He's Xsirius about making money: eminent engineer-physicist Dr. William Graham links Capitol connections and L.A. scientists in guiding an R&D firm to its first commercial product and the prospect of profits for the first time in its six-year history.

He's Xsirius about making money

Son of a bomber pilot and scientific authority on the effects of nuclear-bomb blasts, Dr. William R. Graham is now sitting on eggs. R&D eggs.

This January the engineer-physicist took charge of a patient but ambitious team of research scientists, at a Marina del Rey outfit called Xsirius Inc., that finds and hatches sophisticated technologies for commercial use.

Last month a 6-year-old egg finally cracked open for Xsirius, whose staff now numbers 42. Out popped its first production-line copy of a new-design avalanche photodiode.

Graham, chairman and chief executive, says the 6-year-old company's first commercial product, put out by its Advanced Photonix Inc. subsidiary in West Los Angeles, will now pry its way into the $100 million-a-year market for photodiodes and photomultipliers. These gadgets detect light and convert it into electronic signals and are used in medical diagnosis.

Graham and the Xsirius staff say that tucked in the nest are more bright ideas with bright futures.

So who cares? Aren't R&D companies with the best-fastest-smartest devices around every corner?

Wall Street says no - at least, not with this much promise, even if it did take it six years to pop its first product. Xsirius stock has risen 700 percent from its initial public offering in 1986. (First offered at $6 a share, it rose and split 3 for 1, then climbed further to the $14 range last week.)

And few other R&D hopefuls are led by the likes of Graham, a techno-insider in both Washington, the fountainhead of many military R&D dollars, and in Los Angeles, a high-tech brain pool. Graham is the top civilian adviser to the Pentagon's Strategic Defense Initiative ("Star Wars") effort.

He can draw on deep Washington connections, thanks to his galaxy of former jobs. These include deputy administrator to the National Aeronautics and Space Administration, top U.S. arms control adviser in Washington and personal science adviser to presidents Reagan and Bush.

He steered Reagan towards supporting high-temperature superconductivity research, and he guided Bush away from pouncing on any premature conclusions on a simplistic experiment performed by two Utah scientists that seemed to produce almost unlimited fusion energy before a wide-eyed world.

But he can't convince his oldest daughter to join her daddy in the science world.

"All the time she was growing up, I told lawyer jokes," says Graham, 53, "but only heroic stories about engineers and scientists." Then in a wry voice: "So she decided to become a lawyer!"

Perhaps the shoes were too big to fill.

Perhaps she wants a more secure paycheck. Although Xsirius pays Graham $250,000 a year, the company has always run in the red. Total revenues in 1989 of $950,000 yielded a loss of almost twice that.

Looking backward, the analysis of Xsirius' risk laid out in its 1986 stock prospectus were, well, hard-hitting: no products for sale, no manufacturing capability, RCA Corp. and 24 other major competitors looming and the company was "substantially dependent" upon the intellect of scientist Dr. Andrzej J. Dabrowski, then chairman and CEO.

Five years later another scientist - Graham - takes those posts from Dabrowski (who becomes vice chairman) but must still wrestle with investors' simple questions, like, "can scientists make money?"

"Look at Arnold Beckman," Graham answers immediately, recalling the modern-day legend from his alma mater, California Institute of Technology. "He was a university professor at Cal Tech in the '30s, who left to make great money developing his PH meter through Beckman Instruments. But it's not always true" that scientists can make good profits, he added, with a scientist's resistance towards one-sidedness.

And he points to the hiring of Tom Lewis to run Xsirius' photodiode unit. Lewis had about 20 years of management experience at RCA. Further, "our strategy is not to develop one cash cow and milk it until it goes dry . . . but it's rapid technological development of our products." Graham says Xsirius' photodiode debut was only six months behind schedule.

His personal schedule adds up to "a seven-day work week" run out of his home and an office, both in the Virginia suburbs of the Capitol.

"I'm at our production facility in the City of Industry, at research labs also in California, with customers in Washington, and in New York and Philadelphia for (scaring up) investment." The bi-coastal Texas native has moved his wife and two children in recent years from a home in Malibu to another in Mammoth Lakes and another to the East. So when he works at Xsirius offices on Admiralty Way in Marina del Rey, overlooking hundreds of boat slips, he lives in a nearby hotel.

Is that any way to run an R&D outfit? Perhaps. Investors believe so. They have bid up shares, rocketing shareholder equity from $1,600 to $40 million since 1986. New York investment banker Parliament Hill Capital Corp. owned a 15 percent stake, as of last month's proxy.

But Graham himself bought in late, and for only 2.5 percent of the common stock. "I invested me, instead of my money," explains the trim, blue-eyed brown-haired CEO.

Graham is pursuing Xsirius' strategy of studying the commercial potential of new technologies and setting up subsidiaries to produce them. Subsidiaries include Xsirius Superconductivity Inc. in Phoenix and Advanced Photonix in West L.A. Their potential products have uses in electronic warfare, such as for the Army's night-vision equipment, and in medical diagnostics.

But other technologies have broad applications, like its "mercuric iodide X-ray spectrometer" sponsored by NASA and the National Institutes of Health. "You could use this to analyze the make-up of scrap metal, toxic materials or ocean bottoms," says Graham.

Studying natural and unnatural phenomena is old hat. As an Air Force First Lieutenant, Graham was sent to interpret the esoteric effects of a nuclear burst above the atmosphere about 1,250 miles from Hawaii. "One of my jobs was to understand why strings of street lights went on in Honolulu, earthquake signals were recorded and a whole range of completely unexpected events occurred."

That led to research on the likely culprit - The Bomb's gigantic electromagnetic pulse - at Santa Monica-based think tank Rand Corp., where he worked for six years.

He then helped spin off (and then manage) part of non-profit Rand into a for-profit firm called R&D Associates, an advanced science and engineering firm. Penning papers on how to protect U.S. missile silos from a Soviet attack, he gained Reagan's attention and became the 1980 presidential candidate's defense policy adviser.

The intervening years in Washington, including running the Office of Science and Technology, have left him with a plum high-tech post: chairman of the 13-member civilian advisory committee to the Strategic Defense Initiative Organization.

"He's influential on these subjects," said John Pike, director of space policy project at the Federation of American Scientists in Washington. "When he talks, people listen."

Conflict of interest? "We (at Xsirius) don't do any SDI work, and I'm certainly excluded from any role, or from gaining any information for us," Graham says.

The payoff, for Graham, is helping to shape a technology that he believes lies at America's jugular: defense from missiles. Without the Patriot missile-defense system, made famous piercing Scud missiles shot out of Iraq, "the whole Allied campaign might have been different," says Graham. "Israel might well have joined the war that Saddam Hussein wanted to make a religious war."

Graham says he is backing President Bush's new priorities for SDI, shifting away from pioneering exotic far-from-proven defenses against a massive Soviet attack, toward "current, state-of-the art technologies" to protect from smaller attacks from smaller countries. The policy change, announced by Bush in January, amounts to "new marching orders," according to an SDI spokeswoman.

But don't turn your back on the Kremlin, Graham cautions. While friendlier Soviets represent a diminished threat, and in fact have their hands full with serious civil war-like problems, "they still retain some 30,000 nuclear warheads," Graham reminds. The current chaos "raises the question of whose hands may be near the button at any one time."