Catheter Maker Started 2 Years Ago : Versaflex Medical Supply Firm to Be Bought for $95 Million
In their wildest strike-it-rich dreams, most entrepreneurs would be hard pressed to top the success of Versaflex Delivery Systems, a San Diego medical supply company that is to be acquired by health-care giant Medtronic for $95 million just two years after opening its doors for business.
Announced Friday, the high price to be paid for the manufacturer of coronary catheters is indicative of Versaflex’s rapidly expanding market and of the advanced technology developed by its 34-year-old founder, Dr. Maurice Buchbinder, medical professor at UC San Diego.
The pending sale to Minneapolis-based Medtronic, the world’s leading manufacturer of implantable cardiac pacemakers, also exemplifies the entrepreneurial savvy of Versaflex’s chairman, Richard Cramer, and its president, Douglas Rumberger. The two longtime associates in the medical supply business also made fortunes through the sale of Imed, a company Cramer founded, to Warner-Lambert for $465 million in 1982.
Buchbinder, Cramer, Rumberger and a half-dozen other original Versaflex stockholders, including the venture capital arms of Hambrecht & Quist, San Francisco, and Burr, Egan & Deleage, stand to reap spectacular returns on just $2 million in total equity capital invested.
Versaflex makes catheters used in coronary angioplasty, a medical procedure designed to prevent heart attacks by opening up cholesterol-clogged arteries. Doctors insert the catheter into a patient’s artery, guide the tube to the clogged area with the help of an X-ray device, then inflate the catheter’s balloon-like tip to push the cholesterol “plaque” toward the artery walls, allowing blood to flow freely again.
To an increasing degree, cardiologists prefer catheterization to open-heart surgery in treating coronary blockages. The procedures cost only $6,000 to $8,000 to perform, contrasted with $25,000 and up for surgery, which is an attractive feature in today’s cost-conscious health-care industry. Moreover, the patient’s recovery is less traumatic and lengthy, taking only three days contrasted with up to three months with surgery.
Versaflex’s innovation was to make a “steerable” catheter that allows the physician to guide the progress of the catheter through an artery’s dips and turns without having to pull a guide wire out of the tube, redirect the tip and reinsert the wire, as is customary with other catheters.
The steerable tip, controlled by adjustable wheels at the base of the tube, also enables physicians to get at arterial blockages that were once unreachable.
As a result of innovations by Versaflex and others, the number of coronary catheterizations performed in 1987 was 175,000, up from less than 5,000 in 1981, according to Hambrecht & Quist, the investment firm whose venture capital arm held the largest percentage of Versaflex stock.
Surgeries Level Off
As angioplasties have increased, open heart surgeries have leveled off at 180,000 to 200,000 procedures per year since 1984, Versaflex’s Buchbinder said.
The increasing number of procedures have created a boom market for disposable catheters such as Versaflex’s, which sell for up to $600 each. The total market grew to $400 million in 1987 from zero eight years ago, and Medtronic spokeswoman Celia Barnes said Friday that the total could reach $1.2 billion by 1995.
The heart catheter market is now dominated by units of Eli Lilly and C.W. Bard, which combined control more than 70% of the market, Buchbinder said. Both companies are in the process of trying to develop steerable catheters, industry sources said.
Although Versaflex’s catheter is not yet available in this country, Medtronic sold about $5-million worth of Versaflex’s devices in Europe last year through a licensing agreement. Medtronic acquired the marketing rights in December, 1986, as part of a deal in which Medtronic paid $3 million for a 5% interest in Versaflex stock, Rumberger said in a telephone interview Friday.
Earlier this year, Versaflex received federal Food and Drug Administration clearance to begin selling its catheters in this country and Medtronic plans to begin U.S. sales “immediately,” Medtronic’s Barnes said Friday. Versaflex’s sales might possibly hit $20 million this year, sources said. Buchbinder said he expects his device to capture a 20% market share within three years.
Versaflex’s device also caught the eye of another medical products giant, Johnson & Johnson, which offered $85 million in February to acquire the Sorrento Valley company. Medtronic then exercised its option to better any competing offer, leading to the deal announced Friday.
Reported Profit
Medtronic reported a profit of $73.8 million on sales of $502 million for its last fiscal year.
Versaflex was founded in 1984 by Buchbinder, who was then an assistant professor of medicine at Stanford University. With $200,000 in seed capital in his pocket, he spent two years perfecting his catheter design and unsuccessfully looking for additional capital. During that time, he took a new job with the UC San Diego Medical School faculty, becoming director of UC San Diego Hospital’s cardiac catheterization laboratory.
Buchbinder finally found investment capital at Hambrecht & Quist, which in turn brought Buchbinder in contact with Cramer. In addition to being chairman of La Jolla-based Fisher Scientific Group since 1986, Cramer has made several venture capital investments in local medical supply companies.
Convinced that Buchbinder’s design was a winner, Cramer agreed to become Versaflex chairman and then talked his old friend Rumberger, 44, to come out of semi-retirement to take over as president.
Rumberger said Friday he will stay with Versaflex only through a “transition period” and then leave to help start up another company, possibly in another venture with Cramer. Buchbinder will remain with Medtronic as research chief for the company’s entire catheter line.
Versaflex’s payroll of 72 employees will double by the end of this year, Rumberger said.
