Mentor Corporation

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Mentor Corporation

5425 Hollister Avenue
Santa Barbara, California 93111
U.S.A.
(805) 681-6000
Fax: (805) 964-2712
Web site:http://www.mentorcorp.com

Public Company
Incorporated: 1969
Employees: 1,612
Sales: $215.2 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: MNTR
SICs: 3842 Surgical Appliances & Supplies; 3841
Surgical & Medical Instruments

A fast-growing company, Mentor Corporation produces breast implants, tissue implants, facial implants, and penile implants for the treatment of impotence, as well as incontinence products and ophthalmology products. Mentor initially produced products for incontinence, recording its first success with a disposable catheter introduced in 1974. By virtue of a series of acquisitions in the 1980s and through its own product development activities, the company diversified into plastic surgery products and ophthalmology products. Mentor developed its first penile prosthesis in 1980 and gained entry into the market for breast implants through the acquisition of Heyer-Schulte in 1984, a transaction that more than doubled the company’s sales. Entry into the manufacture of ophthalmology products, which were used in cataract and glaucoma surgery, was achieved through the acquisition of Mentor O&O in 1990. Between 1990 and 1998, Mentor’s sales increased energetically, rising from $50 million to more than $200 million. The company markets its products to physicians, hospitals, health care providers, and general consumers in the United States and abroad.

Founded in 1969

The dominant personality behind Mentor’s creation and its ensuing success was Chris Conway, who earned as many detractors as he did supporters. Conway began his career as a research fellow in neurology at the University of Minnesota’s medical school in 1965. His jump into the corporate world began four years later, when he and his friend and laboratory coworker Eugene Glover developed a pacemaker-like device for bladder control. With an innovative medical device at the ready, the two academics mulled over the idea of starting their own company. The intent, so they claimed, was not to get rich, but to gain independence. Conway left no doubt concerning the value he placed on independence. “The idea of working for a company,” he once remarked, “was abhorrent to me.”

Conway and Glover resolved to go ahead with their entrepreneurial plan in 1969, but before they did so the pair enlisted the help of others. Conway invited his next-door neighbor Tom Hauser, a marketing specialist at Honeywell, to join the partnership, and next asked Gerald Timm, an assistant professor of neurology, to join as well. With the product and the personnel lined up, Conway’s next challenge was to find the money to back the venture. He turned to the stock market, hoping to cultivate enough interest in the proposed business to raise sufficient cash to get started, but after being turned down by Piper Jaffray, Conway decided look elsewhere. He eventually found what he needed through the assistance of an aggressive local broker named Jerry Shapiro, and his new company, Mentor Corporation, was up and running.

Not long after getting started, Conway began to attract the attention that would prompt Barbara Rudolph of Forbes magazine to write: “Despite the image he likes to project, Conway has succeeded by stepping on toes, alienating his friends, and suing his competitors.” The first incident occurred in mid-1971 when Conway sued Gerald Timm for breach of contract. Years later Timm said, according to Rudolph, “I hear that Conway has changed over the years, but when I knew him he could be amoral.” Of the 1971 lawsuit, Conway only offered, “I sued him for disloyalty,” but whatever the personal feelings behind the 1971 dispute, one thing was certain: Mentor was struggling profoundly. From the start, sales were anemic, largely because the medical establishment shunned Mentor’s bladder pacemaker. As a result, the company appeared to be headed for a quick and ignoble end to its brief corporate life, but before financial collapse foundered Mentor, Conway changed his strategy and greatly improved Mentor’s prospects.

Conway decided to eschew the type of pioneering work that spawned Mentor’s bladder control product and instead graft the new onto the old by developing product innovations for established markets. In other words, instead of inventing something to replace the wheel, Conway resolved to develop a better wheel. The new strategy meant the creation of new products, which, in turn, meant Conway needed more money. Again, Conway was successful, raising $300,000 through private placements that funded the development of a new and improved disposable catheter. The Mentor Urosan featured a lining that made it less likely to tighten around the skin, which won the business of the previously indifferent medical establishment. Sales quickly escalated, enabling Mentor to graduate from its status as a fledgling upstart to an established, financially stable company.

Expansion and Diversification in the 1980s

By 1980, sales of the Mentor Urosan and other urological products had pushed Mentor’s annual revenue volume up to $3 million and had necessitated an increase in the number of its employees to 25. These figures represented modest totals for a decade’s work, but from 1980 forward financial and physical growth would be achieved at a much faster pace. The cause of such growth was the company’s foray into plastic surgery products, begun in 1980 when Mentor started the development of an implantable penile prosthesis. In 1983, Mentor received approval from the Food and Drug Administration to begin marketing its penile implant, marking the formal beginning of the company’s involvement in implantable prostheses. Although Mentor’s entry into plastic surgery products represented a pivotal step in a new direction, pointing the company toward a business area that eventually accounted for roughly 50 percent of its total business, a far more immediate boost to its stature arrived one year after the company began marketing its penile implants. In 1984, Mentor purchased the Heyer-Schulte division of American Supply Hospital, an acquisition that more than doubled the company’s sales and greatly diversified its product lines overnight. The Heyer-Schulte division produced several implantable products, most notably breast implants, which bolstered Mentor’s line of plastic surgery products. The acquisition also gave Mentor a new headquarters location in Santa Barbara, the home of Heyer-Schulte, although Mentor kept its Minneapolis manufacturing facility in operation and continued with its expansion in later years.

A decidedly stronger company by 1985, Mentor prepared to expand its horizons further as the latter half of the 1980s approached. Some moves were successful, while others were not, but the net result was robust growth. In 1985, the company developed the Mentor condom, which used the same adhesive-seal technology that had made its male external catheters successful. The Mentor condom earned national recognition, prompting the company to entertain the idea of developing a consumer health products division. Distribution channels were explored for the sale of the Mentor condom on a national scale, with the hope being that once the distribution network was established, the company could then funnel other consumer health products through the same distribution channels. The plan never worked, however, primarily because Mentor never found any other consumer health products it was willing to acquire. Consequently, the Mentor condom line was sold to Carter-Wallace in 1989.

A more lasting addition to the Mentor enterprise arrived the same year the company developed its ill-fated condom line. In 1985, the company acquired its supplier of latex catheter products, a Minnesota-based company named Arcon Corporation. It was a move toward vertical integration that gave Mentor greater control over its manufacturing processes, and was followed in 1988 by the acquisition of another manufacturer, Polymer Technologies Corporation. Based in California, Polymer Technologies produced silicone materials for the manufacture of surgical products, an acquisition that gave Mentor further control over the manufacture of materials used in its product lines.

The 1990s and Beyond

Propelled by the diversification into plastic surgery products and the steps taken toward vertical integration, the company that entered the 1980s with $3 million in annual sales, exited the decade with sales eclipsing $50 million. Not willing to abandon the pursuit of further growth, the company pushed forward as the decade began and resumed its acquisitive activities. In 1990, Mentor purchased Mentor O&O, which coincidentally shared the same name with its new parent company and, to exacerbate the confusion, shared the same founding year as its acquirer, yet was a separate company unaffiliated with Mentor Corporation until 1990. The acquisition represented yet another move toward diversification, providing Mentor entry into the ophthalmology field. Mentor O&O’s prominent product was Polytef, an injectable material used for vocal cord treatments that presented market potential for the treatment of urinary incontinence, one of Mentor’s early strengths. Before the year was through, Mentor completed another acquisition, purchasing Teknar, Inc., a manufacturer of urological and ophthalmic ultrasound equipment.

Company Perspectives:

Mentor Corporation develops high-quality, technically advanced products to solve specific medical problems. Mentor products improve quality of life for patients, simplify medical or surgical procedures, and reduce the costs of medical care. Mentor’s product lines include surgically implantable devices, surgical and diagnostic equipment, and disposable medical and surgical supplies. The company’s products are marketed to physicians, hospitals and patients around the world.

After acquiring Mentor O&O, Conway and his management team felt it was time to reorganize Mentor and create an operational structure that reflected the diversity of its product lines. The company chose to create subsidiary structures that divided its different business areas into separate operating units. Toward this end, Mentor H/S, Inc. was incorporated as a wholly owned subsidiary in 1991 to operate as a stand-alone business for the company’s plastic surgery activities. A similar arrangement followed in 1993 when the company incorporated Mentor Urology. Lastly, the company grouped its international activities into Mentor International, which, in turn, comprised a number of subsidiary branch offices. Although Mentor had been involved in overseas business during the 1980s, achieving steady sales growth throughout the decade, its international activity gained new momentum early in the 1990s. In 1991, the substance of what would become Mentor International took shape when the company opened direct sales offices in Germany, Australia, the United Kingdom, and in Canada. Two years later, Mentor’s international business was given further support with the selection of its first European manufacturing site, located in The Netherlands. The facility, situated in Leiden, opened in 1994.

As the company restructured its operations domestically and abroad, it also looked at its U.S. manufacturing facilities and found an opportunity to increase production capacity, reduce costs, and lower overhead. These objectives were achieved by consolidating its manufacturing facilities in 1993, which entailed the closure of production operations in Santa Barbara, St. Louis, and in Stewartville, Minnesota. Manufacturing was subsequently moved to the company’s production facilities in Minneapolis and Dallas.

After more than three years of reorganization and consolidation, Mentor expanded again in 1994, acquiring the intraocular lens product line from Optical Radiation Corporation. The acquisition gave the company a manufacturing facility in Puerto Rico and broadened its capabilities in the ophthalmology field, enabling Mentor to offer surgeons an extensive line of products for treating cataracts. Although ophthalmology represented one of the smallest segments of Mentor’s business during the 1990s, accounting for roughly 15 percent of the company sales at the end of the decade, the expansion of the business segment was seen to be a lucrative opportunity for growth. Cataract surgery ranked as the most frequently performed surgical operation in the world and accounted for roughly 70 percent of the average ophthalmologist’s annual income. Consequently, the strengthening of Mentors’ ophthalmology business offered great potential for growth as the company entered the late 1990s and prepared for the 21st century, but the same could be said of the company’s largest business segment, its plastic surgery products business. Accounting for 50 percent of the company’s sales in the late 1990s, plastic surgery products were also demonstrating vigorous sales growth, increasing at a better than 23 percent pace. Mentor controlled approximately 55 percent of the growing U.S. breast implant and reconstruction market, while its ultrasonic liposuction equipment, which was also included in the company’s plastic surgery products segment, promised to generate considerable sales.

Against this backdrop, Mentor occupied an enviable position as it planned for the future. The company was building its presence in burgeoning markets and it held an entrenched position in growing markets. From this perspective, Mentor appeared poised for pronounced gains in sales and profits, with its diversity offering several avenues of expansion for the future.