Deltec, Inc.

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Deltec, Inc.

1265 Grey Fox Road
Saint Paul, Minnesota 55112-6929
U.S.A.
Telephone: (651) 633-2556
Toll Free: (800) 426-2448
Fax: (651) 628-7485
Web site: http://www.deltec.com

Wholly Owned Subsidiary of Smiths Group plc
Incorporated: 1984 as Deltec Sstems
Employees: 450 (est.)
Sales: $150 million (2002 est.)
NAIC: 339112 Surgical and Medical Instrument Manufacturing

A subsidiary of the British firm Smiths Group plc, Deltec, Inc. designs, manufactures, and distributes medical devices used in ambulatory infusion therapy, including ambulatory infusion pumps, large volume infusion pumps, implantable access systems, dialysis and infusion catheters, needles, and insulin delivery systems. The company’s headquarters is located in Saint Paul, Minnesota. Products include PORT-A-CATH devices that help in the administration of chemotherapy, lowering the risk that chemotherapy drugs will damage tissues surrounding veins, and CADD Pumps, which help in the delivery of drugs such as insulin. In addition, Deltec offers ancillary products: specialized needles, catheters, a subcutaneous tunneling device, communication devices, reservoirs, tubing extension sets, and IV stands.

Three Companies Merge in 1986 to Form Deltec, Inc.

Deltec was created in 1986 when three medical companies felt it was in their best interest to pool technologies and personnel. They were Deltec Systems, Inc. located in Saint Paul, Minnesota; Pharmacia NuTech, in Walpole, Massachusetts; and Pharmacia Hospital Products of Piscataway, New Jersey. The man behind the creation of Deltec Systems was Clark Adams, a marketing manager for Minnesota-based Cardia Pacemakers Inc. In addition to pacemakers, CPI sold insulin pumps controlled by microprocessors, which was the inspiration behind Adams’ idea to develop a light-weight, programmable infusion pump for the safe delivery of drugs over an extended period of time. The pump would be the size and weight of a paperback book, easily transportable by patients. When his employer declined to pursue his idea, Adams resigned in February 1983 to launch his own company to produce a Computerized Ambulatory Drug Delivery System device, or CADD pump. Several months later, Adams was able to convince CPI’s former vice-president for operations, Manuel F. Cabezas, to come out of retirement to serve as CEO of the start-up. They then brought in three more CPI employees, the five of them contributing a total of $385,000 in seed money. By March 1984, Cabezas and Adams had lined up enough outside investors to have $2 million in commitments. For the name of the company they chose Deltec Systems, playing on the term “Delivery Technologies.” The site of their headquarters was the Minneapolis, Minnesota, suburb of Arden Hill. Just starting out, Deltec Systems was also the major beneficiary of a front-page story in the Wall Street Journal concerning patient-controlled devices for delivering painkilling medication, in which the author noted that the company was developing a drug pump for home use by terminally ill cancer patients. A number of major pharmaceutical companies quickly contacted Cabezas. One of the people who called was Frank Brown of Pharmacia, Inc., a North American subsidiary of a $1 billion Swedish conglomerate, Pharmacia AB. Pharmacia also owned Walpole, Massachusetts-based Pharmacia NuTech, which made the PORT-A-CATH, an implantable drug port, and catheters used by cancer patients.

Brown recognized that the infusion pump Deltec Systems was creating could be combined with NuTech’s products to create a total ambulatory drug delivery system. Although Cabezas and Adams, still in the hunt for further funding, met with Brown, at this stage they could not come to terms on a deal. In December 1984, however, another Massachusetts-based Pharmacia subsidiary, Pharmacia Hospital Products Inc., reached an agreement to market the first two models of the Deltec pump: the CADD-VT to administer antibiotics and the CADD-LD, which delivered small dosages of medications. Marketing proceeded well, but by the end of 1985 Deltec Systems was in need of another $5 million to market two later versions of the CADD pump. Because the company was unable to raise the kind of money it expected in a private equity placement, it now became open to a merger with NuTech, which was having its own problems. Because the margin on its products was so slim, the company could not afford to adequately fund its research and development. It became apparent to Brown and the founders at Deltec Systems that all concerned would be better off by consolidating their efforts. Thus, in December 1986 Phamacia merged NuTech and Hospital Products with Deltec Systems, gaining an 81 percent stake in the combined enterprise called Pharmacia Deltec. In addition, Pharmacia contributed $10 million for working capital. Deltec shareholders were given the choice of either selling half or all of their shares for $8.20—a tidy profit on the $2 per share they paid in March 1984—or receiving a proportionate share of the new company.

All Operations Move to Minnesota in 1987

Cabezas became chairman of the board of directors, while Clark Adams resigned, although he later rejoined the company to head business development. Brown took over as the CEO of Pharmacia Deltec and immediately had to decide where to locate the business. For such a small company, it was out of the question to have research and development taking place in both Massachusetts and Minnesota, with administration and marketing conducted in New Jersey. Because the engineers located in Massachusetts and Minnesota were key to the success of the enterprise, Brown knew that he had to choose between Arden Hill and Walpole. Because the pumps were more technically demanding, placing a premium on the talents of Deltec Systems’ engineers, he decided on Minnesota as the home for Pharmacia Deltec to prevent the loss of engineers who might not want to relocate to Massachusetts. Within six months, the marketing and administrative people moved from New Jersey to Minnesota, and by the beginning of 1988 the company was shipping products.

In 1987, Pharmacia Deltec generated revenues of $28 million and the prospects for the company appeared bright. In 1983, Cabezas guessed that the market for drug infusion pumps was in the $500 million range, and only two years later he revised his estimate to $1 billion. What was more easily determined was Pharmacia Deltec’s dominant position in the marketplace, soon controlling about half of the portable drug infusion pump business and 60 percent of the overall market for ports. Management’s greatest fear was that another company might achieve a breakthrough in technology, making obsolete the products of Pharmacia Deltec, which relied on developments from the early 1980s. With its Swedish corporate parent providing financial backing, however, the company seemed to be well positioned to maintain its edge in research and development.

Sales improved to $40 million in 1988 and approximately $60 million in 1989, as Pharmacia Deltec added hundreds of jobs to keep pace with growth. In 1989, the company introduced the P.A.S. Port System, the first peripheral implantable venous access system. In 1991, it brought out the CADD-TPN (Total ParenteralNutrition) pump to address the nutritional needs of patients. In 1993, the company introduced the CADD-Micro pump for intravenous, intra-arterial, subcutaneous, intraperitoneal (abdominal), and epidural (spinal) microinfusions. By now, the pain-control product (patient-controlled analgesia, or PCA) market was gaining strength as doctors became more comfortable with the patient’s ability under certain circumstances to control the flow of drugs into their bodies. Most of the business came from hospitals, where Pharmacia Deltec had the third largest market share with 13 percent. In the home care market, however, the company controlled more than 65 percent of the ambulatory pump business and 85 percent of PCA pumps. In 1993, the company posted sales in the $110 million range.

Changes in the health care field in the early 1990s altered the course of Pharmacia Deltec. In an effort to cut costs, an increasing number of hospitals were opting to do business only with companies that offered a wide range of products. Brown and the management team at Pharmacia Deltec believed that developing new product lines was simply not practical, given how long it took to receive approval from the Food and Drug Administration. Instead, they wanted to expand by acquiring companies with products already on the market. Because of a lack of ready money, Brown claimed that the company lost four acquisition possibilities. Moreover, the company wanted more cash in order to grow the business outside of the United States. Already overseas sales accounted for some 30 percent of all revenues, and management believed it could improve that number to 40 percent given the proper backing. Pharmacia AB was unwilling to invest the kind of money the subsidiary needed, opting instead to concentrate on its European pharmaceutical operations. The Minnesota operation was just a very small part of a large concern, one involved in any number of medical fields, including therapeutic drugs, chemicals for cataract surgery, and growth hormones in addition to medical devices. As Brown explained to the press, “We are not a core business of theirs. So we said if they could not afford to invest in us then we should be divested.” The corporate parent agreed, and rather than attempt a spin-off and go public the subsidiary hired Lehman Brothers in 1994 to find a buyer. According to the Star-Tribune, “Brown said he’s looking for a new parent company that has $50 million to $75 million to invest in Pharmacia, plus a complementary business that could be combined with Pharmacia. Alternately, he’s looking for a company with no complementary business but $100 million to invest in his firm.” It was not the best of times to put the business on the block, with a number of medical stocks underperforming in the stock market and other medical device companies, such as the Cardiac Pacemakers unit of Eli Lilly, also up for sale.

Company Perspectives:

Deltec is dedicated to its customers, who are the patients, doctors, nurses, and pharmacists who use our products. We are committed to improving the lives of patients and strive to make products that push the frontier of medicine forward.

Business Sold to Smith Industries in 1994

Some four months after Pharmacia AB agreed to sell off Pharmacia Deltec, the United Kingdom’s Smiths Industries plc agreed to pay $150 million for the business, including the assumption of debt. Smiths Industries, a $4.6 billion company founded by watchmaker Samuel Smith in 1851, was an engineer-focused company looking to become less dependent on its aerospace segment. Today, it is dedicated to four areas of specialization: Aerospace (avionic systems and equipment), Sealing Solutions (mechanical and polymer seals), Industrial (electrical interconnect systems), and Medical (devices and equipment). Once the purchase of Pharmacia Deltec was completed, the company was renamed SIMS Deltec, Inc.

Although it had a new corporate parent with deep pockets, SIMS Deltec did not pursue the acquisition strategy that Brown had been so keen about. Not until 1998 did the company grow by external means when Smiths bought Graseby plc and folded the Graseby Medical, Inc. unit into SIMS Deltec. Instead, the Minnesota company continued to focus on its narrow range of products, yet still managed to maintain a sizeable market share in its core businesses. As before, the key was the ongoing development of new models and related products. After receiving FDA approval in 1996, SIMS Deltec introduced a new ambulatory infusion pump, the CADD-Prizm PCS (Pain Control System), intended for the management of acute, postoperative, and chronic pain in both the hospital and home market. Also in 1996, the company introduced the CADD-PRIZM VIP pump, which was able to provide a number of therapies in addition to pain management. On the ports and catheters side of the business, in 1999 SIMS Deltec brought out the P.A.S. Port T2, an implantable peripheral venous access system.

Smiths underwent some organizational changes in 2001, in the process changing its name to Smiths Group plc and creating the Smiths Medical division. SIMS Deltec’s name was shortened to Deltec, Inc. and it was tucked into this new division. The subsidiary continued to market improved versions of its established product lines. A major shift in strategy came in 2002 when the company announced that it was about to enter the potentially lucrative diabetes market and was seeking FDA approval on a new insulin pump, one that would deliver a continuous flow of insulin, both day and night, to better help people manage their diabetes. The advantage to such a system was that it allowed blood glucose levels to remain normal or near normal, reducing significantly the risks of a patient suffering diabetes complications. The insulin pump was the result of years of effort, including gathering input from patients and doctors on an ideal way to deliver insulin. The product, named the Deltec Cozmo pump, was lightweight and as small as a cell phone. It was also easily maintained, powered by a single AAA battery and merely requiring that a short section of plastic tube, inserted just under the skin, be replaced every few days. In addition, the device contained a number of safety features to ensure proper usage. Later in 2002, the company received FDA clearance and began to ship the Deltec Cozmo insulin pump. The company estimated that the world market for insulin pumps would be worth $1.5 billion within five years. If that estimate proved correct, Deltec was on the verge of becoming very much a cash cow for its corporate parent.

Principal Operating Units

Clinical Research; R & D Product Development.

Principal Competitors

Abbott Laboratories; CR. Bard, Inc.

Key Dates:

1984:: Deltec Systems is incorporated.
1986:: Deltec Systems merges with Pharmacia NuTech and Pharmacia Hospital Products to form Pharmacia Deltec.
1994:: Smith Industries acquires the company, which is renamed SIMS Deltec.
2001:: Company is renamed Deltec, Inc.
2002:: Insulin pump is introduced.