New AIDS Business May Enable Pancretec to Show a 1988 Profit
Six months ago, Pancretec Inc.’s days appeared numbered. The 4-year-old medical supply company was virtually out of cash, had just hired its third chief executive in seven months, and, after an unbroken string of quarterly losses totaling $5.5 million, seemed unable to turn a profit.
Today, Pancretec may be on the road to recovery. Second-quarter sales were double those of the previous year and prospects for continued growth have improved, in part because of the spreading AIDS epidemic. Pancretec President James Yarter predicts that the company will post its first full-year profit in fiscal 1988 on sales of about $8 million, or double the expected fiscal 1987 revenues.
While Pancretec officials are reluctant to discuss in detail the impact that AIDS is having on their business, they acknowledged that the disease has opened a demand for Pancretec’s electronic, portable drug infusion pumps. The lightweight pumps, which can be worn in a shoulder pouch or on a belt, enable AIDS patients to receive medication at home instead of at the hospital.
Currently, AIDS victims are using Pancretec devices mostly to receive a variety of anti-fungal and antibiotic drugs, Vice President Barbara Lorenzen said. But Pancretec pumps are also being used to administer the experimental AIDS drug azidothymidine (AZT) to child victims at the National Institutes of Health in Bethesda, Md., NIH research assistant Janie Eddy said Monday.
Last week, the Food and Drug Administration approved AZT for treatment, and the first prescriptions for the drug are expected to be written next Monday. Pancretec officials hope that at least some of the estimated 14,000 AIDS victims living in the United State will soon be using Pancretec pumps for AZT infusions. Because AIDS cases are expected to grow radically over the next several years, demand for Pancretec pumps could also grow, company officials said.
Up to now, most users of Pancretec pumps have been patients needing prolonged antibiotic treatments such as those suffering from cystic fibrosis, emphysema and endocarditis. The pumps’ main selling points are that they are portable and that they can be programmed to infuse drugs intermittently or at continuous rates set by the patient.
The pumps are also used by patients who, due to digestive problems, need continuous intravenous nutritional supplements.
Partly because of the toll taken by the AIDS epidemic, the home health care market is expected to be one of the fastest-growing medical markets over the next decade, said health care analyst Bama Rucker of the San Francisco-based investment banking firm of Hambrecht & Quist. Also spurring the home health care market’s growth is the imperative set by government and private health insurers to transfer treatment for some illnesses from the hospital to the home to reduce costs.
Rucker’s recent study projects that the home medical care market will grow to $2.8 billion by 1990, more than a threefold increase from the $800-million market of 1986, she said. About 10% of the total home health care market is represented by drug infusion pumps and their disposable components, such as those made by Pancretec, Yarter said.
Pancretec faces several well-financed competitors. Pharmacia Inc. of Sweden recently introduced a programmable infusion pump through its Deltec subsidiary that is similar to Pancretec’s. C.R. Bard Inc. makes an infusion pump that uses an electronically driven syringe.
Yarter said Pancretec’s turnaround won’t be apparent in results for the fiscal year that will end June 30. Although Pancretec’s sales of about $3 million will be twice those of last year, the company will post another big net loss. Last fiscal year, Pancretec reported a $1.4-million net loss on $1.8 million in revenues.
When Yarter was hired as chief executive in August, the Pancretec president’s office had a revolving door. He replaced Russell Horres, who in May had replaced Richard Turner. At the time Yarter was hired, Pancretec had only $300,000 in the till, enough cash to last it two months. The company’s net worth stood at a negative $1 million.
Yarter, who had spent 17 years in various management positions with the C.R. Bard Inc. medical supply company in New Jersey, immediately set to work expanding his sales staff to 10 from four. The increased production by the sales staff produced much-needed cash, easing the company’s liquidity crunch, he said. The increased sales staff is the biggest factor in Pancretec’s improved performance this year.
To accommodate the growth in staff and volume, Pancretec will move this summer to a 15,000-square-foot plant in Rancho Bernardo, triple the size of its current facility in Kearny Mesa.
Last month, Pancretec received a $700,000 cash infusion from a local venture capital group, Ventana Growth Fund.
