Private, with a Passion 4352

COVER STORY

For many people, no personal business scenario would be better than to start with a dream of contributing something good to the world, making that contribution, and then growing the business into an industry powerhouse—all without ever losing that motivating purpose of serving people in need. Kem Hawkins, president of Cook Group Inc. (Bloomington, IN), will attest that when a company has such a history, it will have loyal, dedicated employees and no shortage of ideas for new products and technologies.

Cook Group is the largest private medical device manufacturer in the world, and its many business arms are all strongly oriented toward innovation. Management is more interested in bringing advanced tools to physicians and relief to medical patients than profits to shareholders. In this sense, Hawkins may have his dream job.

In this interview with MX editor-in-chief Steve Halasey, Hawkins discusses the fabled origins of the Cook enterprise and describes how a global company with numerous employees and divisions can still be nimble and responsive to market needs. He illuminates a culture of innovation to which outsiders are eager to contribute, a complex business organization whose elements share resources and speak with a common voice, and a growing focus on medical devices customized to the individual patient.

MX: It can be a little difficult for people outside of the Cook Group, or Cook Inc., to understand the relationships among all of its various entities. How do the main parts of Cook fall together, and where is Cook Medical in all of that?

Kem Hawkins: It'd probably be good if I go all the way back to the beginning, 1963. That was when the company was first organized as Cook Incorporated. Cook Inc. is still the biggest of the locomotives. We've simply added on other locomotives and cars that have various purposes.

At that time we had very few products. Bill Cook was shaping catheter tubing and wire guides and a few other devices. What he found over time was that it wasn't just the radiologists who were interested in interventional technology. We found applications because a physician—say, a urologist—would talk to a radiologist and then come to us with a suggestion: “If you could make this tube 20 centimeters shorter, or if you could make it just a little bit smaller or tapered, this would work for a ureteral stent.” That's an example.

So, out of that interchange between the disciplines—and with a few champions—we were able to spin off companies that were very specifically oriented toward particular disciplines. Over time we have come to serve about 42 different medical disciplines, and we do that through eight strategic business units (SBUs). Those are operated across our medical manufacturing companies and distributors around the world.

It may seem rather complicated, but we've tried to organize our company into one Cook where we have a shared vision. We share technology that will benefit any and all of the disciplines that we serve. So, Cook has grown over time to about 45 different companies worldwide now, including some that are nonmedical businesses. The number changes because we're adding companies all the time.

And it's not just medical. The medical part is confined pretty much to those 15 companies, but we also have subsidiaries that are set up in various countries—Cook Japan, Cook Singapore, Cook Malaysia—among others. Those add up to make the 45.

Cook Group is the umbrella; everything reports to Cook Group eventually. Cook Medical is the housing that we use for the eight SBUs, and Cook Medical is how we describe ourselves to the world. It's a way of addressing those 42 different medical disciplines.

Some manufacturing companies provide either raw materials or products like stainless-steel tubing. For example, we have Sabin Corp., which produces most of our plastics, whether it's through injection molding, extrusion, or some other process.

Is it the case that, on an executive level, each of the SBUs has a distinct global leader?

That's exactly right, and they're responsible for global sales and marketing so that our message will be uniform throughout the world and not waylaid by any specific country. Even though we may make special allowances in individual countries, the company's overall direction still has to be considered.

Big but Agile

With Cook's significant commitment to working with the physician community and establishing the standard of care, how do you handle the complexity of interacting with the physician community on a global basis, when local standards of care are not those set by the industrialized world or the United States?

It's probably best for me to give an example that is indicative of how we're organized in that area.

When we approached the market of abdominal aortic aneurysm (AAA) treatment back in 1992 and 1993, we were working with several doctors in the United States. There was also work going on in our Australian plant, and there was work going on in Europe. We knew everybody was working on it, but Cook wasn't as coordinated back then as we are now. Eventually, though, we brought every single physician we were working with together in one room and said to them, “Let's do this together. But let's make sure that we are putting the best technology and the best ideas into the product, as opposed to coming up with three products for three different continents.”

And that's exactly what we've done. From that beginning, we've expanded that group of doctors, which is called our endoluminary group. It's an ever-growing global group of physicians that looks at the problems surrounding intravascular imaging and intravascular therapies. They discuss how we can improve our products, and how we can manage international regulatory issues to do so on a global scale.

The process doesn't always require that level of organization, however. Sometimes it's just one physician. Cook's many international units, with manufacturing for an entire product line perhaps being done in one country and the products then globally distributed, presumably involve quite a complex supply chain, and a significant logistical challenge as well. Can you describe those complexities from your point of view? How does the company manage them?

When you grow up within any enterprise, what seems complicated from the outside is something to which you yourself have naturally adapted. We may be selling 25,000 different products around the world, but we didn't start out selling that many. We started with one product, and then two; eventually we got to 200. When the old systems can't manage things any more, we develop better systems. Today that may mean new computers or software, but the same principles applied in the precomputer era. Once a new system was developed, quality assurance documents were developed around the better system.

Cook Medical is commonly cited as the largest private medical device manufacturer, with more than $1 billion in revenue. Where do the company as a whole and its various units stand relative to the public companies in the sector?

There are a handful of public companies that are bigger than we are—Johnson & Johnson and Medtronic come to mind. And several medical device companies are similar in size, for example, Bard. As far as companies registered with FDA are concerned, we're in the top 1% in terms of size. As a general rule, we are number one, two, or three in virtually every marketplace in which we choose to participate.

Now, if we're just getting started with a new technology—we've got a new cardiology unit starting up, for example—then obviously we're well down the food chain there. But we have technologies in cardiology that we believe will eventually make us competitive in that market.

How are Cook's employees distributed around the world?

In the United States, we're running at about 4000 people. In Europe, we now have about 1500. And we have close to 400 employees in Australia in manufacturing. We have salespeople located virtually everywhere, including about 70 salespeople in Canada. We also have people in Japan, in other parts of Asia, and all throughout Europe—not just salespeople, either, but in management, marketing, and in other disciplines. In all, it adds up to about 7000 employees.

Dividing Lines

How have the eight strategic business units emerged and changed shape over the years?

Cook Cardiology, which I just mentioned, provides a perfect example of how our business units emerge. In general, a company has to have a platform of technologies that is going to provide value. Today, most cardiologists are using our introducers for placement of other companies' stents. Our introducers are used to position stents in specific vessels, whether carotids, renals, or others. So cardiologists and physicians think of Cook in connection with products that they're using on a regular basis, even though it may not be a drug-eluting stent for coronary applications.

In addition, we've licensed technology that's coming out of AVI BioPharma. That company is working specifically on a gene therapy agent, to be able to treat restenosis in a manner that is very different from that of paclitaxel or sirolimus.

We believe the new approach deserves a very hard look, so we license that technology exclusively. There are studies going on in Germany right now, and more studies are planned. We're very hopeful that this technology will enable us to bring value to that discipline within a few years.

Was the addition of the cardiology unit the main reason for restructuring all of the previous seven business units into eight new ones?

No. In the case of the cardiology unit, we had acquired a new, potentially significant technology in a market in which we already had a presence, and we decided the area deserved additional investment and focused attention.

The only way to bring focus to a business unit is to put people who are experts and have a passion to serve the discipline in key positions. So we have people who really enjoy the cardiology challenge in that SBU. They're very knowledgeable, and they're totally immersed in it. To develop a strategic business unit, you have to have the technology foundation and also the people in place to champion it.

How do the new units rank in terms of size?

Right now, the radiology unit—what we call the peripheral intervention SBU—is number one in size. Number two is aortic intervention, and number three would be the endoscopy unit. The fourth is urology, the fifth is critical care, the sixth is surgery, and the seventh is women's health. The latest and smallest of the business units is the new start-up, cardiology.

You'd like to see all of the units continue to grow, of course, but do you foresee this ranking changing significantly as, for instance, the women's health or cardiology units begin to take off?

I hate to say this, but I don't care. What we really want to do is be of value to physicians and patients in all the areas. Wherever the technology leads us, and wherever the technology provides an advantage over everything else out there and we have the data to support it, that's where we want to see our products. It's important that we have data that truly support what we say to physicians: that our product can and will make a difference if they use it on their patients.

What I don't want is our people spending time trying to convince someone that it is more important to buy a me-too technology from Cook than from someone else.

So to return to the question: Do I have a favorite business unit? No. Do I care which unit is at number one or number two? No. Do I want them all to take full advantage of the opportunities that they have? Absolutely.

The critical care unit is sitting on an absolutely spectacular technology with its Spectrum product line to reduce catheter-related bloodstream infections. Spectrum technology is playing a huge role in increasing patient safety, and it will continue to play one going forward.

So the critical care business unit is poised to grow dramatically. Such growth would be a result of bringing value to the patients, to the hospitals, and to the physicians, and Cook would be able to drive these benefits throughout the world.

If critical care overtakes endoscopy in terms of unit size, super. But it's more important to me that the technology—whether aortic interventional technology or applications for dealing with biliary obstructions in gastroenterology—delivers advantages.

For 44 years, we have grown every single year. And while I'm steward of this office, I don't want to see that trend change.

What does Cook Medical's strategic planning process look like across the eight business units? How do you and your fellow executives sort out which projects you're going to fund?

It's not very complicated. We all work for a family that has reinvested in this business for 44 years. The Cooks have allowed all of the profits to be reinvested, so we've never had a strategic business unit come to us with a technology that we've turned down because of money. And we don't go out and borrow funds either.

If any SBU comes to the executive team and tells us that a project is going to cost $5 million or $10 million, if it's worth doing, we will give it the funding it needs. Our executives have great latitude in making those decisions, and they're held accountable for them.

We're not going to hit on every project. For example, as much as we hope gene therapy is going to prove out—and we have great evidence to suggest that it will—it's not a sure thing.

Typically, we have chosen not to buy companies. We have acquired companies in the past, but it's not our standard practice. We try to invent from within, we try to develop competencies from within, and we try to make sure that, as a company—a very large company—we do not give up that entrepreneurial spirit that was hatched 44 years ago.

A report from last November said that what formerly was called Cook's diagnostic and interventional unit had 175 active product-development projects under way. Is that large number typical for all of the SBUs?

That is a large number—and not all 175 projects make it. And not all of those that do make it do so within the same time frame. Some of them will take 10 years, some will take five years, and some will take five months.

New products and product enhancements are always coming out in a steady stream. But not every SBU is going to support 175 projects at a given time. Urology probably has about 60 ongoing projects, but they've likely focused a significant amount of time, effort, energy, and resources into 10 in order to be able to bring those to fruition.

Private Life

How does the fact that the company is privately held change the shape of your responsibilities as an executive? For instance, how often are you required to report on the company's progress, and how is that reporting handled?

Bill Cook's office is about 20 feet from mine. We have lunch together. He comes in at 4:30, 5 o'clock in the morning, and I'm in here. We sit down and have coffee together before we go through our workouts.

At the end of the day, he walks into my office, and we talk about a lot of different things. Or he'll come into a meeting and sit down. When he's out on his boat for a week or two, it's my job to keep him informed.

I don't think there is another president in the world that has had the direction I've been given. Twice Bill Cook said to me—I don't know if he thought I wasn't listening the first time or might not take him seriously, but this is a real quote—“Kem, listen, this isn't about money. Do the right thing by the patient all the time.”

Now, to paraphrase him, what he was saying was that he didn't care if I had to recall every Cook product there was; if there was a problem, I should do the right thing by the patient. I shouldn't ever—ever—concern myself with the financial implications of a decision that could affect the health of our patients.

I don't think that's the approach other companies take, and I don't think that's the direction their executives are given. I've never lived in the public world where stock ownership, shareholders, quarterly earnings, and similar considerations play a role. I am always amazed to the extent that public companies have to consider their investment schedules and their financial decision making when issuing quarterly reports. The ramifications of not performing in the public sector are so severe. A company can lose $1 billion worth of capital in an eyewink.

Is there still some sort of formal process you go through—an annual report, or an annual meeting, or an annual evaluation of where the company stands?

Yes, we get a financial view of the company on a regular basis. At the end of every month, every company and every SBU produces a full financial report and we produce consolidated financial reports to the entire company. So we have financial reporting similar to that of a public company.

However, decision making is never governed by an objective of reaching some figure at the end of that month. If we think we have to make an investment commensurate with a company need, we don't worry about whether the expenditure should fall in the next quarter, the next month, or at any other particular time. The reporting tells us where we stand, but it doesn't drive our decision making.

A few years ago, Guidant, before it was purchased, was interested in acquiring Cook, but that transaction fell through. What was Cook's mindset when that transaction was evaluated? How has that experience shaped Cook's current thinking about whether becoming a publicly held company or being acquired by another company would ever be a good idea?

That proposed deal surprised a lot of us in the company. Guidant put an incredible offer in front of Bill Cook. There were things about that contract that were very beneficial to us, and not necessarily financially.

Guidant was primarily interested in AAA, and with that, paclitaxel. We set a benchmark for a joint study, but it didn't work out. We didn't meet the desired benchmark when we put paclitaxel on Guidant's stent platform.

Now, paclitaxel on Cook's own stent platform, as shown in two studies prior to that, was very effective. But Guidant thought it had a better architecture—that if it put the same dosage of paclitaxel on its stent, the resulting product would yield better results. That did not turn out to be true. So the deal fell through, they paid us about $50 million for the fall-through, and we went on our way.

Can I say categorically that the Cook family would never consider selling the company? Of course not. However, I don't believe that there is any inclination to sell the company.

Converging Worlds, Customized Solutions

Cook has been exploring opportunities in what's called personalized medicine, or the customization of medical devices. In what areas are the greatest advances being made?

The one that stands out is what we're doing with a little company called Cook MyoSite Inc. MyoSite sprang from work that was done at the University of Pittsburgh, and its president is Carl Cook.

MyoSite is focused on developing technology to treat urinary incontinence and other diseases. Essentially, the process begins by taking cells from an individual patient—for example, an incontinent woman. We'll put a needle into the patient and remove a biopsy specimen. We send the cooled specimen to a lab in Pittsburgh that separates out specific cells. A lot of people would call them stem cells, but they're really not. But they're similar to stem cells.

Those cells are then put into a special media where they are grown to a few million cells. Then they're reinjected into the patient. In this example, they're localized at the urinary sphincter. They enable that sphincter to be regenerated to its original functioning state.

We have several dosing studies going on at the moment for this technology.

This example and the AVI BioPharma example in the new cardiology SBU indicate that Cook is at the forefront of today's convergence of devices, pharma, biotech, gene therapy, and cell technology. Where do you think that field is headed and what kinds of issues do you think it is going to run into as companies develop products that have to be approved and regulated?

The complexity of the regulatory environment in this area is still developing. When a system is trying to regulate devices that don't even exist yet, it creates a lot of questions, and those questions create confusion. The whole world is groping for answers as to how we are going to deal with the ethics of this technology, let alone how we are going to make sure that products based on it are safe and efficacious.

Cook Medical is trying to ap-proach this in a way that takes some of those questions away. For example, Cook Biotech is working with the substrate of the acellular collagen matrix, the material we call Surgisis Biodesign. When we use Surgisis Biodesign technology, the materials are coming from a pig, not from a cadaver that may have been infected with HIV or other human transmittable diseases. It's an acellular technology.

In the case of our gene therapy agent, well-controlled clinical studies will be required to demonstrate the safety and effectiveness of this technology. These studies will require enormous resources and time to complete all the required follow-ups.

Regarding the convergence of all those technologies, right now Cook is a medical device company, clearly. The drug-eluting stents (DES) are combination products because they incorporate a drug on a device. Cook is currently conducting a DES trial looking at the effect of the technology on blockages of the superficial femoral artery, or SFA. If this combination product proves to be successful for patients suffering with serious peripheral arterial disease of the vessel in the leg, it could really be an important advancement in the treatment of this debilitating vascular problem.

We don't know what the future's going to look like. No one does. But we have to position ourselves so that, when certain technologies come along, we are able to put them in place to solve problems across all of the SBUs.

The technologies associated with our Surgisis Biodesign material are being used throughout the field of surgery. Surgeons of many disciplines are using it—general surgeons, vascular surgeons, plastic surgeons, neurosurgeons, trauma surgeons, and reconstructive surgeons.

A technology such as this can be integrated into all of the SBUs for further development. Our goal is to use the current Surgisis Biodesign technology wherever it can be of benefit while we continue to develop it in other forms, such as emulsification, a sheet, or a sphere. And these same goals also apply to our gene therapy agent.

Partnerships for the Future

What is Cook's general attitude toward partnering with other companies? How does it seek out partners and handle them? And what kinds of agreements do you try to shape for the benefit of the products you're putting forward?

I'll start by talking about intellectual property. We cross-license, and we have to. With AAA, there are probably 1500 different patents out there. It's a minefield. If we're going to come to market, we have to be able to work together in a way that gets our products out there. And the last thing we want is to be bogged down in litigation all the time. It becomes a distraction.

Of course, at some point you have to protect your intellectual property. There are times to do that. But it's always best to find ways of working with the owner of the intellectual property that may be blocking your technology from getting to market.

Are there companies with which you just cannot reach a partnering agreement or a licensing arrangement?

Yes, but it's certainly a very small minority. Most companies are realistic in knowing that products can require tens of millions of dollars and years and years to develop. And most will rationally decide to do what's in the patients' best interest. They'll just try to get a fair dollar for their technology. Very rarely does Cook get held up or stymied in the process. And in those cases, it usually goes to court to be settled there. But in that case, no one wins.

Looking into the future, where do you personally see the greatest opportunities for the company—and for the patient?

I have never seen a time in my 26 years in the business that offers so much hope for patients and offers so much in terms of ideas for technological advancement as right now. Cook has more ideas coming in today than came in yesterday. Because of our history, we provide access for a lot of people with ideas in medicine to bring technology to customers for the patient's benefit.

Devices aren't going away. Gene therapy and cellular-based technologies aren't going away. They're going to proliferate. We're going to marry technologies, and we're going to go to individualized custom devices and pharmaceuticals in the future. There's no doubt about it.

How quickly we get there will depend upon how well we can take care of intellectual property, how well we can work in our regulatory environments, how well we can demonstrate safety and efficacy, and how responsible we are in making sure that we do no harm and always do the right thing for the right reasons.

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