Firm Recasts to Offer Surgical Sponge Tracking Technology

27

From hedge fund to health care.


That’s where Santa Monica hedge fund operator Milton “Todd” Ault finds himself now that he has taken over as chairman and chief executive of Franklin Capital Corp., which is making itself over as a surgical safety business.


Ault’s investment company, Ault Glazer & Co. Investment Management LLC, purchased a 48 percent stake in Amex-traded Franklin Capital last year and this month Franklin spent $4 million to purchase a startup that promises to eliminate the problem of surgical sponges left behind in patients’ bodies.


SurgiCount Medical Inc. has developed a system that uses a scanning device to help track sponges during and after surgery. A leading Harvard University researcher on surgical safety is helping refine the technology.


“This is a serious issue. We make it impossible for the nurse, scrub tech and circulating nurse not to mess up the sponge count,” said Ault, who is still running the fund.


The company envisions providing the scanning device free to hospitals in exchange for having them buy sponges from the company a classic razor and blade business model in a lucrative $650 million annual market.


Ault, who is selling off Franklin’s existing businesses, including a stake in a radio network, claims the system will add only $4 to the cost of a surgery.


Franklin’s stock has gained since Ault took a position in the company in May and took over in late October. Shares closed at $17.95 on Feb. 15, up from just over $1 a share in April 2004.


The company will ask shareholders at its March 25 meeting to change its name to Patient Safety Technologies Inc.



Diagnostic Ban


Diagnostic Products Inc. is still looking for the Food and Drug Administration to lift its ban on the company submitting new product applications sometime before the end of this quarter.


The Los Angeles-based manufacturer of medical testing equipment was hit with the ban last year after the FDA discovered widespread problems with the company’s clinical trials and date collection process.


A plan of correction was submitted to the FDA. “They want to come in and re-inspect, (but) we are still hoping (to have this resolved) by the end of the first quarter,” said Chief Financial Officer James Brill.


Less clear is what will come of a criminal investigation of the problems by the U.S. Attorney’s Office, which is also probing insider trading conducted by company officers and directors before the FDA probe was made public. The company disclosed last year it had received a grand jury subpoena regarding those issues.


Shares of the stock have largely recovered since hitting a 52-week low of $37.14 in August, although they dipped this month on a weak earnings report related to a number of charges. The stock closed at $47.65 on Feb. 15.


The company reported fourth-quarter net income of $11.1 million, compared with $15.5 million for the like period a year earlier.


Among the charges were an additional $2.4 million the company has set aside to cover an expected settlement with the Department of Justice and the Securities and Exchange Commission over another problem at the company kickbacks paid by managers of its Chinese unit to garner sales in violation of federal law.


The company, which disclosed the kickbacks two years ago, has now set aside $4.8 million, an amount that Brill said should cover the monetary value of the settlement.



Staff reporter Laurence Darmiento can be reached at (323) 549-5225 ext. 237 or at

[email protected]

.