Advanced Neuromodulation Systems, Inc. - Beginnings in Late 1970s

Beginnings in Late 1970s

ANS was incorporated in May 1979 as Medicor, Inc. by veterans of the medical device field, including its president, Thomas C. Thompson, who had earlier founded a company that made intravenous catheters. After the intravenous catheter company was sold to Baxter Travenol, Thompson joined forces with seasoned executives who had worked at Johnson & Johnson, Eli Lilly's IVAC unit, and IMDE, a Warner-Lambert subsidiary. The partners got into business in October 1979 through acquisition, picking up a four-year-old Dallas company called Med-Pro Ltd., which made its money selling surgical tape but harbored a great deal of potential in the intravenous (IV) tubes and electronic IV devices it had under development. A few months later, in January 1980, Medicor changed its name to Quest Medical, Inc. The company went public in April 1981 selling shares at $2. The timing of the offering proved to be propitious. The company's Intelligent Infusor IV device was unveiled to investors in 1982 at an ideal time, as the fast-growing intravenous market was receiving a great deal of attention on Wall Street, due in no small measure to Warner-Lambert's $468 million buyout of IMED. As a result, Quest's stock price approached $9 by the end of 1982.

Quest began selling the infusor in 1983 and appeared poised to enjoy a prosperous future, but changes in the marketplace derailed the company's plans. First, Medicare and Medicaid reimbursements became more stringent, causing hospitals, Quest's main customers, to become more cost-conscious and to turn to less expensive technologies. By making intravenous tubes and accessories, and blood pressure and electronic pulse rate measuring devices, the company was able to scrape by until hospitals became more comfortable with the government's tighter reimbursement policies and infusor sales picked up. Quest's revenues grew from $4.8 million in 1983 to $10.7 million in 1985, when the company turned a profit of nearly $200,000. Arguably, Quest offered the best infusion device in the industry, but the competition was larger and better funded. Both Abbott Laboratories and Baxter Travenol Laboratories Inc. brought out their own IV pumps, and what they may have lacked in quality they compensated for in pricing, bundling the devices with IV solutions and offering them at a discount. Quest continued to grow sales in 1986 to $13.7 million but posted a loss of $323,000.

Unable to compete against its much larger rivals, Quest decided in September 1987 to sell its IV infusion device business to Colgate Palmolive Co.'s subsidiary Kendall McGaw for $9 million. Additional payments were contingent upon the favorable outcome of a patent infringement suit brought by Minnesota Mining & Manufacturing Co. (3M). After a federal district court judge ruled in its favor in April 1989, Quest received another $2.8 million from Kendall McGaw. While Quest continued to manufacture surgical tapes and IV tubing sets, Thompson and his management team scouted for a good use for their reserve of cash—and executive experience—primarily targeting for acquisition medical companies that manufactured disposable products sold directly to hospitals. Ideally the manufacturing could be relocated and consolidated with Quest's Dallas operation.

Although it was keen on finding a new business as soon as possible, management was also determined to make sure an acquisition was a good fit. As a result, Quest's search lasted several years. Along the way, the company tried in 1988 and 1989 to acquire HemoTec Inc., a Colorado maker of blood coagulation products used during heart surgery. HemoTec rejected an initial offer, and after Quest improved the bid and acquired 23 percent of its stock, HemoTec merged with another company rather than be acquired by Quest. Still, the episode proved profitable to Quest, which pocketed $1.1 million after selling HemoTec stock. Ironically, in August 1990 Quest found itself the object of an unsolicited merger offer from Titan Holdings Inc., a San Antonio-based private insurance holding company that considered Quest, as currently configured, more of an investment company than a medical products company. Hence, Titan's management team believed it was more suited to optimizing shareholder value. From the point of view of Quest's management, however, Titan was simply looking for a chance to go public while picking up an attractive investment pool. The bulk of Quest's shareholders agreed, putting an end to the bid.