Take heavy doses of research and development, local manufacturing and a scrappy willingness to battle big names, and you’ve got Applied Medical Resources Corp.
The privately held medical device maker in Rancho Santa Margarita has seen its sales and employment surge in recent years and could be poised for an eventual initial public offering.
“We do have the intention of being public at the right time and the right place, and that might very possibly be in the foreseeable future,” Chief Executive Said Hilal said.
Applied Medical makes catheters, clamps, stents, guide wires and laparoscopic devices. The company’s products are used during surgery, including on the heart, chest and blood vessels.
The company, which has more than 760 local workers, has seen its overall work force grow to nearly 1,000, up 30% from a year ago.
Applied Medical’s added more than 150 workers locally in the past year.
“The ability to find talented people is not a problem,” Hilal said. “We would like to think that we have a disproportionate number of exceptional people who not only want to innovate, but at the same time make a difference.”
Applied Medical had sales of $103 million for the 12 months through June, up 40% from a year earlier.
Hilal attributes Applied Medical’s growth to research and development spending.
“A typical company our size would spend somewhere between 6% and 8% (of sales) on research and development,” he said. “Applied has consistently spent 20% to 22% of every dollar of revenue on research.”
Comparisons aren’t easy,Applied Medical competes with some of the biggest names in medical devices, including Johnson & Johnson, which spends about 14% of revenue on research, and U.S. Surgical, part of Tyco International Ltd., which doesn’t break out healthcare research spending.
“The sadder part (is that) innovation ends up being blamed for higher costs, and medical companies tend to claim that if the consumer wants better medicine, then the consumer should pay more,” Hilal said. “Innovation can do more than one thing. It can improve clinical outcomes, and, at the same time, it can improve value.”
Sales Force
Applied Medical has what Gary Johnson, president of its general surgery division, calls a “remarkably large” sales team for the company’s size. It has 225 direct sales representatives in the U.S. alone, he said.
The representatives deal with “every level” of the sales process, including the technological aspects of Applied Medical’s products, Johnson said.
A salesperson might go to a clinician and show how a device could take a colon procedure from a major surgery to a less invasive laparascopic one, he said.
“It’s a completely different selling process than say, going to a hospital and saying, ‘I can save you a lot of money on a product you buy a whole bunch of,'” Johnson said. “That’s a completely different sales team.”
Applied Medical has gotten a boost selling to hospitals after Congress and the media took aim at hospital buying companies a few years ago.
Critics contend the buying groups favor big medical device makers, including Tyco and Johnson & Johnson.
The hospital supply market got “narrowed down to a few large players that controlled all the access to the market,” Johnson said.
The scrutiny led Premier Inc., a large, San Diego-based nonprofit that helps its member hospitals buy supplies and equipment, and Novation LLC, a rival buying group out of Irving, Texas, to open up to more suppliers.
Applied Medical shared its fight to get into hospitals with another local medical device maker, Irvine’s Masimo Corp., which took on Tyco’s buying group dominance in oxygen meters.
Applied Medical sued Johnson & Johnson over laparoscopic surgery products sold to hospitals. The company had a long-term love-hate relationship with J & J.;
In the late 1990s, J & J;’s Ethicon Endo-Surgery Inc. licensed Applied’s patents for its Universal Seal product.
But a few years back, Applied sued J & J; charging it with antitrust violations for its supply deals with hospitals.
In August, a federal jury rejected Applied’s claims and its demand for $54 million in damages.
Applied Medical has taken on Tyco, too.
It has fought U.S. Surgical over patents in the past 10 years. The latest salvo was fired last month, when Applied Medical said it filed a patent infringement countersuit against Tyco and U.S. Surgical.
Tyco called the suit “a response to asserted claims set forth in our lawsuit this past July,” according to U.S. Surgical spokeswoman Cindy Holloway.
“Every few years we end up chasing them through a court of law,” Hilal said of Tyco.
Applied Medical makes its products at its Rancho Santa Margarita complex. Many start off as plastic pellets or medical stainless steel sheets and rods.
The company has resisted outsourcing in favor of expanding production here.
“We’re very proud of our workforce,” Hilal said.
The device maker has what it calls good ties with the Food and Drug Administration because of an emphasis on “good science,” Hilal said.
“If you supply them with good science and if you commit yourself to the proper approaches, then they’re going to be your allies, not your detractors,” he said. “If you’re doing the right thing, they’ll sense it.”
Expanding
Applied Medical, which started in 1987, is expanding. It just struck a $45 million building and land deal in the Irvine Spectrum.
The company bought a 244,000-square-foot industrial building and a 27,000-squre-foot office building. The deal also includes 6.5 acres of land next to the two buildings. Applied Medical could build a third office or research and development building.
Applied Medical plans to keep its Rancho Santa Margarita operation and use the Irvine buildings as a second campus, company spokeswoman Mary Jo Stegwell said.
