It is crunch time for VirtualScopics Inc.
Eric Converse took the helm of the medical imaging firm last month. The change comes at a critical time for the company, which has undergone changes in top personnel, declines in revenues and a reverse stock split during the past few years.
The new CEO’s philosophy is to turn the company around with a shared vision.
“I think the best part of my fit is leadership and allowing the management team to actually lead with me,” Converse said. “It’s not so much a privilege as it is a responsibility, and I’ve been really pleased just to see each member of the management team step up and assume that role.”
VirtualScopics is a medical image analysis company based in Pittsford at Linden Oaks. It was launched in 1990 and has provided clinical trial imaging services for pharmaceutical development. It also has an office in Austria. The firm has roughly 90 employees.
Converse had been interim CEO since Oct. 25 and was named chief executive on a permanent basis July 23.
After reviewing dozens of candidates with the help of Korn Ferry International—the world’s largest executive search firm—VirtualScopics’ directors decided that what they were seeking was right in front of them.
“We had, I thought, a very strong pool,” Chairman Charles Phelps said. “A number of them were quite eager for the job. … As we proceeded along the way, we finally concluded that our best choice among those to lead the company forward was Eric.”
Former CEO Jeffrey Markin began with the company in August 2006. He previously had spent 26 years at Eastman Kodak Co.
Choosing Converse as interim CEO made sense because of his experience, references and attitude, Phelps said.
“I and other members of the board—before we made that interim CEO appointment—spent a lot of time doing background referencing, and what we’ve seen in Eric is exactly what people told me we were going to get,” he said. “He’s a change agent.”
Converse previously was managing director of Nedamco Capital, a Netherlands-based privately held international investment firm, since 2002. He was CEO of Oblicore Inc. which was subsequently acquired by CA Technologies Inc. He has two decades of experience in early stage companies.
Converse joined the board of directors last August.
“His job was doubly complicated, not only to get the staff of VirtualScopics moving forward but also to learn the (contract research organization) industry in more detail and to build contacts,” Phelps said. “So it was both inside and outside the firm.”
During nine months as interim CEO, Converse said, he was focused on strengthening the company’s foundation.
“It has been very much focused on stabilizing the core business, and that has been my role. However, there’s now an ability to look beyond and say, ‘What are we going to do to move this price for our shares?’” he said. “I was here to stabilize the business; we’ve clearly been stabilizing it, but there will be additional work around strategy as far as moving the needle and the share price.”
A year ago the company underwent a reverse stock split to maintain its listing on Nasdaq. That occurred on Aug. 22, 2013, and the opening price was $5.90. Its shares were trading near $4 this week.
“My attitude about the company hasn’t changed much,” said Harry Caruso, a longtime shareholder and a retired investment adviser and CEO of Caruso Asset Management Inc. “I think they’re still in ‘show me’ mode, I would say. He’s (Converse) done some things, but who knows if they will help or not?”
Through the first three months of this year, the company posted a net loss available to common stockholders of $688,373, or 23 cents a share, compared with $1.1 million, or 39 cents a share, a year earlier. The company reported a 7 percent drop in revenues to $2.3 million from $2.5 million during the same period in 2013. Its second-quarter results are slated for release Aug. 14.
“They’ve got to put some numbers on the board,” Caruso said. “That will help with the stock price also, because institutions—banks, insurance companies, mutual funds—they’re not going to get on board with a company whose stock is under $5.
“The other problem is there are only 3 million shares outstanding, and institutions don’t like to get involved with companies with that kind of liquidity.”
Phelps said the company is building a foundation but the work is not done.
“We obviously have a lot of work to do going into the future,” Phelps said. “I think a couple of things Eric did during the interim CEO role provide a very strong basis for the move forward.”
At the end of the company’s first quarter, awards outstanding and bookings signed during 2014 more than tripled to $13.6 million as of March 31 from $4 million a year earlier, an SEC filing states.
“We had good bookings last year, and we’ve had record bookings so far this year,” Converse said. “We’re pretty pleased with that, but you also want to make sure that with additional business it doesn’t mean we have to go out and double our workforce. It means I’m going to be investing in infrastructure so we can get more out of our current workforce.”
He added: “I think you need to have a team that’s working together; I think you also need a little bit of luck, and I think we’ve had both.”
Waiting to see the outcome of bookings requires patience, but Phelps believes the company is on its way to profitability.
“In terms of bookings and as those come to fruition, we’re going to start to see revenue increases and profitability that we think are going to be welcome news to investors,” Phelps said. “But when that comes along, it’s a little hard to forecast.
“The board would to a person say that getting the operation on the strongest possible footing is the most important thing for us to be doing right now.”
Bookings have to bear fruit, Caruso said.
“It’s nice that they’re doing bookings, but these bookings and awards that they keep bringing in, they can be canceled in a heartbeat,” he said. “My attitude right now: Wait and see. Give them the benefit of the doubt. I’ll give him some time to see what he can do.”
“I’d like to see them turn it into actual sales,” he added.
The company expects a new office in Pennsylvania to increase sales and help to recruit talented staff. In June, VirtualScopics and partner IXICO PLC, a brain health company, leased a 2,190-square-foot office in New Hope, Pa., in the pharma corridor that runs through New Jersey and Pennsylvania. VirtualScopics expects to start with fewer than 10 staffers in the office.
“I look very much at our competition as more of the competition for human resources than anything else,” Converse said. “I think if you can attract the right people, then you are able to do a lot more with those people. When you have the leadership of the company formalized, I think that also makes it a bit easier to attract talent.”
As of March 31, the company had $6.8 million in cash. Converse has been investing in the company infrastructure.
“I have not been cutting back on costs. If anything, I have been spending money,” he said. “We need to get to profitability, but we also need to be at sustainability.
“We’re sitting on quite a bit of cash, and we need to invest it in ourselves, because if we don’t invest in ourselves, we’re not going to have a future.”
Converse is aware of the challenges. Revenues are projected to be flat this year.
“I don’t want to tell you that everything is behind us,” he said. “I’m not cutting costs, so anyone can do the math of what this year is going to look like. You want to be sure that you’re building a plan that shows when we’re going to be profitable and when that profitability will be sustainable; that in itself is a challenge.”
The opening of the new office, record bookings and the start of a new partnership are deliberate moves forward by Converse, but the success of each undertaking is yet to be seen, Caruso said.
“I’d like to give them a few quarters. Let’s give them three or four quarters anyway as CEO see what he does, if he at least gets things moving in the right direction,” he said.
VirtualScopics linked up with IXICO to provide the clinical trials industry with global operational capabilities and a range of therapeutic areas and medical imaging such as ultrasound or magnetic resonance imaging, officials said.
“I think that the relationship that we’ve established with IXICO out of the U.K.—we’re going to be working with them on one of their systems, which we will be able to show our customers that we’ve really integrated our systems from the back end,” Converse said.
The pairing gives both companies a global footing.
“It gives us more of a global presence. And having a London facility that we’re able to use is very helpful, and for them to have a U.S. facility is very helpful,” Converse said. “Then you marry that with our relationship with (Pharmaceutical Product Development Inc.), and then you have quite a bit of an offering among the three of us. With the IXICO relationship, we’ll also have a link into China.”
Last month IXICO and VirtualScopics announced the formation of a scientific advisory board to help each company evolve in the pharmaceutical industry. Visibility and communication have been areas where the firm has placed focus in recent months, officials say.
“I (have been) able to communicate to our shareholders so they feel like I am accessible,” Converse said. “I will take their calls and I want to give them the attention that they deserve, because they put their money in this company, and they deserve to have an update and one that they feel is adequate.”
Shareholder Caruso said he is not willing to give up on the company yet.
“It seemed like Markin and Molly Henderson had all their eggs in one basket with this personal medicine thing, which he (Converse) has totally gotten away from. And it seems to me he’s putting his assets more in their core abilities,” Caruso said. “Before they brought him in, I was getting ready to sell the stock, and then I sent off (a) letter to the chairman of the board. Everything I suggested, they did, so I’m going to stick with it and see how they can turn this ship around.”
Converse’s talent will serve VirtualScopics well, officials say.
“I am delighted that we’ve got Eric in the position right now,” Phelps said. “I’ve been very impressed by his growth, his knowledge base of the company—the inside operations and the outside environment in which we work. He’s just made immense strides forward in grasping the complexity of all of that, both inside and outside the company.”
The future of the company depends on the team, Phelps added.
“You know what he’s thinking about. He doesn’t hide anything; he doesn’t mince words; he doesn’t dance around things,” Phelps said. “This is not about Eric. It’s about the company, and I think that’s very impressive.”
Though there are challenges ahead, Converse is ready to address them in his new role.
“I know there’s a lot of work to do, but I also know that now I have the responsibility to develop more of the strategy going forward,” he said.
He added: “We can’t take our foot off the pedal. We’ve got a momentum going, we’ve got a lot of work coming our way and we’ve got to make sure that we are ready to take on all of this business we’re getting.”
Though he is the chief executive, he is aware of his place.
“I think the company is about more than just one person,” Converse said. “I think it’s very important that a company is known for the company and not a person.
“The heart of this company is in Rochester, and that’s where it’s going to stay,” he added.
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VirtualScopics CEO outlines plans for firm
It is crunch time for VirtualScopics Inc.