Advanced Neuromodulation Systems, Inc. - New Leadership in Late 1990s

New Leadership in Late 1990s

While Quest was completing its transformation, Thompson retired in December 1997, replaced as president and CEO on an interim basis by Chief Financial Officer F. Robert Merrill III. A permanent replacement, Christopher G. Chavez, was hired in April 1998. A Harvard Business School graduate, Chavez had more than 20 years of experience in the medical device industry, 16 of which were at Johnson & Johnson Medical Inc., where he served stints as general manager of the Infection Prevention business unit, director of international marketing, and director of new business development. He was attracted to ANS because of its promise, telling Dallas Business Journal in 2004, "The company had a beautiful idea that was poorly executed." Moreover, he took over a company that was essentially debt-free, holding $19 million in cash.

Shortly after Chavez took over, ANS took steps to transfer its expertise in electrical stimulation technology to other markets. It forged an alliance with Sofamor Danek Group Inc. to develop a deep brain stimulation system to treat Parkinson's disease, epilepsy, and other conditions. A few months later, however, Medtronic, Inc. acquired Sofamor Danek and ANS completed a buyout of its contract with Sofamor Danek. ANS also became involved in the programmable intrathecal drug pump business through an alliance with a German company, Tricumed Medizintechnik Gmbh.

After three years of research and development, ANS launched the Renew RF stimulation system in the U.S. market in June 1999. Sales were so strong that by the end of the year ANS controlled a 50 percent share of the radio-frequency SCS market. Product sales grew by 21 percent to $20.6 million. Overall, revenues grew to $35.8 million and net income totaled $5.8 million. Also during the year, ANS opened a new, state-of-the-art facility to position the company to handle even greater levels of demand for its products.

ANS completed development of AccuRx, its implantable drug pump, in 2000. Much of the technology used in the device was licensed from Implantable Devices Limited Partnership (IDP). In January 2001, ANS acquired IDP, along with another company, ESOX Technology Holdings, LLC, to solidify the company's leading position in implantable drug pump technology. AccuRx began clinical trials in the United States in the first quarter of 2001, and during the second quarter of the year the company began selling the device in foreign markets.

While AccuRx was being launched internationally, ANS was also developing its Genesis IPG SCS system, working closely with a New Jersey company, Hi-tronics Designs, Inc. (HDI), which ANS also acquired in January 2001. Not only did HDI bring with it technology used in Genesis but also expertise in the design of energy-efficient electronic circuits that could be used in the design of products to help in the pain management of numerous conditions. Moreover, HDI was a contract developer and OEM supplier of electromechanical medical devices, thus adding an additional revenue stream. ANS began selling Genesis in Europe in 2001 and in the United States in 2002. After receiving FDA approval, GenesisXP was launched in the U.S. market in the fourth quarter of 2002.

Revenues increased to $37.9 million in 2001, $57.4 million in 2002, and topped $91 million in 2003. Net income during this period improved from $1.5 million in 2001 to more than $13.2 million in 2003. The company was expanding on a number of fronts. It was especially aggressive in building up its sales force, in an effort to switch from a distributor network to a direct sales force. In 2003 the company acquired the pain management system of three of its top distributors in the United States: Seattle-based Comedical, Inc.; Clifton, New Jersey-based State of the Art Medical Products; and Arlington, Texas-based Sun Medical, Inc. Combined they had done about one-third of ANS's business. As a result of these acquisitions, in just a matter of five years, ANS had gone from being a company that was 100 percent dependent on distributors to one that did just 10 percent of its business through independent distributors. To accommodate its growing business, ANS also moved into a new facility in Plano, Texas, in 2004. ANS looked to expand its product lines as well as markets. In November 2002 it acquired MicroNet Medical, Inc., adding spinal cord stimulation leads that might prove useful in the treatment of Parkinson's disease and migraines. ANS also teamed up with Boston Scientific to enter the Japanese market and established subsidiaries in Germany and Australia.

ANS received some unwanted publicity in 2005 when it announced that it was the subject of a federal investigation of certain of its sales and marketing practices. According to the Wall Street Journal in February 2005, "U.S. regulators are looking into past promotional practices at Advanced Neuromodulation Systems Inc., which several years ago offered doctors $1,000 if they implanted a pain-management device in certain patients for a five-day trial…. A question that investi gators have studied in prior cases has been whether payments to individual doctors constituted compensation for clinical trials, or inducement to use a medical device or drug." In fairness to ANS, it appeared that the federal government was targeting the industry as a whole. Within weeks, investigations were launched concerning the sales and marketing practices of numerous orthopedic spine companies and other medical device manufacturers.

Sales improved to $120.7 million in 2004 and net income grew to $18.2 million. Despite the cloud of investigation, ANS seemed well positioned for the future. Baby Boom patients, unlike their stoic parents, were not shy about demanding pain management products, an attitude that translated into continuing sales growth for ANS products. In addition, neuromodulation held great promise in a wide variety of applications, such as depression, obesity, Alzheimer's, Lou Gehrig's disease, stroke, and obsessive-compulsive disorder. Should ANS successfully apply its technologies to the treatment of some of these areas, its future was indeed promising.