THE BUSINESS: Treatment centers for male sexual impotence

OPENED: 1990

CLOSED: December 1998

CAUSES OF DEATH: Competition created because of the availability of a powerful new drug; overly rapid expansion

In early 1998, just before Pfizer introduced Viagra, its drug for male sexual impotence, the pharmaceutical giant's stock price rose in anticipation by 27%, hitting a peak of $96.38 a share by the drug's kickoff date of April 15. Impressive, but nothing compared with the run-up in the stock of Integrated Medical Resources Inc. (IMR), a national chain of clinics that specialized in diagnosing and treating impotence.

IMR shares went through the NASDAQ roof in the same period, rising from $1.63 to $4.63, up a staggering 185%.

At IMR's headquarters, in Lenexa, Kans., executives shared Wall Street's view that Viagra would have as miraculous an effect in invigorating the company's bottom line as in combating American men's impotence. "The Viagra craze is bringing the problem of impotence out of the closet," Dr. Stanley Kardatzke, IMR's chairman and CEO, told the Kansas City Business Journal. Kardatzke was right--more men did seek treatment, but not the kind that IMR was in the business of providing.

Of course, when IMR was founded nine years ago by Troy Burns, a young internist, Viagra wasn't available. Burns had to offer other therapies like penile implants and injections. That's what Burns, now 37, had done in Olathe, Kans., near Kansas City, where he opened a clinic in 1990 to diagnose and treat impotence. His success in Olathe inspired him to go national with IMR, opening clinics named the Diagnostic Center for Men.

Just five years later, IMR's mini-empire comprised 30 clinics from Boston to San Diego and was generating $11 million a year in revenues. To Burns the company's prospects looked bright. "As the baby-boom generation approaches retirement age, the number of cases of impotence will [likely] increase," noted the company's annual report in 1996. An initial public offering that year, underwritten by Hambrecht & Quist, raised $13 million to fund further expansion.

But the high-octane growth proved difficult for Burns to manage, and IMR posted a loss of almost $8.5 million in 1997. Kardatzke, known for having built Wichita-based Physician Corp. of America into a $1.5-billion health-maintenance organization, took over from Burns in April 1998 and quickly injected $1.6 million of his own money into IMR. His plan to save the company was two-pronged: to achieve economies of scale by acquiring impotency-treatment centers in cities like Atlanta and Richmond, Va., and to spend heavily on advertising.

With Kardatzke's plan scarcely under way, Pfizer unveiled its revolutionary blue pill. Viagra did cause more patients to visit IMR's clinics, but the company's per-patient revenues slumped from about $650 to $450. "The men who came to IMR for Viagra wanted to leave the office with a fistful of pills," explains Jerry Duggan, a securities analyst in Leawood, Kans. "Men wanted a prescription without a diagnosis." For every patient who went to IMR's diagnostic centers, countless more flocked to the nation's 261,000 primary-care physicians or 10,000 urologists for a prescription.

On November 5, IMR failed to make payroll and 26 days later entered Chapter 7 bankruptcy. Kardatzke couldn't be reached for comment, and Burns declined to be interviewed. About that time, in an ad made for IMR, Len Dawson, the fabled former quarterback for the Kansas City Chiefs, was extolling the care he had received for impotence after prostate-cancer treatment. But only two weeks into the ad campaign, the spot was knocked off local TV for good.