Q & A

Monday, May 31, 2004

ELYRIA, Ohio - Invacare turned up the heat on its long-simmering interest in the sleep market in May when the company began shipping its Polaris EX CPAP, which received marketing clearance from the FDA in March.
Shipping CPAP is nothing new for Invacare. After the 25-year-old HME manufacturer failed to win Healthdyne Technologies in a hostile takeover bid in 1997, Invacare launched its first Polaris in early 1999 using licensed ResMed technology.

But inroads have been hard to come by in a market where Respironics and ResMed together command a 70% share and other players such as DeVilbiss and Fisher & Paykel have established reputations.

Today, the burgeoning device market generates about $600 million annually in the United States, which makes it not only the largest market in which the nation’s largest manufacturer of HME has barely a toehold, but also the largest and fastest growing market in the home care arena, according to Invacare.

In March, Invacare won FDA approval on a CPAP machine that features SoftX technology, which backs off the pressure upon exhalation. Respironics had remarkable success in 2003 with a similar technology, C-Flex.

Meanwhile, Invacare has hired three respiratory specialists to call on sleep labs and work with Invacare’s sales force in select regions. By the end of the year, Invacare plans to field a specialist in each of its 10 sales regions to work as a complement to the company’s 130-member sales force.

HME News recently spoke with Invacare CEO Mal Mixon and Lou Slangen, senior vice president of sales and marketing, about their plans for the sleep market.

HME News: How do you compete with companies like Respironics and ResMed, companies that together own about 70% of the U.S. market, are very well run and aren’t really exhibiting any weaknesses?

Mal Mixon: It’s a little bit like déjà vu. Invacare entered the wheelchair market when E&J had 80-90% of the market. We entered the bed market when Smith & Davis had 80% of the bed market. We entered the concentrator market when we had zero share and Mountain Medical had a commanding share. Today, Invacare owns number-one market share in standard wheelchairs, prescription wheelchairs, power wheelchairs, beds and oxygen systems. I don’t mean to disrepectful to the competition, but we’re accustomed to entering markets from scratch and dealing with basic monopolists and companies that dominate the industry.

Lou Slangen: I think of Honda when they came into this country with two cars and everybody wondered whether they could compete against Ford and General Motors. Now, they [Honda] have the two or three best selling cars in America. I don’t think how big somebody is really determines whether the other guy can be successful.

HME: Can you share any expectations in terms of market share for Invacare?

MM: Lou’s [Slangen] assignment is to take 10% of this market within three years. The market today is $600 million, and it’ll be $800 million in three years, so I’d like to have an $80 million to $100 million business in three years,

HME: ResMed in its most recent quarterly statement revealed that it had increased its R&D budget to 8% of revenues, or $6.9 million for the quarter. What are you prepared to stack up against that kind of investment.

MM: I would compare that to the $100 million that J&J has just spent on a motorized wheelchair, and they’re dead in the water. It’s not how much you spend; it’s what you get out of what you spend. The issue is who’s got the best product, and can they technologically come out with something so advanced that it’s going to obsolete what’s on the market. And let’s be honest about what a [CPAP] does; it blows air. That’s all it does.

HME: What does the sleep development team look like? Is there a brain trust in R&D that will impress sleep providers?

MM: We’re not trying to market anybody’s particular name here. We have some sleep consultants with some pretty qualified people. Judge Invacare on our product and our service and how we treat the provider.

HME: I don’t think there’s any product category that’s more visibly litigated than sleep. Do you feel like you’re on pretty solid ground with you mask and your SoftX technology?

MM: That’s correct. Our attorneys have examined every patent issued to ResMed and Respironics. We have opinions from our attorneys that our design does not infringe any of those patents.