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Horizon Medical Products – reducing infection and complication rates with their ‘clear flow’ Vortex, VTX™ technology for implantable ports



Healthcare
Medical Equipment and Supplies
AMEX: HMP

Horizon Medical Products, Inc.

One Horizon Way
Manchester, GA   31816
Phone: 404-264-2600

William E. (Bill) Peterson, Jr.
President

Interview conducted by:
Walter Banks, Co-Publisher

CEOCFOinterviews.com
September 2002

Bio of President,
WILLIAM E. (Bill) PETERSON, JR. - PRESIDENT

Since co-founding HMP in 1990, Mr. Peterson has served as President.  In this capacity, he oversees the Company’s day –today operations and has been responsible for building and directing the Company’s young and enthusiastic management team.  Mr. Peterson, along with Mr. Hunt, is credited with establishing HMP’s reputation in the marketplace for exceptional service and state of the art products.

Including his involvement with HMP, Mr. Peterson has amassed over 22 years of experience in general management, corporate financial and public accounting.  From 1987 to 1990, he was Vice President of Finance and one of the owners of Cardiac Medical, Inc. (“CMI”).  From 1981 through 1987, he was a financial officer of Copolymer Rubber & Chemical Corporation, a Fortune 500 subsidiary located in Baton Rouge, Louisiana.  In addition to this corporate background, he was also employed at the international accounting firm of Coopers & Lybrand from 1978 to 1981, rising to the position of Audit Senior.  Mr. Peterson received his Bachelor of Science in accounting from Florida State University in 1978, and later earned his Certified Public Accountant designation in 1981.  Mr. Peterson is a member of the American Institute of Certified Public Accountants and the Alabama and Louisiana Society of Certified Public Accountants.

Company Profile:

Horizon Medical Products, Inc., headquartered in Atlanta, is a world leader in the design, development, manufacture and sale of technologically superior high value added, percutaneous vascular and spinal access systems.  The Company’s oncology product lines include implantable ports, some which feature VTX™ technology; tunneled central venous catheters; and stem-cell transplant catheters used primarily in cancer treatment protocols.  VTX™ Technology refers to swirling blood flow produced by a uniquely rounded reservoir design and tangential outlet that substantially eliminates thrombosis, or the buildup of sludge from blood and drug byproducts, in the port reservoir and reduces certain complications that require additional surgery.  The Company also markets a complete line of acute and chronic dialysis catheters.

Oncology Products:
The company's oncology product lines include implantable access ports, most of which feature Vortex™ technology; tunneled central venous catheters; and triple lumen chronic stem-cell transplant catheters used primarily in bone marrow transplant treatment protocols. Vortex™ Technology refers to the swirling blood flow produced by a uniquely rounded reservoir design and tangential outlet that substantially eliminates thrombosis (the buildup of sludge from blood and drug byproducts) in the port reservoir. This reduces certain complications that could require additional surgery.
 
The Plastic LifePort^®VTX Port line comprises the first plastic ports to incorporate Vortex(TM)VTX Technology, and like the LifePort^®VTX Titanium Port, is a superior solution to problems associated with intravenous therapy. However, these new models can be used with catheters made of silicone or polyurethane and have the lighter mass preferred by some surgeons. Besides being less costly, the plastic construction is also compatible with imaging procedures. It has demonstrated the potential to significantly slow rising health care costs for people living with cancer, AIDS and other chronic illnesses.

Its Triumph™ VTX port incorporates the advantages of Horizon's Triumph-1^® port, including an extra-strength 100 PSI catheter, silicone filled suture holes, MRI compatibility, enhanced radiopacity and depth markings that enable more accurate placement. Because implantation and access procedures are identical to the Triumph-1^®, no change in implant or access techniques is required for the Triumph™VTX port.

Catheter Products:
HMP's hemodialysis catheter line includes Circle C^® acute dual lumen catheters, single lumen catheters, peritoneal catheters, Circle C^® chronic catheters. HMP has received approval from the Food and Drug Administration (FDA) to begin the commercial sale and distribution of its new high flow chronic dialysis catheter, the LifeJet(TM).

The LifeJet(TM) catheter's unique crescent shaped internal lumen design and its thin-walled polyurethane cannulae result in a venous lumen, which facilitates high flow rates while decreasing arterial lumen pressure during dialysis. The LifeJet(TM) catheter's crescent shaped arterial lumen has rounded corners, which aid in reducing damage to red blood cells (hemolysis). The LifeJet(TM) does not have distal tip side holes, thus reducing the potential for development of harmful fibrin formations. In addition, a more generous spacing between the venous and arterial lumens should aid in the reduction of recirculation (mixing processed and unprocessed blood, which results in less efficient dialysis treatments).

CEOCFOinterviews: Mr. Peterson could you please give us a brief history of Horizon Medical Products, Inc.?

Mr. Peterson: “The Company was started in 1990, initially we were a distributor of  medical products for other companies. We knew that in order to make an impact in the market place we needed to manufacture our own products. We felt that there was a particular niche within the oncology market, especially related to devices. There is no real premier oncology device company here in the U.S. and so from that premise we started the company. Marshall Hunt, our CEO, Roy Mallady, who is still one of our main shareholders and I were its founders. From that background, the company became involved in a lot of different products and ultimately, we began developing our own products and built a manufacturing facility here in Georgia in 1996.

We took the company public in 1998, in an IPO that was headed up by Credit Suisse First Boston.  Today, we have changed from a company whose growth came through acquisitions of other companies into a company whose growth will be through internal product development.  In 2001, we introduced five new products into the marketplace. We just announced that we have received FDA approval on a new safety needle that is now commercially available.  We also have a new central venous valved catheter that launched June 28. We have come a long way from 1990, moving from a distribution company to a fully integrated manufacturing company with revenues of approximately $60 million.   Additionally, we have brought Bob Wenzel in as our COO.  Bob has a tremendous track record in leading high growth companies and he will run the day-to-day business.   With Bob in place and with Marshall Hunt as our CEO, we have a tremendous team that represents the best of sales, marketing and organization.  We are certainly enthusiastic and optimistic about the future of our company.”

CEOCFOinterviews: What impact do you see the new safety needle and the new central venous valved catheter having on your business?

Mr. Peterson: “Clearly, it is going to have a significant impact on our revenues and a significant impact on our bottom line. In the near term, our company has been in a very difficult situation. We had great products, a great management team that was skilled in a lot of different endeavors, a state of the art manufacturing facility, high quality products and strong product development skills; however, we had a poor capital structure. One of the things we completed in March of this year (2002) was the replacement of Bank of America- who was our old senior lender- with LaSalle Business Credit.   We also brought in subordinated debt from an investment bank by the name of Commonwealth Associates as well as from a medical device company, Medtronic, Inc. (NYSE: MDT). Medtronic is one of the world’s leading medical device companies. The Medtronic investment says a lot about what we have.   Where that goes we don’t know - and we are not going to project – but certainly, we’ve gotten what we believe to be the “Good Housekeeping” seal of approval as a result of their investment.”

CEOCFOinterviews: Has Medtronic actually made an investment in your company?

Mr. Peterson: “Yes, and again I think that’s a testament to our solid manufacturing, great internal development, new and innovative products and a strong senior management team that has been together now for quite a while.”

CEOCFOinterviews: Is your sales and marketing strategy for new products focused on existing customers or extending your customer base?

Mr. Peterson: “From the beginning we have wanted to stay focused on certain parts of the medical arena. In particular, we are focused on the oncologists and their team of nurses and clinicians.   We are very interested and spend a lot of time with vascular and general surgeons and we spend a lot of time in the operating room and. In addition, we branch out to the specialty areas depending on the product. However, we try to stay focused on a certain group of physicians and hospital employees so that when we add a new product, we don’t have to re-direct our people to a new call point. We are a relationship building company, and our sales people already have the relationships in place and they use them to present the new products, which benefit our customers.

In the United States, we focus on niche markets that typically range in size from $50 to $100 million. We have a direct sales force of 40 employees plus we use several distributors in the United States. Ultimately, that gives us about 90 people who are promoting our products every day.  They are showing features and benefits that demonstrate why we have the very best products in our market places.  You normally don’t see a sales force this large in these small niche markets.  That gives us a real advantage. Not only do we have the best products, but we also have more feet on the street that are talking about these products in an area that they have spent their careers working in.”

CEOCFOinterviews: What is your principal product, what gives you a competitive edge?

Mr. Peterson: “The principal product that we sell is implantable ports.  We have a patented ‘clear flow’ technology that we call Vortex™, VTX™ technology. In our competitor’s products, there are square edges in the interior that accumulate blood products and eventually form sludge. Our port, on the other hand, with its Vortex® technology creates a whirlpool effect that prevents the blood and sludge from building up. The advantage is that the infection rates and the complication rates are significantly less than any other product.

A group called Pinnacle Health Care Management out of Atlanta has done a financial impact review of our products versus conventional ports and found that the average savings per patient was over $1200. The cost differential between our ports and our competitor’s ports is usually between $150 to $200. Given that kind of cost savings, we think we have the clear advantage.  Plus, when you are talking about complications you are not only talking about dollars to the hospital but you are talking about very ill cancer patients who will have their complications dramatically minimized. Therefore, there are certainly strong clinical advantages that add up to strong financial advantages.

With this port technology, we definitely have established the product leader. In 2001, we increased that segment of our business by over 70%, so clearly there are some people in the market place that looked at it and liked it.”

CEOCFOinterviews: Is there anything else has resulted from your relationship with Medtronic?

Mr. Peterson: “We have also entered into a co-promotion agreement with Medtronic where we will be selling two of their pain pumps, one of which is focused on cancer pain. They were so impressed with our Vortex® technology and the potential of the Vortex ™™technology that they said ‘Look, these guys are going to be in the oncology marketplace, they have a long history there, they’re going to have lots of success selling Vortex™, let’s have them help us sell our pain pumps in the oncology marketplace as well’. In fact, we brought in one our founders, Roy Mallady, to head this project up.  Roy was one of the all-time great sales people as it relates to high tech implantable device sales and we think he will really make this thing go.  That was why Medtronic made an investment into our company and why they signed the co-promote.”

CEOCFOinterview:  So, your Vortex™ technology holds the key to the future of your company.

Mr. Peterson: “It is certainly one of several new products that hold the key to our future.  The Vortex™ technology and our ability to generate new products will make us extremely successful.  Some of the other markets that we are in are not as big as the port marketplace, but we still think we can go out from no market share to a significant market share in a short amount of time. The safety needle that we just released is a perfect example.  There is a federal mandate that safety needles are to be used, so this product is going to receive more and more attention. We have spent a lot time and worked with several major cancer hospitals in devising and developing the design of these needles in an easy four step process.  We think there is market place heating up for this product and it is going to be very exciting.  We have several other products just like it in the pipeline.”

CEOCFOinterviews:  What other new products have you introduced that may impact the future of your company?

Mr. Peterson: “We’ve just introduced our LifeJet™ dialysis catheters.  We’ve previously been in the dialysis market and we know it really comes down to blood flow.  The higher the flow, the better job the clinician can do and get the patient off the dialysis machine sooner. We provide extremely high flow rates with very low pressures.  This product has the highest flow rates in the marketplace and that there is some real upside potential for some strong improvements in sales.

We have just released a valved catheter, our LifeValve™ central venous catheter.   [MM1] One company holds virtually 90% market share in this market.  We think we can get in there with a product that is better and give the marketplace an option that they currently don’t have. “

CEOCFOinterviews: Are you looking at increased R&D spending?

Mr. Peterson: “Yes, we will be a spending a larger and larger percentage of our SG&A dollars on R&D. David Smith, VP of Engineering,  leads that outfit for us and is recognized as one of the best in this industry.  We made a number of acquisitions after we went public in 1998.  These acquisitions brought a wealth of patented products. We bought some companies from larger companies that just didn’t develop the great technologies that they had in place, so we have a large number of patents that we can chose from, any one of which can be a home run. At the same time we are increasing our R&D capabilities daily so that we can take advantage of what we have and also put ourselves where we develop additional products based on market needs. We have the team that can do that.”

CEOCFOinterviews: What is your revenue model based on?

Mr. Peterson: “First and foremost, it is based on having a first rate sales organization.  Bob Singer, our VP of Sales, has grown up with the company and nobody knows our business like he does.  Additionally, we have some very excited product managers in Lauren Hart, Brad Maruca and Blythe Tomlin.  No one works harder and no long understands our markets like they do.  All of our products are disposable; we are not involved in any capital products.   We believe that we have been very conservative in terms of how much market share we can capture. We look at things based on how our products match up with the competitive products; we don’t want to be in the marketplace unless we can have the very best product. We want our customers- the caregivers - to feel that they are buying the very best product for their patients with the features and benefits to prove it. We want to have the largest sales force in the somewhat smaller niche market, because the opportunity for success is rather high and that is how we look at our revenues.”

CEOCFOinterviews: Where are you in the global market place?

Mr. Peterson: “The value proposition is a little bit different in the international market in terms of the higher technology products.  Here in the U.S., we can charge a premium for higher technology products and receive that premium. The United States has the best healthcare in the world and we are willing to pay for things that make patient outcomes better. Internationally, it is a little bit different.    Nonetheless, we have an international sales office in Brussels Belgium and we sell our products in 50 different countries. It is one of our growth opportunities and one of our strategic objectives is to increase our visibility internationally.”

CEOCFOinterviews: What new markets are you targeting for growth?

Mr. Peterson: “In the United States, we have representation coast to coast and we are as strong as any company that we compete with. Internationally, we think that there are some opportunities in Asia, Latin countries, and in South America.  We have the best products, we just have to exploit the opportunity.

CEOCFOinterviews: Do you believe that you currently have the infrastructure and the manufacturing facilities to keep up with growth?