Ballard Medical Products History

Address:

12050 South Lone Peak Parkway
Draper, Utah 84020
U.S.A.

Telephone: (801) 572-6800
Fax: (801) 572-6869

Public Company
Incorporated: 1978
Employees: 987
Sales: $103.5 million (1996)
Stock Exchanges: New York
SICs: 3842 Surgical Appliances and Supplies

Company Perspectives:

Ballard Medical Products is a manufacturer and marketer of specialized medical products. Our strategy for maintaining the company's growth continues to focus on the following four objectives: Developing innovative products through internal research and development and through acquisitions; maintaining the highest quality possible on products; increasing sales through a superior sales force, strategic accounts and national contracts with hospital buying groups, and expansion in the international marketplace; reducing costs through production efficiencies. The company's products are sold in forty-seven countries, and our customers include more than 16,000 hospitals and other medical care facilities worldwide.

Company History:

Ballard Medical Products designs, produces, and distributes disposable medical items used in critical care and surgical situations. Ballard manufactures over 100 health care related products, including products developed by the company as well as those from several firms acquired in the 1990s. The company's main product line, Trach Care, evolved over the years to become the nation's main product used to maintain respiration while simultaneously allowing the suctioning of excess fluid from the patient's airway. Other products are used for tube feeding incapacitated patients, removing drugs or other poisons from the stomach, scrubbing before operations, endoscopic surgery, and external heart stimulation. Although most products are sold in the United States, Ballard Medical in the 1990s is increasing its foreign exports, so far mainly to Europe and Asia. A well-managed company with no debt, Ballard has grown steadily to become a significant player in the biomedical products industry.

Origins and Early Years

Dale H. Ballard, Ballard Medical Products' founder, grew up in Magna, Utah, a small community near Salt Lake City. In 1941 he graduated from high school and then served in the Army for four years during World War II. After the war, Ballard earned a B.S. in pharmacology from the University of Utah. He then worked for pharmaceutical giant Parke-Davis from 1951 to 1956, when he quit to start his first company.

Ballard founded Deseret Pharmaceutical Company with James L. Sorenson and Victor Cartwright. The firm, which produced disposable medical items, began modestly, with Ballard initially manufacturing some products in his basement, but Deseret Pharmaceutical grew rapidly to become Utah's pioneering biomedical company. Sorenson went on to start several other biomedical firms, including Sorenson BioScience. In 1977, Ballard sold Deseret Pharmaceutical for $138 million to Warner Lambert. For about a year, Ballard stayed on as Deseret's CEO, but eventually he became frustrated with the new owner's corporate culture which seemed to ignore customer needs.

In 1978, Ballard started Ballard Medical Products and became its president, CEO, and board chairman. Dale Ballard was assisted by Domenick P. Treschitta, a Connecticut native who had joined Deseret Pharmaceutical as a salesman in 1968 and then left to help start Ballard Medical. For many years Treschitta was Ballard's vice-president of sales and marketing.

At its first location in a small building in Midvale, Utah, Ballard Medical Products originally researched and developed new products for different clients, including Deseret. When Deseret failed to follow up on such new ideas, however, Ballard Medical obtained Deseret's permission to market the new items. In a 1989 Deseret News article, vice-president Treschitta said, "We don't copy existing products, but we continually try to upgrade our own innovative products. The key to our success is to produce new products that nobody else has."

In 1983 Ballard Medical became a public company with stock traded on the NASDAQ exchange. This prepared the firm to market a major new product called Trach Care, a disposable plastic device which remained the firm's best selling item through the 1990s. In its 1996 annual report, Trach (short for trachea or windpipe) Care was described as a "closed endotracheal suction catheter system [which] enables patients with endotracheal tubes, on ventilators, to have their airways suctioned while maintaining ventilator support, thus improving patient care." By 1988, Ballard Medical had developed other products, such as Foam Care, a waterless system featuring different kinds of cleansing foam, special brushes, and an antibacterial skin lotion used to prevent bacterial growth after the initial surgical scrubbing.

With Trach Care, Foam Care, and other products, Ballard Medical expanded quickly in the 1980s. From net sales of just $335,532 in 1984, the firm reached sales of $15 million in 1988. By early 1989, the company had been on Inc. magazine's list of America's fastest growing small businesses for two years in a row.

Dale Ballard, in a 1989 Deseret News article, called Ballard Medical a "self-contained" company because it controlled almost every phase of creating, developing, and eventually producing a new product. "Because we produce [almost] everything, we don't have to depend on anybody and we can respond to the market quickly."

Another major factor in the company's effectiveness was the close personal relationships among company employees as well as with health care personnel which ensured that its products actually met customer needs. In a 1988 Inc. company profile, a Ballard salesman said that, "Anybody in this company can talk to anybody about anything... It worked before [at Deseret Pharmaceutical] and it's working again." These kind of horizontal, nonhierarchical relationships have dominated cutting-edge technology firms in the information age. Ballard personnel also attempted to listen closely to feedback and suggestions from doctors and other medical personnel. Instead of relying on customer surveys or even focus groups, Ballard emphasized one-on-one contact between its representatives and those actually using the firm's products. For example, Ballard sales representatives learned the names and got to know individual nurses and doctors on wards that used Trach Care products. Sales reps also taught in-service training to hospital workers. These methods allowed the firm to identify any problems with its products and make necessary changes quickly.

Expansion in the Early 1990s

Ballard Medical continued its expansion as the new decade began. In 1990 the firm purchased twenty acres in Draper, Utah, a few miles south of the five buildings the company had occupied at its original site in Midvale. The company moved into its new manufacturing facility and corporate offices in March 1991 as the first business in the newly developed Draper Business Park. Thus Utah retained one of its fastest growing companies, in spite of recruiting efforts in Iowa, Colorado, and Nevada.

Meanwhile, an independent study confirmed the effectiveness of Ballard's main product, Trach Care. The company claimed that having a closed system to provide both air and suction to critically ill patients prevented the spread of respiratory illnesses, a very serious problem in many hospitals. A December 1990 study published in Critical Care Medicine confirmed that the probability of patients surviving without getting pneumonia in the hospital was significantly decreased by using Trach Care instead of an open system, in which suctioning exposes patients to room air.

Over the years Ballard had obtained many patents, a number of which became the subject of two legal battles. In March 1990, Ballard settled out of court a dispute with Smiths Industries Medical Systems, Inc. concerning five Ballard patents and the fact that both firms sold closed-system suction catheters. This dispute, which had been filed in federal district courts in New Hampshire and Delaware, was settled when Smiths agreed that Ballard patents were valid and enforceable, while Ballard agreed to drop charges that Smiths had infringed on its patent rights. The settlement also stipulated that Ballard would grant Smiths licenses which would allow Smiths to continue making and marketing its catheters, in exchange for undisclosed royalties to Ballard.

In 1991 Concord, another maker of closed endotracheal suctioning devices, also reached an out-of-court settlement in which it agreed to pay significant royalties to Ballard.

In the early 1990s, Ballard Medical began to acquire firms which produced complementary disposable critical care items. First, it acquired all outstanding shares of Code Blue Medical Corporation in April 1992, in exchange for $5 million worth of Ballard common stock. Based in Clearwater, Florida, and incorporated in 1989, Code Blue made, among other things, the Easi-Lav Gastric Lavage System, a patented system for cleaning out the stomachs of patients with drug overdoses or gastric bleeding.

Ballard's second acquisition was Medical Innovations Corporation (MIC), a firm started in 1985. At its manufacturing plant in Milpitas, California, MIC designed and produced several products, including its Gastrostomy Tube to allow the use of a gastroscope to examine the stomach and abdominal cavity and also the Gastrostomy Feeding Kit to allow a patient to receive nutritional liquids through a catheter into the stomach. In February 1993, Ballard spent almost $12.5 million of its cash reserves for all the outstanding MIC stocks. MIC continued to operate under its own name as a wholly owned Ballard subsidiary.

Meanwhile, in 1992 Business Week listed Ballard Medical as number 34 in its annual ranking of America's "100 Hot Growth Companies." The company in April 1992 created a new wholly owned subsidiary called Ballard Real Estate Holdings, which was used to purchase approximately 100 acres of land in Draper surrounding the company's 20-acre site. In August 1992 the firm began using its own equipment to produce in-house some of its Foam Care formulas, thus reducing its reliance on outside manufacturers.

Ballard continued its rapid expansion through the mid-1990s. In February 1993 the firm formed Ballard International, Inc., a subsidiary incorporated in the Virgin Islands, to gain tax benefits in overseas sales. In order to manage the sudden increase in the number of products in the company's line as the result of the acquisition of Medical Innovations Corporation, the company created two sales groups, one to market its own products such as Trach Care and the other to promote MIC products. The company also added many new sales representatives to market its expanding number of products. Ballard Medical on September 9, 1993 moved its stock from NASDAQ to the New York Stock Exchange.

New acquisitions and other corporate changes were reflected in new officers and board members. In 1993 Dale H. Ballard, Jr., owner of a financial planning company called Stratco, joined the board of directors, and attorney Paul W. Hess became a board member and general counsel for the firm. Harold R. Wolcott in 1993 was chosen as the company's general manager and the following year added the title of executive vice-president. In 1994 the firm welcomed Bradford D. Bell as its new vice-president of sales and marketing. He became the sixth company officer, doubling the number of officers since 1992. Dale H. Ballard, Sr. continued as the firm's president, CEO, and board chairman.

Continued Growth in the 1990s

Fiscal year 1994, according to Ballard Medical's annual report, "was a difficult year in some respects ... [which] resulted in relatively flat sales and lower profits." The firm did spend $3.2 million to expand and remodel its Draper plant to a total of 276,000 square feet. However, modest financial gains resulted from difficulties in adjusting the company's distribution system to accommodate changes in hospitals, price cutting in a very competitive industry, delayed FDA approvals, more hospital group purchases, and uncertainty about health care reforms during President Clinton's first years in office. Ballard's net sales increased from $64.8 million in fiscal 1993 to just $65.1 million in 1994, and the company's net income dropped from $18.5 million in 1993 to $14.8 million in 1994. Ballard had no debt, so in spite of this one year's poor results, the company was poised for major expansion as the decade continued.

A key part of that expansion in 1995 and 1996 focused on acquisitions. In May 1995 Ballard, through its California subsidiary MIC, purchased Cox Medical Enterprises, Inc. of Ventura, California. This $4 million acquisition added disposable endoscopic equipment for both pulmonary and gastric systems to Ballard's product mix. Included in this new product line were Cox Medical's disposable dual-purpose forceps used for both precise biopsies of tissue samples and also coagulating blood to minimize bleeding and thus make these procedures as safe as possible.

As a result of this acquisition and continued development of its own products, "fiscal year 1995 was the best year in the Company's history," according to the firm's annual report. Net sales jumped to $81.8 million in 1995 and net income increased 38.2 percent to $20.4 million in 1995.

With more acquisitions in fiscal year 1996, Ballard saw continued sales and income growth. In November, 1995 Ballard spent $2.5 million to purchase a 19.5 percent preferred equity interest in Neuro Navigational Corporation (NNC), plus the option to purchase all of that company's stock within two years. Based in Costa Mesa, California, NNC designed and produced fiberoptics devices and disposable microtools that facilitated precise brain surgery. NNC's main products, disposable microendoscopes, allowed a surgeon to operate on the brain with only a tiny incision, thus preventing bleeding and other complications. Such technology reduced hospitalization and overall medical costs.

In April 1996 Ballard for about $1.2 million purchased virtually all the assets of a Pennsylvania company called Endovations, Inc., formerly a subsidiary of Arrow Precision Products, Inc. Endovations' products included trademarked CAN-OPT items for endoscopic detection and surgical removal of gallstones. Like the NNC products, Endovations' technology helped make some kinds of surgery much less traumatic. Ballard's second completed acquisition in 1996 was Mist Assist, Inc. of Camarillo, California. Its only product was a device to help breathing exercises and deliver medications during respiratory therapy.

Next, Ballard in August 1996 spent $3.6 million through its new Canadian subsidiary, Ballard Medical Products (Canada) Inc., to buy all the outstanding capital stock of 691555 Ontario Limited, operating as Preferred Medical Products (PMP). Ballard also spent about $875,000 for PMP's manufacturing plant in Thorold, Canada. PMP made special trays for steroid injections for those in chronic pain, specialty needles to minimize pain, and other products.

Ballard Medical the following month acquired Plastic Engineered Products Company (PEPCO) of Canal Fulton, Ohio. In exchange for 238,727 shares of its common stock valued at about $4.5 million, Ballard gained all outstanding shares of PEPCO's capital stock. PEPCO produced sponge-tipped swabs used to clean and freshen the mouth, gums, and tongue of critically ill patients.

Meanwhile, Ballard decided to expand its manufacturing capability by building new facilities in Pocatello, Idaho, and moving its Medical Innovations subsidiary there. In 1996 Ballard purchased twenty acres from Idaho State University on which to locate its new plant.

One month after Forbes listed Ballard Medical as one of the nation's top 200 small companies, the firm acquired yet another company. For $11.4 million, Ballard in December 1996 obtained 90.1 percent of the outstanding shares of the capital stock of Carlsbad, California-based Cardiotronics Systems, Inc., a maker of disposable heart stimulation electrodes.

In February 1997, Ballard Medical signed a major contract with Premier, a Chicago-based purchasing alliance of 1,100 health care organizations and 250 owners of 700 hospitals and other medical facilities. The sole-source three-year agreement, with an option for two more years, stipulated that Ballard would provide its Trach Care line of products to Premier's members. This method of group purchasing allowed individual hospitals to save money and saved Ballard the time and expense of marketing to so many organizations.

Ballard's contract with Premier was indicative of Ballard's strong position within the industry. Although Ballard faced several competitors for many of its disposable products, the company's Trach Care system remained the nation's top-selling closed tracheal suction/ventilation system. In 1995, Ballard's Trach Care sales of $46 million accounted for 29 percent of the entire tracheal suction market. Concord, Ballard's only competitor in the closed-system market, had six percent of the market, while ten to twelve manufacturers of open systems had 65 percent of the market. Although closed systems cost more than open systems, their advantage in reducing the risk of pneumonia and other airborne illnesses, thus promoting patient recovery, could decrease lawsuits from hospital-caused infections.

In addition to rapid expansion on the domestic front the mid-1990s saw promising increases in Ballard's international sales. In 1996 Ballard distributed its products in England, Germany, Italy, the Netherlands, Japan, and the Pacific Rim, and planned to expand into Spain and France.

With a solid array of products, an effective sales team, and well-managed finances, in 1997 Ballard Medical Products seemed poised for more success in the future. However, the question of future leadership remained a concern. Since Dale Ballard had played a significant role in the biomedical industry for over forty years, and remained at the helm of Ballard Medical in 1997, effective new leaders were essential for the company's long-term achievement in a highly competitive and rapidly changing industry. The fact that several new officers and directors joined the firm in the 1990s indicated that the company was preparing for the eventual transition to the next generation of management.

Principal Subsidiaries: Medical Innovations Corporation; Ballard Real Estate Holdings, Inc.; Ballard International, Inc.; Ballard Medical Products (Canada) Inc., dba Preferred Medical Products; Mist Assist, Inc.; Plastic Engineered Products Company.

Ballard Medical Products History

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