NE. Minneapolis medical company now valued at $1B, boasts state's best-performing stock

Veteran CEO Jerry Mattys at Tactile Medical Systems is grateful and takes pride in what the fast-growing northeast Minneapolis company has accomplished since going public in 2016.

"I'm delighted with the progress we are making in serving patients with lymphedema," Mattys, 60, said last week in a telephone interview. "And that's reflected in our financial results."

However, Mattys — who has been the chief executive for 14 years, is a medical-company veteran, and the No. 9 hire at a Tactile Medical that now employs 500 people — is reluctant to brag about performance that would prompt some to swagger. Tactile Medical will report what are expected to be boffo 2018 financial results in February.

Since it went public in July 2016, Tactile Medical is among the best-performing initial public offerings among med-tech companies in the country. It is the best-performing Minnesota stock over the past three years.

It posted a 311 percent return to shareholders from July 2016 through December 2018.

And it was the fourth-best performing state stock last year with a 57 percent return.

This is a very good performance for a company that went public at $10 per share and has been trading around $62 per share lately.

Analyst Margaret Kaczor of William Blair wrote on Jan. 9 to investors that she came away from a recent meeting with management with the impression that everything seemed on a strong track for the first half of 2019.

"Tactile continues to execute on all fronts and we view the company's superior clinical data, differentiated service model and patient-preferred products as compelling drivers of at least 20 percent top-line growth for years to come," Kaczor wrote. "Tactile is also seeing the initial benefit of a professionalized sales organization, with hiring on track and productivity ramping up at a faster pace than historically.

"Furthermore, the company has a number of operational and product pipeline catalysts that should keep top-line growth at 20 percent-plus over the next several years."

Tactile Medical, which makes and sells product from Minneapolis through its own direct sales force, gets 90 percent-plus of revenue from its innovative Flexitouch system.

Tactile was ready to take off when the Food and Drug Administration in September 2016 cleared the company to use what is proving an economical and effective at-home treatment for lymphedema, swelling in the head and neck, as well as for swollen limbs, from the excess fluid buildup that often results from cancer treatment.

A take-home system costs about $5,000 vs. repeated clinic visits and open-ended hospital stays that can prove far more expensive.

The market for head and neck treatment has been estimated at $1 billion. And lymphedema is estimated to occur in 75 percent of head and neck cancer patients within six months after treatment.

An estimated 75 percent of such cancers are attributed to tobacco and alcohol use.

Tactile doesn't use independent middle men to market its products, instead using its own sales staff and other professionals to work with medical providers and insurers.

"We have contracts in place that cover 90 percent of the U.S. insured population, including with Medicare, Medicaid and UnitedHealth, among the top five [insurers]," Mattys said."We've got those contracts in place that gives their members 'in-network' rates, the best rates available for the product.

Mattys, who earned about $900,000 in salary and bonus in 2017, plus more than $4 million in gains on the sale of stock and stock awards, isn't getting complacent. He would like to grow even faster and more profitably.

The company faces some familiar challenges.

"It's harder to hire folks today than it was two years ago," Mattys said of what keeps him up at night. "We brought on a new HR officer. If we had more access to the right people, I think we could grow faster. The second insomnia causer is reimbursement. We deal every day with payers. Some of whom change their policies about what they will pay for and how. The insurance companies … Medicare. We have contracts in place that cover 90 percent of the U.S. insured population.

"We've got these contracts in place that give their members in-network rates. And we can spot changes in payment patterns very quickly and respond with our experts that will [contact] to the payer … and bring our strong evidence in place to show our products help their members. And help them save money. And we have the data to back that up."

One thing is for sure. Tactile's growth will prompt the longtime-Northeast company to move from its refurbished factory headquarters this year to a bigger office complex that once housed Target and Prudential on Interstate 394 on the west end of Minneapolis.