Shiley’s Triumphs Muted by Tragedy : Health: The firm has evolved into a multifaceted business, but what the public remembers are its defective heart valves.
Roy T. Tanaka feels hurt when his neighbors refer to his employer, Shiley Inc., as “the heart-valve company.” They do so because of the firm’s highly publicized problems with a mechanical heart valve that it no longer makes.
Tanaka’s pain is understandable. The executive, who joined Irvine-based Shiley in 1989 and was recently named general manager of U.S. operations, is part of a management team that was not around when the company manufactured the fracture-prone valves that have caused more than 200 deaths.
Still, Tanaka finds the ongoing litigation related to the valves distracting. He said it also eclipses in the public’s mind the considerable progress that the company has made in other medical technology.
“We are in the business to save lives and at times you can’t help but feel people are almost accusing you of taking lives,” Tanaka laments.
In fact, Shiley is much more than a heart-valve maker. In recent years, the company has transformed itself through diversification and acquisitions into a multifaceted medical equipment firm with products for blood processing, cardiopulmonary and critical care uses.
That is a long way from the mid-1980s when Shiley lost its footing as the world’s leading producer of mechanical heart valves after recalling the popular Bjork-Shiley convexo-concave valves. Between 1979 and 1986, when all manufacturing of the valves ended, doctors implanted about 84,000 of the valves worldwide.
Ultimately, Shiley withdrew from the heart-valve market in the United States. While the company is selling another style of heart valve overseas, it has not won regulatory approval to sell that valve in the lucrative U.S. market.
The company, a subsidiary of drug and medical giant Pfizer Inc., said a decade ago that about half its sales came from heart valves. Today, valves account for about 20% of its $200 million in annual sales. The firm says sales have grown an average of 15% in the past four years. Shiley, part of Pfizer’s large hospital supplies division, does not publicly report earnings.
Shiley President Patrice Froidure said the company’s strongest growth is in sales of an “autotransfusion” device, which is used during surgery to salvage, clean and recycle a patient’s red blood cells. Sales have soared as public concern increases about the risk of transmitting AIDS and other contagious diseases through donated blood.
Shiley entered the surgical blood processing business in 1986 when it acquired Dideco, an Italian company that sold the equipment in Europe. Froidure said sales of autotransfusion equipment has been “phenomenal,” rising 20% annually since it was introduced in the United States 2 1/2 years ago. He said autotransfusion equipment now generates 15% of Shiley’s worldwide revenue.
“Shiley is not yet the market leader in the U.S.,” Froidure said. “Hemonetics is No. 1 in the U.S. and therefore the world. But we are closing the gap very quickly.” Hemonetics is based in Boston.
Shiley also has high hopes for a new blood-monitoring catheter. The device, which Shiley plans to start marketing late this year, monitors the blood of critical-care patients in hospital emergency rooms.
Shiley attained a toehold in the blood-monitoring business in 1988 by acquiring Biomedical Sensors Ltd., a British company. “We kept their products and spent quite a bit of money developing the multiparameter catheter,” Froidure said.
Most catheters measure only one aspect of blood, such as oxygen level, he said. But Shiley’s device can record three blood factors at a time, such as oxygen, carbon dioxide and alkalinity levels. The information is displayed on a screen for easy monitoring.
Froidure said Shiley is a year ahead of competitors in bringing the sophisticated catheter to the market, which some analysts estimate is worth $300 million.
Another important element in Shiley’s diversification was its 1983 acquisition of Stockert Instrumente. The company, based in Munich, Germany, makes heart-lung machines used during open-heart surgery.
Current and former Shiley officers say that while diversification has helped Shiley to weather the heart-valve problem, it was a strategy the company adopted long before anyone knew a storm of controversy was about to break.
“It was a good, prudent business practice,” said Bob Elliott, president of Shiley from 1970 to 1979.
He said diversification efforts began only a few years after Don Shiley, an engineer, and his wife, Patricia, in 1964 founded the company in the garage of their Tustin home to produce a new kind of heart valve. The firm was incorporated two years later.
In 1968, Elliott said, Shiley brought aboard an engineer to work on design of a tracheotomy tube, used to open air passageways in the windpipe of patients needing help to breathe. Since Shiley began marketing tracheotomy tubes in 1970, it has become the leader in the field.
The Shiley tube “is generally recognized as the best ever made, the gold standard of the industry,” said Elliott, who is now a private Newport Beach investor. Tracheotomy tubes today constitute 40% of Shiley’s U.S. sales, the company said.
Product innovations at Shiley occurred internally until the company was acquired in 1979 by Pfizer, after which new product lines were added by acquiring smaller companies.
Bob Curtis, who was president of Shiley from 1985 to 1989, said when Shiley became part of Pfizer, it lost its feel for innovation and risk-taking and began relying on acquisitions for new technology.
D. Steven Thomson, Shiley’s director of corporate planning and development, acknowledged: “There is no question when you have a larger parent there is a lack of a certain degree of entrepreneurism and spontaneity.” But he also said Pfizer has demonstrated “a very hands off” attitude in letting Shiley manage its own business affairs.
Moreover, Shiley officials say that without Pfizer’s “deep pockets,” Shiley would not have been able to finance so many acquisitions. This was particularly true after Shiley was hit by lawsuits filed by heart valve recipients and their families.
Froidure said that since he took over as president at Shiley in 1989, his goal has been to improve profitability by instituting more streamlined manufacturing processes and increasing the company’s emphasis on quality improvement through a new training program. He says these efforts are just beginning to pay off.
But for all this, Shiley’s executives admit that the firm’s reputation remains besmirched.
“Even in my own neighborhood,” said Tanaka, who lives in Mission Viejo, “when I mention Shiley, people don’t think of children whose lives have been saved by the tracheotomy tube . . . or parents who have gone through bypass surgery and been given a new lease on life because of a Shiley heart-lung machine . . . or friends who had orthopedic surgery and avoided the risk of contracting AIDS because of the autotransfusion system we provide.
“They just think, ‘You guys are the heart-valve company.’ ”
(Southland Edition) KEY PRODUCTS Shiley’s major products by business area: Blood Processing: Dideco-Shiley autotransfusion equipment
Cardiopulmonary: Stockert heart-lung machines
Cardiovascular: Monostrut heart valves
Critical Care: Tracheotomy tubes; Neocath 1000 umbilical artery monitoring system
Source: Shiley Inc.
MAKING MEDICAL DEVICES SHILEY INC. at a Glance Headquarters: Irvine Business: Manufacturer of medical devices Parent: Pfizer Inc., New York Employees: 2,300, including 1,000 in Irvine Founder: Don Shiley Top executives: Patrice Froidure, president; Roy Tanaka, vice president and general manager of Shiley U.S. operations; J. Paul Hodges, vice president of finance 1990 revenue: $200 million Worldwide Sales by Business Areas A decade ago, heart valves made up 50% of Shiley’s business. Today it only accounts for 20%. Business Area: Blood Processing (Includes autotransfusion): 15% Cardiopulmonary: 45% Cardiovascular (Heart valves): 20% Critical Care (Includes respiratory and patient monitoring): 20%
