Tactile Medical Systems' surging success is 12 years in the making

Tactile Medical Systems had to drop its stock-offering price a year ago in a tough market to go public at $10 per share in order to raise nearly $50 million for the now-surging northeast Minneapolis company.

Since that amended initial public offering, the developer of the Flexitouch System that treats chronic limb swelling at home has soared as one of Minnesota's best public companies to own over the last year.

The stock topped $30 per share at one point last week, a market value of $500 million.

"We debated going public long and hard," Chief Executive Jerry Mattys said last week, noting that expenses of public filings, regulation and more can be a burden on smaller companies.

"It did give us access to [growth] capital," he said. "Also, it increased the visibility of what was a small, unknown company. Going public allowed people to see our financial statements. And we needed to attract more quality employees. And we have, including a vice president from [much larger] Patterson Cos."

Analysts expect Tactile Medical, a 335-employee company, to hit revenue of about $105 million this year and for profitable growth on sales to approach $130 million in 2018.

Tactile Medical's stock price already has hit the target price this year of several analysts.

Last September, the Food and Drug Administration cleared Tactile Medical to use the 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.

Flexitouch has been recognized by independent analysts as well as Medicare and private insurers as an economical way to treat lymphedema with a system that costs about $5,000 vs. repeated clinic visits and open-ended hospital stays.

Matt O'Brien, a senior medical-company analyst at Piper Jaffray, an underwriter of the stock, wrote in a recent update to investors: "We are quite bullish on the [head and neck system]. We believe this patient population is likely much more motivated to adopt given the quality-of-life impact" in improving the ability to swallow, speak, breathe and reduce deformity.

The market for head-and-neck treatment is estimated at $1 billion. And lymphedema is estimated to occur in 75 percent of head-and-neck cancer patients within six months after treatment, which is more than any other type of cancer, O'Brien noted.

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

Tactile has proved thorough and prescient in developing Flexitouch for head-and-neck patients and is considered well ahead of the competition.

Tactile also patiently worked with medical providers, therapists and insurers over the years to win approval from public and private insurers of the Flexitouch System as a lower-cost "in-network" treatment for 90 percent of the health-insured population, Mattys said.

"We've been at this for 12 years," Mattys added.

Patients who used to go to the hospital or to repeat visits with therapists for treatment with massage and compression bandages now can treat themselves at home after a trainer is sent to them to show them how to use the system.

The treatment takes about one hour a day, Mattys said.

A recent publication of the American Medical Association concluded that Flexitouch use, overall, results in a long-term reduction in swelling issues as well as costs associated with treating the patients in clinics and hospitals.