology bubble burst and the stock market took a tumble.

In retrospect, the cancellation of the stock offering was for the best for Radiation Therapy Services. Management had time to more fully develop a growth strategy, and the company was able to improve its ability to gather the financial data of its diverse operations into a comprehensive and reliable accounting system. Moreover, Radiation Therapy Services began to take advantage of advances made in its field, acquiring new equipment that allowed the centers to offer new, and more profitable, treatments. As a result, the average annual revenues generated by a center would increase from $1.8 million in 1998 to $3.8 million by 2006.

ASSUMPTION OF RADIATION THERAPY SERVICES NAME: 1998

While waiting for conditions in the stock market to improve, Radiation Therapy Services was also able to add to its current areas of operation and expand into new parts of the country. In 1998 it took over the management of a treatment center in Berlin, Maryland. Next, in 1999, it opened a new treatment center in Florida's Collier County, in North Naples, and added to its hospital operations in New York's Mohawk Valley by opening units in Rome and Herkimer. The company then entered the Las Vegas, Nevada, market in 2000 by starting a pair of clinics in Henderson and Lake Mead. With these new operations making a contribution to the balance sheet, along with the increased revenues generated at existing sites, Radiation Therapy Services improved income to $56.4 million in 1999 and $68.2 million in 2000, while net income grew from $2.1 million to $5.1 million during this period.

A pair of acquisitions in 2001 added a unit in Fort Walton Beach in northwest Florida, and in Briarcliff Manor in the borough of the Bronx in New York City. As a result, the company continued to experience steady growth in revenues, which approached $74 million in 2001, and earnings increased to $6.9 million. Radiation Therapy Services picked up the pace in 2002, building up its roster on all fronts. Two internally developed centers opened in Florida in Bonita Springs in Lee County and West Palm Beach, the first center located in Palm Beach County. Through acquisition, the company entered western North Carolina, adding treatment centers in Asheville, Clyde, Brevard, Franklin, Marion, and Rutherford. Three new hospital-based treatment centers were also added in the Bronx as well as in Crestview in northwest Florida.

Aggressive expansion continued in 2003. Internally developed centers opened in Lehigh Acres in Lee County, Florida, and in Owings Mills in Baltimore County, Maryland. Acquired units in 2003 included Key West in the Florida Keys, and Park Ridge, North Carolina. In addition, Radiation Therapy Services moved into a pair of new markets through acquisition: Dothan in southeastern Alabama, and the central Kentucky communities of Danville, Louisville, and Frankfort. Hospital units also opened in Salisbury, Maryland, and Seaford, Delaware, both located on the Delmarva Peninsula. These additional operations spurred revenues to more than $110 million in 2002 and nearly $139 million in 2003. Net income in the meantime increased to $11.2 million in 2002 and $14.3 million in 2003.

With a healthy balance sheet in hand, Radiation Therapy Services was ready to complete its long-delayed IPO in 2004. With Banc of America Securities and Wachovia Securities acting as lead underwriters, and participation from CG Cowen and Suntrust Robinson-Humphrey, the stock offering was conducted in June 2004. With shares priced at $13, the company raised $47.1 million. After trading began on the NASDAQ, the stock dipped below its IPO price, but soon began to pick up steam and show steady gains. Although the company was heavily dependent on Medicare payments, investors recognized that Radiation Therapy Services was well positioned to enjoy ongoing prosperity due to the aging of the American population, as the baby boom generation neared retirement age, when the likelihood of cancer increased dramatically.

KEY DATES

1983:: First treatment center opens in Fort Myers, Florida.
1991:: First clinic is acquired.
1997:: Company is formed as Radiation Therapy Regional Centers, Inc.
1998:: Plans to conduct initial public offering of stock are postponed.
2004:: Initial public offering is completed.

In 2004 the company opened three internally developed treatment centers, in Destin and Crestview in Collier County, Florida, and Woonsocket, Rhode Island, a new market. Through acquisitions, the company also gained a footprint in New Jersey, adding units in Woodbury, Voorhees, and Willingboro. In 2005 Radiation Therapy Services opened a second Rhode Island center, this one located in South County. It also opened a center in Palm Springs, California, another market with a high concentration of older people. The year also saw acquisitions that added two western Maryland units, in Greenbelt and Belcamp, and another in nearby Martinsburg, West Virginia. Two new states were entered through acquisitions as well, with centers added in Scottsdale, Arizona, and Holyoke, Massachusetts. Furthermore, a hospital-based unit opened in Providence, Rhode Island, in 2005. For the year, revenues topped the $200 million mark, reaching $227.3 million, while net income approached $25 million.

Strong growth continued in 2006 as revenues and earnings outpaced the previous year, helped in some measure by the addition of four more centers. In January 2006 an Opp, Alabama, center was acquired, followed in May by an acquisition in Santa Monica, California, in August by the purchase of a Bel Air, Maryland, location, the September acquisition of a Beverly Hills, California, radiation treatment center, and the November acquisition of seven centers in Michigan, another new market.

The achievements of Radiation Therapy Services were tarnished, however, in early 2007 when Forbes published a scathing profile of the company, titled "Beams and Schemes." The article suggested that the company used kickbacks to procure doctors referrals, "the profession's lifeblood." It also called into question Dosoretz's ownership stake in a company called Oncology Consulting Services that directed business to Radiation Therapy Services' clinics, and Sheridan's connection to a settled lawsuit that alleged a medical practice he was associated with billed Medicare for unordered imaging procedures. Forbes further stated that Radiation Therapy Services, despite being a public company, "still acts like it operates for the benefit of its founding doctors. When it went public the company used $40 million of the $48 million it raised to pay Dosoretz, Sheridan and a handful of other owners a cash dividend. The rest went to pay off loans. Insiders also sold another $18 million in stock as part of the offering. No money was left to pay for expansion or new equipment." Radiation Therapy Services vehemently objected to the tone of the article, maintaining that the charges were baseless or overstated and that the bulk of them stemmed from a two-year-old lawsuit filed by a disgruntled former employee, Dr. Edward Kaplan, whose story, the company maintained in its response to Forbes, "has been peddled to other publications in Florida, to the authorities and the state medical board, all in an attempt to extract money from the company."

Ed Dinger