Spacelabs Medical, Inc.

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Spacelabs Medical, Inc.

5150 20th Avenue, S.E.
Issaquah, Washington 98027
U.S.A.
Telephone: (425) 657-7200
Toll Free: (800) 522-7025
Fax: (425) 657-7212
Web site: http://www.spacelabs.com

Business Segment
Incorporated: 1958
Employees: 750
Sales: $242.1 million (2001)
NAIC: 334510 Electrical and Electrotherapeutic Apparatus Manufacturing; 339111 Laboratory Apparatus and Furniture Manufacturing; 339112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing; 511210 Software Publishers

Spacelabs Medical, Inc., wholly owned by OSI Systems, Inc., is a leading global provider of patient monitoring systems for critical care, emergency, and perioperative areas. Its integrated solutions include wired and wireless networks, clinical information connectivity, ambulatory blood pressure monitors, and medical data servers.

1958–80s: NASA's Maker of Health
Monitoring Systems Enters Acute Care World

Ben Ettelson and James A. Reeves founded Spacelabs in 1958 to collaborate with the U.S. Air Force to develop systems to monitor the vital signs of U.S. astronauts in space. On the historic four-day Gemini IV mission in 1965, astronauts James McDivitt and Edward White wore Spacelabs' gear so that NASA's mission control could monitor their temperature, respiration, and cardiac output.

In the mid-1960s, Spacelabs began to develop monitoring systems for hospitals, and by 1968, the company introduced its first ICU and CCU monitoring systems. From that time onward, the company broadened its scope beyond single, stand-alone patient monitors. During the late 1960s and early 1970s, it made significant advances, culminating in its first monitoring system to incorporate microprocessor technology. Spacelab's "Alpha" was the first modular monitor and the first to allow systems communication via a data bus. Another first occurred in 1979 that changed the direction of critical care monitoring when Spacelabs introduced a bedside arrhythmia detection monitoring module.

In 1980, Squibb acquired Spacelabs as part of a trend on the part of pharmaceutical companies to invest in medical electronic companies. These companies subscribed to the theory that pharmaceutical therapies were synergistic with diagnostic and monitoring businesses. Dennis C. Fill oversaw the creation of the Squibb Medical Systems Group and managed Advanced Technology Laboratories, Squibb Medical Systems, and Spacelabs Inc. In 1981, Spacelabs' sales exceeded $50 million, and the following year it moved its corporate offices from Chatsworth, California, to Redmond, Washington. In the early 1980s, it added significantly to its acute care product line with improvements to its patient data management systems, including noninvasive blood pressure and cardiac output measurement.

In the mid-1980s, the company introduced the Patient Care Management System (PCMS). Based on a completely new system architecture, PCMS allowed for the foundation of a hospital-wide integrated clinical information system and changed the course of patient monitoring with touchscreen controls, Ethernet communication, and "smart" modules that optimized system flexibility and upgradeability. The PCMS was still the industry's only system to integrate with other manufacturers' bedside devices through its bedside monitor.

However, Squibb soon discovered that diagnostic and monitoring equipment were not really synergistic with its pharmaceutical core business and spun off its medical electronics businesses in 1986 into a new company, Westmark International Inc., which was based in Washington state. Fill, who believed in the businesses that Squibb had acquired, left Squibb to head Westmark, which made and distributed diagnostic imaging systems and patient-monitoring systems. Spacelabs, which had grown steadily throughout the last ten years, topped $200 million in revenues by 1991. In 1992, Westmark spun off Spacelabs under Carl A. Lombardi and began trading under the symbol SLMD.

1990s: Broadening Product Lines
and International Reach

Throughout the late 1980s, Spacelabs expanded internationally, opening offices in England, Australia, France, and Germany, and, in the early 1990s, offices in Singapore, Hong Kong, and Austria. In 1990, it purchased First Medical Devices Corp., maker of semi-automatic heart defibrillators. The late 1990s saw further expansion with subsidiaries in Beijing and Mexico City and offices in Sweden, Belgium, Italy, Spain, India, and Taiwan. In 1995, Spacelabs also acquired a second company, Consolidated Peritronics Medical, Inc. This last acquisition added labor and delivery clinical information systems, including basic fetal surveillance software, to Spacelabs' offerings.

Spacelabs also continued to expand upon its own systems throughout the 1990s. In 1990, it introduced a compact version of its bedside monitor that allowed monitoring while transporting patients between care areas. In 1994, it brought out its Patient Care Information System (PCIS), which changed the monitoring network into an information network by integrating patient monitors at the patient bedside or at a central station with hospital information systems and resources. In 1995, the first bedside module for continuous cardiac output monitoring debuted as well as a portable monitor for wireless network monitoring. In 1996, the PCIS Physician Workstation Windows compatible software was developed to allow remote, continuous access to a networked patient's waveforms and clinical information via a computer and modem.

Spacelabs once again broadened its product line with strategic acquisitions in 1997. The company purchased Advanced Medical Systems, which expanded its perinatal product line, and Burdick, through which it staked a claim in the self-care and primary care markets. "Getting together with Burdick was a very good fit for us, filling in some of the markets we wanted to address," announced the company's chief executive officer, Carl A. Lombardi, in a 2000 Repertoire article. Burdick came with a distribution network, which complemented Spacelabs' own.

Spacelabs also signed an agreement in 1998 with Medical Insight R & D, B.V. for the exclusive rights to market and distribute Medical Insight's anesthesia delivery system. With this agreement in place, Spacelabs became able to offer a complete system for patient management, making it possible for data from anesthesia delivery and patient monitoring to be integrated into the consolidated patient record. Its next generation patient-monitoring platform, the Ultraview Care Network, which appeared in 1998, provided local and remote access to the patient's longitudinal records and allowed doctors to monitor readings from several stand-alone medical instruments at same time.

2000–04: Looking for a Buyer

Yet despite this growth, "[t]he adoption of electronic medical record technology has been slower than expected," Lombardi confessed in a 2000 MDSI Repertoire article. According to Lombardi, hospital staffers were preoccupied with Y2K and reimbursement issues. As a result, Spacelab's revenues of $300 million in 1999 amounted to only about $10 million in profits that year. In 2000, revenues decreased to $249 million with $4.7 million in losses. The downward trend continued in 2001 with revenues of $242 million and losses of $2.1 million. In addition, the company's stock price grew only two percentage points from 1992 to 2001, leading Spacelabs' largest shareholder, New York investment firm Tweedy, Browne Co. LLC, to press for a takeover. The company had, in November 2000, rebuffed a hostile takeover attempt when Cardiac Sciences of California offered to buy it for $143 million.

Company Perspectives:

More time to care is the essence of every Spacelabs solution. Ask caregivers all over the world what is most important in providing the highest standard of care and their answer is the same: time with the patient. As hospitals around the globe are asked to achieve increasingly difficult objectives with tighter budgets, time for patient care grows even more precious. After many years of partnering with caregivers, Spacelabs understands caregivers' needs and consistently delivers these vital efficiencies: fast, accurate, comprehensible patient data; intuitive, easy-to-use monitors; anytime, anywhere access to monitoring information; flexible, open-system technology platforms.

Key Dates:

1958:: Ettelson and Reeves found Spacelabs.
1968:: Spacelabs introduces the first ICU and CCU monitoring systems.
1974:: Spacelabs launches the first monitoring system to incorporate microprocessor technology.
1980:: Squibb acquires Spacelabs.
1986:: Spacelabs becomes part of Squibb Corp.'s Westmark International Inc.
1992:: Westmark spins off Spacelabs, which begins trading under the symbol SLMD.
1995:: Spacelabs purchases Consolidated Peritronics Medical, Inc.
1997:: The company acquires Burdick and Advanced Medical Systems.
1998:: Spacelabs acquires exclusive rights to market and distribute Medical Insight R & D's anesthesia delivery system.
2001:: Spacelabs sells its headquarters building in Redmond, Washington.
2002:: Spacelabs becomes a division of Instrumentarium, Finland's largest medical equipment maker; GE Medical Systems purchases Instrumentarium and acquires Spacelabs; Quinton Cardiology Systems buys Burdick from Spacelabs.
2004:: OSI buys GE Medical Systems.

However, by 2002, after Lombardi announced his decision to retire, Spacelabs, faced with ongoing losses and with dramatic consolidation in its industry, began looking to sell itself. It had sold its headquarters building in Redmond, Washington, in 2001 for $80 and then leased back the space. In 2002, it shut down its printed circuit board manufacturing unit and switched to an outside manufacturer.

Finland's largest medical equipment maker, Instrumentarium, which had sales of $920 million in 2001, purchased Spacelabs for $140 million in 2002. As a division of Instrumentarium, Spacelabs continued to serve its U.S. customers directly through existing sales channels. In international sales of critical care systems, the Spacelabs Medical division began to cooperate closely with another division of Instrumentarium that specialized in anesthesia machines and nitric oxide devices, Datex-Ohmeda. With the purchase of both Datex-Ohmeda and Spacelabs, Instrumentarium became the world's largest manufacturer of anesthesia systems.

Later in 2002, two-year-old GE Medical Systems purchased Instrumentarium, acquiring both Datex-Ohmeda and Spacelabs as part of the $2.06 billion purchase. General Electric Co. had formed GE Medical Systems in 2000 as a stand-alone division to offer electronic record-keeping to hospitals. U.S. Justice Department officials, like their counterparts at the European Commission, approved the deal with the stipulation that General Electric divest itself of Spacelabs and a mobile x-ray product line and provide other makers of patient monitors with the information needed to interface with Spacelabs' equipment. General Electric also had to license its gas monitoring modules and other anesthesia supply machines for a period of several years to Spacelab's buyer in order to ensure the emergence of an effective competitor.

Spacelabs itself sold its Burdick acquisition, a division that mainly produced electrocardiographs and heart monitors, to Quinton Cardiology Systems for $24 million in 2002. The two companies set up a sales and marketing partnership to offer hospitals packaged deals on equipment purchases.

In January 2004, General Electric Co. found a buyer for Spacelabs in OSI Systems Inc. OSI agreed to pay $57 million for Spacelabs, which by that date had an installed base of about 100,000 patient monitoring units worldwide. Spacelabs' management was still confident that electronic medical records would find their way into healthcare and that these would improve the timing and accuracy of patient information.