Date: February 17, 1993

Location: Bound Brook

Title: Biosearch Medical Bets Its Future on the Gastro-Intestinal Lab Market

Author: Mukul Pandya

Subject: A company that once launched an innovative feeding tube is now struggling to survive

Fifteen years ago, when patients were unable to eat, doctors usually fed them intravenously by putting tubes into their arms. The alternative was to push tubes down their throats, a process that interns and nurses hated because it made patients vomit. In the late 1970s, however, Biosearch Medical Products, a hospital products company in Bound Brook, introduced a tube that revolutionized the feeding of patients. It had a very narrow bore, which allowed liquids to drip slowly into the patient”s stomach. The product was popular with hospitals, and Biosearch Medical Products prospered. By 1986 the company had sales of $17.8 million and was marketing related products like nutrients and feeding pumps.

How things change. Today, Biosearch Medical Products is fighting for survival as desperately as a patient hooked to a feeding tube. Government regulation and giant competitors have elbowed the company out of the feeding tubes and nutrients business. Revenues have steadily declined, dropping from $7.40 million in 1989 to $6.48 million in 1990 and still further to $3.88 million in 1991. Year after year, the company has declared losses, and cash has grown tighter. Wall Street has also been merciless with Biosearch Medical Products” stock. It dropped in 1992 from $1.25 to 3¢ in November. A month later, NASDAQ delisted the stock for failing to meet its requirements.

Biosearch Medical Products may be seriously ill, but chief executive Manfred Dyck believes the illness is not terminal. Dyck, (pronounced Dike, and rhymes with Pike), a former executive with Ethicon in Bridgewater, has a rescue plan. He wants the company to change course radically. The strategy involves getting out of the business of supplying feeding tubes and nutrients, and focusing on selling to a new market: gastro-intestinal laboratories. The company has launched several new products for this market, and Dyck hopes these will be as successful as the feeding tube. Dyck is confident the strategy will work. “We are now coming to the end of the tunnel,” he says. If he is right, and the rescue plan succeeds, the company may again become healthy and profitable. If the cash runs out first, Biosearch Medical Products could be in deep trouble.

One recent step should help ease the cash crunch. On January 20, Biosearch Medical Products announced an agreement with Nutricia, a Dutch medical equipment company, to sell its line of feeding pumps for $300,000 in cash. “If the sale goes through, that will provide Biosearch Medical Products with more time,” says Herbert Marache Jr., a first vice president at the Manhattan office of Janney Montgomery Scott, and a Biosearch Medical Products director. The feeding pump line was not the first to be peddled: in 1991, the company sold Pouch Laboratories, a subsidiary in Pembroke, Ill., which manufactured liquid nutrients.

Biosearch Medical Products is also dramatically reducing costs. Says Dyck: “We have cut key salaries, including my own, in half. We have shaved off $1 million in expenses. It was not fat, and we had to cut deep.”

The atmosphere was far different when the company was started in 1975, and later when it launched its feeding tube. The tube caught on for two main reasons. Doctors liked it because such feeding kept their patients” digestive system working; and the cost of feeding patients through the stomach was much lower than feeding them through the bloodstream.

In 1987, however, Biosearch Medical Products was hit by a double whammy. First, the federal government reduced Medicare and Medicaid reimbursements for nutrients; and second, the market changed. “Significant shifts took place in the way hospitals and health care facilities were buying,” says Dyck. “Big competitors started locking up contracts with hospital chains. We couldn”t compete. It wasn”t our game any more.”

In response, the company started making products for minimally invasive surgery. This includes such techniques as laparascopy and endoscopy. The company developed Percutaneous Endoscopy Gastronomy (PEG) kits, catheter-like devices used by surgeons. More recently, it has come up with an anorectal bio-feedback system, a product that helps control fecal incontinence, or the inability to control defecation, an embarrassing and widespread condition.

Dyck hopes these products will rescue Biosearch Medical Products. He also blames over-regulation and the credit crunch for slowing him down. “We may have to bring out our new products from Europe,” he says. “The other killer is that small companies don”t have banks any more.” Marache, too, is optimistic but cautious. “There is no question that Biosearch Medical is turning around,” he says. “The question is, is it turning around fast enough?” u