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Company Perspectives:
CryoLife, Inc.--the leader in transplant preservation, surgical adhesives, and tissue engineered implantable devices--makes an overwhelming commitment to the wellness and spirit of people of the world by providing state of the art implantable devices for patients.
CryoLife, Inc., headquartered in Kennesaw, Georgia, is an industry leader in the biomedical development and commercial adaptation of ultra-low temperature preservation or "cryopreservation," the process by which viable cardiovascular and orthopaedic human tissues (primarily heart valves, leg veins, and cartilage) are preserved for use in vascular or orthopaedic surgery. It provides this biomedical service in the United States and Canada, where it "harvests" such donor tissues from hospitals and coroners, then, for a fee, processes and stores them. By law, the company cannot directly sell human body parts, but it can process and preserve them for a fee. Their end users, surgical transplant patients, pay the relevant fees when the stored tissues are implanted. The company specializes in vascular products, including heart valves and conduits, but it also stores and provides cartilage and tendons for orthopedic surgery. Through its CryoLife International, Inc. and CryoLife Europa, Ltd. subsidiaries, it also markets its products and services in 42 countries spread across the globe. Among other significant products, CryoLife has developed its SynerGraft line, tissued engineered heart valves and vascular graft replacement products, and BioGlue, a bioadhesive bonding product for use in aortic dissections. Through its AuraZyme Pharmaceuticals unit, formed in 2001, the company also develops and markets light-activated drug-delivery systems. CryoLife's CEO, president, and chairman is Steven G. Anderson, one of the company's co-founders.
1984-92: CryoLife Emerges
CryoLife came into being in 1984, when Ray H. Holloway and Steven G. Anderson partnered to found it. Holloway, who had been selling mechanical hearts, saw the open-ended potential of using preserved heart values in transplant surgery after the University of Alabama had begun using such cryopreserved valves rather than the artificial products he was then marketing. He teamed up with Anderson, who had served as a marketing executive for Intermedics, a pacemaker manufacturer. The new enterprise became the first biomedical company to develop, for commercial use, the low temperature "cryopreservation"of tissue for surgical implant.
One of the chief obstacles to early success was the negative, even unsavory aura of cryogenics, prompted in part by Robin Cook's best selling novel Coma (1977) and the movie adaptation of that work released in 1979. But there was resistance within the medical community as well. According to Anderson, quoted in a 1987 article in Business Atlanta, the problem was that, although "the technique was well-documented," it was still "stuck in the research lab," of benefit to no more than 100 people a year.
The first CryoLife valve implant--the recipient was a young child--occurred in October 1984 at New York's Columbia-Presbyterian Hospital. Because of the hospital's reputation as a leading medical center, it gave the new company a helpful infusion of credibility, leading other major hospitals to start participating in the CryoLife program.
Still, initially, the company struggled to survive. Its first year's revenues were a balance sheet embarrassment. Over the next year they rose to $911,000, almost reaching a breakeven point. Through that first rough hoeing, Anderson searched for some investors, but found the financial world even a tougher turf to work than the medical profession. Anderson could find no backers in Atlanta, but he finally lucked out in Nashville, Tennessee, where he was able to convince Lucius Burch that CryoLife was a legitimate enterprise with tremendous potential. In December 1985, the Massey-Burch Group put up $1 million and obtained warrants for an additional $1.4 million in stock. With that capital backing, in 1986 CryoLife generated revenues of $3.2 million and turned a profit of $230,000.
In order to train surgeons in the use of its valves, CryoLife sponsored courses on working with homographs, and it soon attracted important, even eminent physicians. One, for example, was Dr. Ellis Jones, professor of thoracic surgery at Emory University in Atlanta. He took the course in 1986, and within a year successfully installed 18 CryoLife preserved valves.
The heart valves treated and stored by CryoLife came from the hearts of patients that physicians judged were brain dead. They were donated by hospitals and only involved hearts for which no suitable heart transplant recipients could be located within a time span that would allow them to be used for a full heart transplant. At the time CryoLife was founded, about 85 percent of all donated hearts had to be discarded because of the logistical problem of getting them to heart-transplant patients on time. CryoLife provided an alternative. Removed hearts were air-freighted to Marietta, where the heart valves were surgically removed and, if deemed acceptable, placed in a liquid-nitrogen bath for over 90 minutes, methodically taking the deeply frozen valves to a temperature of minus 196°C. They were then either stored by CryoLife or shipped back to the donating hospital. In 1987, its fee for this service ranged from $1,955 to $2,295.
By 1990, CryoLife had begun expanding its tissue preservation technique to include veins, and in the next year petitioned the FDA to approve an innovative method of freezing whole blood. At the time, the company was using 10 to 12 percent of its annual revenues for research and development, or up to three times the industry's average. The company would continue to diversify and expand through the rest of the decade.
1992-95: Going Public and Developing New Products
In December 1992, the FDA classified human heart valves for transplantation as medical devices subject to premarket approval application before their commercial distribution. In response, CryoLife requested the FDA's permission to conduct IDE (investigational device exemption) clinical testing for its allograft CryoLife heart valve. In June 1993, permission for its clinical study was expanded to allow up to 35 patient implants at each of 10 primary medical centers plus up to 1,200 implants at 440 secondary centers. In order to help finance its expansion and its R&D, CryoLife also went public in 1993 and began trading on the New York Stock Exchange.
By the time that CryoLife had made its formal application for the FDA's premarket approval (in November 1993), over 900 surgeons had already implanted more than 14,000 valves preserved by CryoLife. The valves were widely recognized as an important valve replacement alternative for women of child-bearing age and children with congenital heart defects. CryoLife's 1993 revenues, reflecting the impact of that recognition, had reached $21.2 and had put the company well on its path to solid annual earnings.
CryoLife's R&D efforts continued to pay significant growth dividends for the company. In April 1994, it opened its new combined bioadhesive laboratory and pilot production facility. The laboratory was built to make FibRx, a fibrinogen-based bioadhesive designed to control hemorrhaging during surgery. CryoLife research scientists developed an efficient single-syringe formulation for effective and expedient use during operations. Studies using animals began immediately, and human trials were set for early 1995 at major medical centers, though they were later delayed until the fourth quarter of 1996.
The company's performance was strong in the mid 1990s. For example, in 1995, its revenues reached approximately $29.2 million, a 23 percent increase over its 1994 revenues of $23.8 million. Some of the increase resulted from the sale of the company's Viral Inactivation Process, but there was also strength in all of the company's revenue producing sectors. One area of great growth was in the cryopreservation of orthopaedic tissue for use in knee reconstructive surgery. In 1995, it generated an increase in revenues of 145.6 percent over its figure for 1994.
1996 and Beyond:Further Expansion and Diversification
Between 1995 and 1997, CryoLife took some other major steps in product development and diversification. First, in 1995, it acquired the rights to the O'Brien Stentless Aortic Porcine Bioprostheses, a vital key in the development of its SynerGraft technology. In simple terms, the new technology allowed a porcine heart valve, depopulated of its porcine heart valve cells, to replace a human heart valve in transplant surgery. In early experiments with animals, the transplanted porcine valves showed that they could be repopulated with new cells and new tissue architecture biochemically generated by their recipients.
By the fall of 1998, CryoLife had shipped almost 31,000 heart valves for surgical use, with only one documented instance of contamination caused by a fungus. It had also built an imposing network of 280 tissue banks, which was sufficient for supplying most of the company's tissue and organ needs. In return for that support, CryoLife provided training in cadaver dissection and heart packaging as well as promotional help for the tissue banks and their services. With few serious competitors, it also claimed an 80 percent share of the human heart valve trade.
By 2000, CryoLife was logging record revenues and earnings, partly driven by the company's expansion and diversification. Importantly, the roll out of CryoLife's BioGlue surgical adhesive in both domestic and overseas markets had begun playing a strong role in generating the company's growing sales. BioGlue had begun selling in foreign markets since March of 1998, but it was not until January 2000 that the FDA, under its Humanitarian Device Exemption (HDE) regulations, gave its approval for the domestic use of BioGlue in aortic dissections. Although the FDA's authorization included the caveat that the adhesive could
By the fall of 2000, BioGlue had been approved for vascular and pulmonary repairs in 41 countries, although in the United States it was still available only in life-threatening situations under the FDA's guidelines. However, by that time, CryoLife had received FDA approval for expanding clinical trials for using BioGlue for all cardiac and vascular repairs. Meanwhile, advances in the use of porcine heart valve for human implantation argued that CryoLife's investment in that process would soon prove justified. Early in 2000, in operations in Brisbane, Australia, CryoLife's SynerGraft porcine valves repopulated with human cells were successfully used in two transplant operations. In the following August, bolstered by news of four additional SynerGraft implants in Australia, the company submitted an FDA application for an Investigational Device Exemption (IDE) that would allow it to begin human clinical trials of its SynerGraft valves and procedures in the United States.
While on hold, waiting for the FDA to act on its application, CryoLife's SynerGraft technology was making progress elsewhere. In October, the company announced that it had received product certification for SynerGraft's use in the European Union. In that same month, the company sold all the remaining assets of Ideas For Medicine, Inc.(IFM), its wholly owned subsidiary, to Horizon Medicine, Inc. As part of its diversification strategy, CryoLife had originally acquired IFM, which made surgical instruments, in 1997, but within a year sold IFM's product line to Horizon Medical Products. However, Horizon defaulted on a supply contract that was part of its sales agreement obligations, and CryoLife was forced to reassume control of IFM in 1999. The divestiture was finally completed when Horizon, reorganized, bought the subsidiary for a price that could climb as high as $5.9 million, depending on whether or not all the contractual terms were met.
At the start of the new century, CryoLife's future prospects were excellent. In its special, very challenging field, it had garnered a solid reputation for its excellent R&D. It was also on a very solid footing financially. In the decade ending in December 2000, the company's revenues had climbed to $77.1 million, up from $15.3 million in 1991, the last year in which the company recorded a bottom-line loss. Especially from 1996 on, the company's marketplace performance was excellent, with profit margins running between 9.2 percent and 10.7 percent, except in 1999, when they dipped down to 6.7 percent.
Not that CryoLife had completely trouble-free sailing. It had some problems, and not just delays necessitated by waiting out the FDA. During 2000, for example, it had to weather some negative publicity that resulted from exposé journalism claims that profits were being made from the "sale" of organs and tissues harvested from volunteer, uncompensated donors. In 2001, it also faced litigation when the Colorado State University Research Foundation filed suit against the company for its failure to credit a university professor for patents on a surgical process that the plaintiffs alleged CryoLife used in its SynerGraft processes. Such problems were but motes to trouble CryoLife's business eye, however, for the company was clearly on the move.
Among other things, it was further diversifying its business. In 2001, it formed AuraZyme Pharmaceuticals. A wholly owned subsidiary of CryoLife, AuraZyme's chief raison d'être was to foster the commercial development of the company's new light-activated drug delivery systems, engineered for the treatment of cancers, heart problems, strokes, and blood clots. Gerald Seery, who had been CryoLife's vice president of marketing since 1995, assumed the AuraZyme's posts of president and CEO.
As much as anything else, the formation of AuraZyme illustrates a major fact that will help shape CryoLife's destiny: it is in an industry with a wide-open potential for expansion made possible by the tremendous milestones now being reached in medicine and related technologies. CryoLife has already shown and should continue to show that it can stay in step with new advances, making the sky its proverbial limit.
Principal Subsidiaries: CryoLife International, Inc.; CryoLife Europa, Ltd.; AuraZyme Pharmaceuticals.
Principal Competitors:ATS Medical, Inc.; Baxter International Inc.; Datascope Corp.; Guidant Corporation; Regeneration Technologies, Inc.; St. Jude Medical, Inc.
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