How This Denton County Syringe Company Stays Afloat Through Legal Judgments

 In the beginning, there was unlimited promise. A startup born out of an innovative mind and nurtured with federal grants was setting up shop in, of all places, Little Elm—a tiny speck of a suburb on the shores of Lake Lewisville. Some two decades later and for a variety of reasons, however, the company’s once-bright promise remains largely unfulfilled.

Back in 1996, things were different. The idea of a projected 600 jobs coming to Retractable Technologies’ new 22,500-square-foot plant was huge for local officials, who pitched in $300,000 for roads and other improvements. “This is the project of the century for Little Elm,” the town mayor proclaimed at the startup’s announcement.

And Thomas J. Shaw, a mechanical and structural engineer, expected his revolutionary product to make waves beyond Little Elm as well. With the help of $650,000 in grants from the National Institutes of Health, Shaw had developed a medical syringe with an automatic retraction feature. After the plunger is fully depressed, the needle pops back into the syringe’s cavity, where it can’t stick the nurse or technician. The design offered a solution to the roughly 600,000 accidental needle sticks that occurred each year at hospitals—accidental sticks that put medical workers at risk of contracting HIV, hepatitis, and other serious diseases.

Shaw secured patents on his design, began gathering investment cash from North Texas doctors and others who saw promise in the business, and formed Retractable Technologies Inc., a public company trading under the symbol RVP on the New York Stock Exchange.

Soon after launching production, however, Shaw realized he was being shut out of selling to hospitals by an alliance of major medical supply manufacturers and powerful purchasing consortiums that buy supplies in bulk for about 80 percent of the nation’s health systems.

Shaw’s upstart company—which encouraged publicity with press releases decrying the power of the giant group purchasing organizations—was soon gathering national media attention that painted Retractable as the victim of a market rigged against innovative entrants. And, there was ample evidence that the portrait was valid, though many accounts left out the caveat that the purchasing systems had been established to help hospitals cut their expenses and tamp down healthcare costs.

Despite having the most foolproof “safety needle” on the market, Shaw told reporters, his company was rejected by most of the more than 2,000 hospitals his salespeople had visited because, among other things, they were bound by agreements to buy from incumbent companies. “There’s an AIDS and hepatitis C epidemic, and we can’t even show our retractable safety needles in most hospitals,” he told the Houston Chronicle. “Free competition as it stands in healthcare is dead.”

Shaw’s complaint eventually took the form of a federal lawsuit naming as defendants several of the purchasing organizations, as well as several rival medical supply manufacturers, including industry heavyweight Becton Dickinson and Co., of Franklin Lakes, N.J. The 119-year-old company, often referred to as BD, currently has about $10 billion in annual revenue and as much as 80 percent of the total needle and syringe market. On the eve of trial in 2004, and in a series of earlier settlements, the defendants paid out a total of $100 million to Shaw’s company to drop its federal suit.

The award, which was cut nearly in half by legal fees and costs, still was several times Retractable’s net annual sales that year of $21 million. Last year, a dozen years after the big settlement, Retractable would have shown an operating loss had it not collected yet another jury award: a $7 million judgment from BD for patent infringement arising from BD’s attempt to market its own retractable syringe. As of this writing, Retractable is awaiting an appellate court decision in still another antitrust case it brought against BD in 2007—that one involving its rival’s contracting and advertising.

Retractable may have winning ways in court—and in media stories portraying it as a noble David in a world of anti-competitive Goliaths—but, more than 20 years on, it still can’t find much traction or sales growth in the marketplace. In fact, its net sales have been flat or down for the last five years. According to a BD court filing, Retractable’s share of the “safety” market, a subset of the total needle and syringe maket, stood in 2010 at just 6 percent, compared to 49 percent for BD. And, after outsourcing much of its production to China, Retractable’s workforce now numbers 136, down from the 175 it employed 15 years ago.

Company executives say Retractable continues to be the victim of its rivals’ anti-competitive schemes. But, some observers say Retractable has ridden that horse a bit too long. Some of the company’s growth problems, they contend, have been self-made, or an honest consequence of normal competition. Just because you believe your product is aces—as Sony did in the 1980s with its Betamax videotape system—doesn’t mean that you automatically get to win.

This story is a feature from the October issue of D CEO magazine. Head here to finish the piece

Posted in Medical Devices, News.