Managing A Small Company through Big Changes

Medical Device & Diagnostic Industry Magazine
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An MD&DI October 1997 Column

An interview with Edward F. Voboril, chairman and chief executive officer of Wilson Greatbatch Ltd. (Clarence, NY).

Small companies struggle against the tide of consolidation of purchasing organizations with few paddles in their boats. Edward F. Voboril, chairman of the Health Industry Manufacturers Association's Smaller Company Council, hopes that this new HIMA council will help them find solutions to this dilemma, as well as other issues affecting smaller firms. Operating a small device manufacturing company in today's health-care environment has presented some daunting challenges. From biomaterials to market access, everything is getting tougher for the majority of companies in the device industry.

Voboril discusses these critical issues that face the industry and the solutions he sees to overcome them. He also talks about leading a management buyout of the small family-owned company he has run since 1990. Voboril talks about his experiences overseeing the buyout and the opportunities that it created for the company. He describes the marketing strategies the company has planned to ensure its growth into the next century.

Q. What is the most pressing issue facing the medical device industry?

A. I think we've only seen the tip of the iceberg on biomaterials availability. This situation is much more critical than many outside the device industry want to believe. If we don't get some kind of meaningful product liability reform for biomaterials suppliers, we're going to see more and more of the bigger companies pulling out. We all know that over the years we've pretty much piggybacked on the needs of other, larger industries for a lot of basic materials. The relatively small amounts of materials that we've purchased from the large material and component suppliers has almost been at their pleasure, and we've relied on that.

The biomaterials availability crisis triggered by the breast implant scare has put a lot of small device companies at risk of not surviving. If small companies manufacture only one or two products and can't obtain sufficient product liability insurance coverage, they're at risk of seeing their whole business disappear because they can't get the materials they need to make their products. It's critical, and unless we get some meaningful reform in the very near future, this thing is very likely to come unglued.

Q. What can companies do in the meantime?

A. Companies are working off of their stockpiles and trying to find suppliers overseas, although many overseas suppliers will no longer sell to the U.S. market. Manufacturers should write their congressional representatives in support of S. 364 and H.R. 872.

Q. How do you see group purchasing affecting the device industry?

A. The consolidation of a lot of the large providers such as Columbia HCA is causing hardships for small device companies. We've gotten into the situation where these purchasing organizations want to do business only with larger companies. They tend to look for a bigger company that can offer a full line of products. If the volume falls below a certain dollar amount, the purchasing organization may not even want to handle the transaction. So a lot of smaller companies right now are having what I call market access issues. They're having a hard time finding customers that will literally give them the time of day to sell their products. Purchasing organizations are basically telling them, "Go get hooked up with a bigger company, and we'll talk to the bigger company about your product." Even worse, they might say, "Why don't you just sell out to a bigger company?" Of course, a lot of small companies don't want to do that. I'm probably overstating that a bit, but there is no question that smaller companies are having a hard time gaining access to the purchasing people in the larger organizations.

Q. Do you see FDA reform as a less important issue now than it has been in the past?

A. I think it is still important. Of course with Kessler's departure, we will get a better lay of the land when we have a new FDA commissioner. Then we'll know how much more partnering we'll see between HIMA and the agency. Our position at HIMA is in promoting the public benefit. It's important to get new technologies that offer better outcomes to the market as soon as possible. And our argument is that FDA still hasn't focused enough on that aspect of its mission. To the extent that we can facilitate FDA reform that will help get better medical technologies to the public faster, then that's an important outcome for everyone. It still takes FDA too long to approve products. Products still get approved in Europe much earlier than they get approved in the United States.

Q. Have FDA's steps--reengineering, real-time PMA review, and the mutual recognition agreement (MRA)--helped foster a better environment?

A. While most companies believe that CDRH's reengineering effort is laudable, many prefer to withhold opinion on its success until many initiatives, still in the proposal phase, have been implemented. The agency, however, as part of its organizational transformation process, has solicited input from industry throughout the various reengineering stages. Interaction with industry occurred early in the process when FDA held focus group sessions with industry representatives. FDA also invited industry representatives to serve as members on its product development protocol (PDP) reengineering team. This team, composed of FDA staff and industry, worked cooperatively to develop guidelines for implementation of an efficient, practical PDP process that the team will present at a public workshop in October. Finally, as CDRH unveils proposals developed by its reengineering teams, it has asked industry to provide feedback before the agency moves forward with implementation. An illustration of this outreach to industry is FDA's presentation of the new 510(k) paradigm to representatives from various trade associations in a public meeting.

From the agency's effort to involve industry early in the process, during the reengineering teams' development of proposals, and after initiatives are presented, one could conclude that these steps have helped to foster a better environment for industry.

Q. How will you bring your experiences to bear on your position as the representative for small device companies at HIMA?

A. I'm on the executive committee of HIMA's board of directors. Over the past couple of years, we've been looking at ways to make HIMA more relevant to the smaller companies because our industry is predominantly made up of smaller companies. A few years ago there was a prevailing attitude that the issues were pretty much the same for all device companies no matter what their size. We've discovered that for smaller companies, the impact of consolidation and market access are much more of a survival issue than even FDA approval.

We've made HIMA a more user-friendly organization for smaller companies. We've implemented a help desk--a gatekeeper--to help callers find someone at HIMA to answer their questions or identify other organizations available for information on issues such as ISO 9001 certification. HIMA has established a Web site so that members can get updates on key national and international developments.

Finally, we're taking an outreach approach to helping smaller companies. Rather than asking them to come to Washington, which can be expensive, we've taken HIMA on the road. We had our first Western regional meeting in July, which drew about a dozen chief executives of smaller companies. We spent most of the time getting feedback from these folks on what was happening in their businesses and what they would like to see HIMA do or help them with.

Q. How do your personal experiences help you in this position?

A. Wilson Greatbatch (WGL) is like a lot of other companies. We don't have a Washington office, so we don't have anybody to represent us there. For example, when the biomaterials availability flap cropped up two or three years ago, we made great use of HIMA in terms of understanding how the industry was going to respond to some of the bigger suppliers like DuPont pulling out of the business. It was also helpful to have HIMA as a facilitator to access key congresspeople to discuss the potential impact of biomaterials availability and to build up to the product liability reform that we think we're going to see. There's no way we would have had access to that kind of information and people if we didn't have HIMA to help us frame the situation.

Q. What was the impetus behind the WGL management buyout?

A. WGL had been a family-owned company. There have been a couple of fairly important junctures in the company's development. About seven years ago, Warren Greatbatch, who was CEO and chairman at that time, decided that he wanted to bring someone on board who had experience with larger organizations in the medical electronics field. That provided me with the opportunity to join the company as CEO to take it through its next stage of growth. As we began to look at some significant investments that we thought were possible in order to take full advantage of all our opportunities, Warren Greatbatch and the family started to think about how they might diversify their investment while not standing in the way of having the company realize its full potential. So this was another fork in the road, so to speak. A decision was made several months ago that perhaps a financial partnership with an organization like Donaldson, Lefkin, and Jenrette (which ultimately took the form of the management buyout here) would be the best way to set the stage for the next round of growth for the company.

Q. What's your strategy for moving forward?

A. There are three areas of growth that tie into our current strategy. First and foremost, we intend to continue to supply power sources for the implantable medical device field. This has primarily been cardiac rhythm management products such as bradycardia pacemakers and implantable cardiac defibrillators, but there are a host of emerging applications, including drug pumps and neurostimulation devices, some involving new technology we have developed at Wilson Greatbatch. For example, we're in the process of scaling up a new technology for capacitors that are used in implantable cardiac defibrillators that we think will provide important performance benefits.

Q. Is that where you see your primary path for growth?

A. We still see significant growth and new products in our implantable power source business. But, even though that's been the foundation for the company's success in the past, we see two important areas for diversification beyond that. We also make a number of other components for implantable medical devices. Many of the same customers that buy our batteries also buy precision components made of titanium, stainless steel, and platinum for products such as pacemakers. We have decided to invest in growing that business both internally and potentially through acquisition or joint venturing. This will add significantly to the portfolio of components that we provide, especially to the cardiac rhythm management businesses.

We would like to be in the position to manufacture almost every component used in the pacemaker except for the microelectronics. Buyers look at where the costs are. The qualification, the auditing, and the support of a large supplier base is a very expensive activity. By consolidating more of the components under one umbrella, we can help our customers significantly reduce their transaction costs by serving as a source for more of the parts they need to incorporate into their devices.

Q. Will you market your own pacemaker someday?

A. It is not our intention to actually ever build a complete pacemaker. However, if we manufacture a lot of the components, then that creates an opportunity for us to add value to the product by providing subassemblies to customers. The idea is to help reduce their transaction costs in terms of sourcing more of the components from a single supplier.

Q. Are you working on any new technologies or applications?

A. We are introducing our first rechargeable batteries, using a lithium ion technology similar to batteries used in consumer and computer applications. These batteries are of particular interest for products like left ventricular assist devices, where light weight, rechargeability, and quality are key.

Q. Do you have other plans for this technology?

A. We've actually targeted a couple of niches where we're going to be introducing battery-powered instrumentation under our own trade name. We've got a separate division called Greatbatch Scientific, and we have a number of products in the pipeline for approval at FDA. We're developing nonmagnetic batteries for magnetic resonance imaging applications. We hope to develop a line of instrumentation for products used in MRI applications and in image-guided therapy where some battery-powered instruments are used during biopsies and other procedures. So, subject to FDA approval, we'll have those products on the market by the end of this year. That will be the first time the company has ever brought a complete product to market. Those are niches that we feel we can pursue without representing any conflict of interest with our traditional customer base.

Q. How has your role changed within the company?

A. Perhaps I have a little more frequent contact with board members. We were a very closely held company when it was owned by the Greatbatch family, so I had fairly frequent contact with the directors and shareholders; in that respect, it's not so different. Where things will change, of course, is that ultimately we will think about taking the company public.

Q. Do you have any plans for expansion to other locations?

A. Even if we look three years into the future, I'd say approximately 70­75% of our business will be based on lithium battery technology, and we think that we've been able to facilitate development and timely product introduction by having R&D, manufacturing, and quality control all closely integrated and based in the same location. I've experienced other situations in my career where departments were spread all over the world. Believe me, being able to walk down the hall and talk to R&D or to quality or to manufacturing enables people to work closely together and effectively as a team. It's hard to measure, but there's a distinct competitive advantage to having that proximity, and we just don't see any reason to change that.

In addition, I don't think it's very well known that there is actually quite a cluster of medical technology companies in western New York and southern Ontario. So we're not out in the wasteland here. We're in an area that has some interesting opportunities for networking and partnering and access to technology, comparable to well-known clusters like Minneapolis, southern California, and Boston. Within the past few months we found an attractive building, about 50,000 sq ft, located a half mile from our existing headquarters, and we'll be taking occupancy by the end of the year.

Q. How will acquisitions play into your business strategies?

A. Within a year or so, we probably will have some operations outside of the Buffalo area. We expect to complete one or more acquisitions as part of our external business development. That is one reason we felt we needed the additional financial strength that comes from an investment banking firm.

Q. How is the current health-care climate affecting your marketing strategies?

A. There is a lot of consolidation in the industry at all levels, and at least at the component supplier level, we want to be a consolidator instead of being consolidated. That trend is clearly going to continue. Although we see price pressures in most markets, the cardiovascular field is still very much a technology-driven marketplace. If people look at outcomes and the total cost of treating or caring for the patient, most of the products our components are designed into are cost-effective therapies. Recent studies have compared implanting cardiac defibrillators to drug therapy. The studies showed by quite a margin that the devices were the most cost-effective approach in terms of long-term outcomes. We view the type of markets we serve as technologically demanding.

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