AIDS-Safe Needle Expected to End Luther Medical Losses : Strategy

Luther Medical Products Inc., a struggling Santa Ana company, has signed a licensing agreement with a subsidiary of Johnson & Johnson to produce and market a catheter needle developed by Luther to protect nurses against AIDS.

Ron Luther, founder and chairman of the company, said he expects the contract with Johnson & Johnson, the world's largest manufacturer of intravenous catheters, to propel his company to profitability after seven years of losses and investment in research and development.

"It could mean several million dollars a year in manufacturing profits and royalties within the next three years," Luther said.

Luther Medical has never posted a profit. The company accumulated more than $1.1 million in losses over its last three fiscal years and posted a $120,691 loss in the first quarter of fiscal 1988, ended Sept. 30.

Luther said Johnson & Johnson has roughly a 50% share of the $120-million-a-year intravenous catheter market in the United States and a substantial share of the worldwide market, which he estimated at about $500 million.

According to a document that Luther Medical filed Monday with the Securities and Exchange Commission, the company on Nov. 11 entered into a licensing agreement with Critikon Inc., a Johnson & Johnson subsidiary in Tampa, Fla., for all rights involving Luther's "Stickless Needle Technology."

FDA Approval Received in Spring

Luther received approval from the Food and Drug Administration last spring for a device to insert catheters used for intravenous therapy such as replacement of body fluids and feeding.

The device, on which Luther expects to receive a patent by next spring, will be sold under the trademark SafeSide Stickless catheter. It has a plastic sheath into which the needle can be retracted after the catheter is inserted in a blood vessel. This is intended to eliminate the risk of having a nurse accidently stick herself with the needle, which can transmit infectious blood-carried diseases such as hepatitis and AIDS.

Under the licensing agreement, Luther Medical will receive royalties averaging 3 cents a unit on the stickless inserters, which, Luther said, will be attached to Johnson & Johnson catheters. The agreement will last the 17-year life of the anticipated license.

Luther Medical will also receive advance royalties of $450,000, contingent in part on patent approval, and $150,000 to begin manufacturing the product.

Luther Medical is gearing up to manufacture the inserter devices on a commercial scale with the aim of making enough product available for Critikon to begin taking orders from hospitals in April, Luther said. He said Luther Medical expects to make the catheter inserters for the first two years, after which Critikon will take over the manufacturing. For its manufacturing services, he said, Luther Medical will receive from Critikon all costs plus a fee per unit.

Since June, Luther said, the stickless inserters have been test-marketed nationwide, and "the response for them was so great, Luther wasn't big enough to satisfy it. That is why we are so happy to have Johnson & Johnson."

Luther said he hopes that the worldwide sales and distribution capability and credibility of Johnson & Johnson will enable his product to get a lead on competition. "There is no doubt about it, somebody else will come up with something similar very quickly," he said.

Founded as a public company in December, 1980, Luther Medical has financed its research and development activities through the sale of stock both on the open market and through limited private placements.

Luther, who has described himself as "a chemist by training but entrepreneur by inclination," said he has exhausted his savings and mortgaged his house to keep the company going.

Without Johnson & Johnson's assistance, Luther said, Luther Medical would have had great difficulty financing the commercialization of his catheter insertion invention. The alternative probably would have been to persuade investors to participate in a secondary stock offering by the money-losing company.

"It would have taken us a year to organize our resources--if we got anybody to believe our story," he said.

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