Activist Investors Erupt at VolcanoActivist Investors Erupt at Volcano

Engaged Capital might want to rename itself "Enraged Capital." The Newport Beach, CA private equity firm is demanding that Volcano Corp. sell itself.

Glenn Welling, founder of Engaged, sent the cardiovascular imaging equipment company's board of directors a stinging letter, rebuking company executives for overpromising earnings while overcompensating themselves.

Volcano recently forecasted falling short of its earnings target again, marking misfires in six of the last seven quarters, according to a report in the Wall Street Journal. Volcano's stock sank 22% over the past week, as it predicted weaker results for the rest of the year, the Journal said. Share value has plummeted by 50% for the year, the newspaper noted.

Welling criticized Volcano for wasting millions of dollars by failing to bring "much-hyped new products to market on schedule, if at all." Those products included coronary optical coherence tomography, intravascular ultrasound and intra-cardiac echo equipment, Welling's letter said. Volcano had predicted commercializing focused acoustic computed tomography equipment in 2013 and 2014, but changed that prediction to 2016-2017 and sliced its assessment of market opportunity from more than $2 billion to $250 million, the letter noted.

Welling also slammed San Diego-based Volcano for its $115 million acquisition of AtheroMed Inc. (Menlo Park, CA), calling it a "high-risk, swing-for-the-fences proposition." AtheroMed makes a catheter-based system to treat peripheral artery disease.

Engaged, which holds about 5.1 percent of Volcano stock, had been in talks with Volcano for the past year, thrice offering it board candidates who were summarily rejected, Welling's letter said.

Volcano responded with a statement, saying it is taking the "right steps to manage the business" while positioning itself for long-term success. Volcano will "carefully review and consider the ideas presented in the letter and continue its dialogue with Engaged Capital," the statement said.

Volcano defended the AtheroMed acquisition and listed other actions it has taken in 2014 to improve earnings, including settling all lawsuits with St. Jude Medical (Little Canada, MN).

Qmed included Volcano in its 10 MedTech Firms That Could Struggle in 2014 predictions in March. 

Nancy Crotti is a contributor to Qmed and MPMN.

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