Originally created 01/02/00

Pioneer re-enters impotency fray



Julian Osbon, the local entrepreneur whose former medical device company revolutionized impotency treatment, is returning to the industry he helped create.

His new Augusta-based venture, SOMA Blue Inc., is manufacturing and marketing a line of noninvasive vacuum-therapy technologies it recently purchased from Alabama-based medical device company Vet-Co Inc.

Mr. Osbon's original company, Osbon Medical Systems, pioneered external impotency treatment devices more than 15 years ago. He sold the company in 1995 for $47 million.

The 59-year-old businessman said he is resurfacing to tap the growing market of men seeking impotency treatment for the first time, as well as those who are unable to take the anti-impotency pill Viagra.

"I think the market is perfect right now," Mr. Osbon said. "It's picking up again."

The National Institutes of Health estimate 10 million to 20 million American men suffer from impotency, clinically known as erectile dysfunction.

Many impotent men can't take Viagra because of its side effects. Also, the pill alone is ineffective on men whose impotency stems from severe circulation problems.

"Viagra is a good drug, but it's not good for everybody," said Dr. Ira Sharlip, a professor of urology at the University of California at San Francisco. "Some of the people who have stopped using other forms of therapy are beginning to find that out."

Vacuum-therapy devices, the only noninvasive impotency treatment, help men achieve erection by using suction to increase blood circulation in the penis.

The process was invented in the 1970s by Mr. Osbon's father, Geddings Osbon Sr., a retired tire dealer and Pentecostal preacher who fashioned prototype devices from tire pumps. He received Food and Drug Administration approval to market the product in 1982, as the family tire business, which had struggled ever since the oil embargo of the 1970s, was headed for bankruptcy.

The younger Mr. Osbon invested everything he had -- about $500 -- into commercializing his father's invention. Within a few years, the company grew into a multimillion-dollar success story with more than 150 employees.

AFTER THE SALE,

Mr. Osbon devoted most of his energy to philanthropy and to his new venture, Osbon & Associates, a diversified investment company whose holdings range from a Texas-based mail-order food company to a fledgling biotech venture in Augusta run by Osbon Medical's former chief financial officer.

SOMA Blue launches its media blitz this month but was nearly a year in the making, starting with recruitment of former Osbon Medical System executives last winter and ending with the Vet-Co acquisition in November.

The two privately held companies did not disclose terms of the deal.

Mr. Osbon, the company's chairman and chief executive officer, has chosen Paul Petersen Jr., former Osbon Medical vice president of sales and marketing, to serve as the new company's president and chief operating officer.

The 40-employee start-up includes seven former Vet-Co staffers and forecasts first-year sales at $5 million, or about 25 percent of the domestic impotence device market.

SOMA Blue predicts it will employ nearly 70 people in Augusta and lead the market within two years.

But the company's biggest competitor, Minnesota-based TIMM Medical Technologies Inc., the owner of Mr. Osbon's former company, said it doesn't intend to give up its 80 percent market share.

"We're going to make sure we continue to grow," TIMM Medical President David Johnson said.

THE CLOSELY HELD

company, co-founded by Dr. Gerry Timm, a former associate of Mr. Osbon, is taking the Augusta businessman's return to the niche industry seriously. It filed a trademark infringement lawsuit against SOMA Blue in Minnesota's U.S. District Court on Dec. 16, just more than a month after the Vet-Co deal closed.

TIMM Medical owns the rights to Mr. Osbon's intellectual property. It alleges SOMA Blue's use of the Osbon name in its marketing material "is likely to cause confusion, or to cause mistake or to deceive, and it constitutes trademark infringement ..." according to the suit.

TIMM Medical, which also markets implantable devices, purchased Osbon Medical's assets from Imagyn Medical Technologies in 1998 for $25.8 million.

Imagyn was known as UroHealth Systems at the time it acquired Mr. Osbon's company in 1995.

Mr. Osbon stayed with Imagyn as a board member and adviser for nearly two years after the deal before selling his stock and severing ties with management over disagreements on how to run the business.

FEUDS CENTERED ON

Imagyn's inability to leverage new customers from the public awareness bonanza created by news of Viagra.

Only 5 percent of impotent men sought treatment prior to Viagra, according to researchers at the University of Southern California. That number could get closer to 20 percent as impotency becomes a less embarrassing condition.

"The advertising for Viagra has raised the level of public knowledge of erectile dysfunction, so other treatment options will grow at a modest rate," said Dr. Sharlip, secretary of the Society for the Study of Impotence.

Viagra is the second-fastest-selling drug, having generated $552 million in sales and 5.3 million prescriptions in the first six months after its April 1998 debut. The drug's maker, Pfizer Inc., estimates 1999 sales will reach $1 billion.

Imagyn paid the price for failing to market to men who could't use Viagra. Its stock, which once sold above $15 a share, plummeted below 25 cents from the time Mr. Osbon left in early 1997 to the November 1998 sale of the urology division to TIMM Medical, then known as TIMM Research Co.

California-based Imagyn is currently emerging from Chapter 11 bankruptcy protection.

Mr. Osbon declines to comment on the TIMM Medical lawsuit, but those close to his management team say he dismisses it as groundless litigation.

Mr. Osbon and Mr. Timm, now archrivals, both served on Imagyn's board of directors.

Another irony is that each man is marketing the other's technology. TIMM Medical's flagship product, ErecAid, was developed by Mr. Osbon's former company; Mr. Timm's former company, Mentor Inc., developed the product line SOMA Blue purchased from Vet-Co.

Mr. Osbon offered to repurchase his former company's assets from TIMM Medical in August. His proposal was rejected.

Mr. Osbon's attorney, Aubrey Rhodes, said his client "will certainly make sure that he complies with the laws and operate in a manner not to infringe on the trademark rights of Mr. Timm."

LAWSUIT ASIDE, SOMA

Blue will market its prescription products directly to consumers in North America and western Europe through magazine advertisements. It will also target physicians, pharmacies, hospitals and managed care companies.

"We've found the best response is a double effort," said George Roese, vice president of international sales.

The company plans to create a division called Renaissance Medical to distribute over-the-counter versions of its products via Internet and pharmacy chains.

SOMA Blue's devices range in price from about $250 to $400 -- cost effective, it says, considering Viagra costs about $8 a pill and isn't covered by some insurance plans.

Company officials say SOMA Blue's strength lies in its in-house sales and service force, a hallmark of the old Osbon Medical.

Quality service has proved crucial in the vacuum therapy industry, where most devices on the market are virtually indistinguishable.

"Our customer service will be the key to making this work," Mr. Osbon said.

TIMM Medical's sales suffered most of this year because of customer service glitches attributed to Imagyn, its former supplier of injection-molded parts, as it moved through bankruptcy proceedings.

Mr. Johnson said the company's early supply shortages are over and it is shaking off its bad-service reputation.

"WE WERE TOLD PEOPLE

would try to beat us up on the service side," he said. "We did run into some issues, but we're back in the saddle now."

SOMA Blue -- whose name is derived from the Latin word for "body" -- also hopes to distinguish itself from the competition by focusing on its patent-pending "tension prosthesis," a rubber ring that, when used in conjunction with the vacuum, allows patients to maintain erections longer.

"We think it will revolutionize the vacuum therapy concept," said John Mitchell, the company's vice president of product development, also a former Osbon Medical employee.

Vacuum therapy will be SOMA Blue's core product during the next two years, but Mr. Petersen said devices designed to treat other "medically sensitive" conditions such as incontinence and infertility are on the horizon.

"Part of the goal of this is not to be a medical device company, but to be a urological/gynecological company," he said.

That is an arena in which TIMM Medical has a slight head start. The 118-employee company currently has incontinence products in clinical trials.

Both Mr. Osbon and Mr. Johnson acknowledge the full-service vacuum therapy business is a "two-horse race" between their respective companies.

But competition doesn't worry Mr. Osbon. He is more concerned that legions of men who unsuccessfully tried Viagra will turn to more radical treatments, such as injections and surgical implants, instead of the simple yet effective pump his father invented nearly 30 years ago.

"Our biggest competitor is ignorance," Mr. Osbon said.

Osbon's return

1970s:

Tire salesman Geddings Osbon Sr. works on an external vacuum-powered impotency treatment device.

1982:

The invention is approved by the U.S. Food and Drug Administration.

1984:

His son Julian W. Osbon helps market the device and forms Osbon Medical Systems.

1995:

As annual revenues reach $25 million, Mr. Osbon sells the company to California-based UroHealth Systems for $47 million. He becomes a consultant and board member of the new company.

January 1997:

Mr. Osbon resigns and sells his stock in UroHealth after disputes with top executives over their inability to capitalize on increased awareness created by development of an impotency pill.

September 1997:

UroHealth acquires Imagyn Medical Technologies, adopts the company name as its own.

October 1998:

After two years of declining sales and layoffs, Imagyn sells assets of Mr. Osbon's former company to Minnesota-based Timm Medical Technologies for $25.8 million.

Nov. 1998:

Timm Medical relocates Augusta operations.

July 1999:

Mr. Osbon buys Imagyn's former offices and begins assembling key executives from his former company with the intent of re-entering the medical device industry. He forms a new company, SOMA Blue Inc.

August 1999:

Mr. Osbon tries to repurchase former assets and intellectual property from Timm Medical. The proposal is rejected.

November 1999:

SOMA Blue acquires a competitor of Timm Medical, Alabama-based Vet-Co Inc., for an undisclosed amount. SOMA Blue begins manufacturing and marketing Vet-Co's product line.

December 1999:

Timm Medical, which owns the intellectual property rights of Osbon Medical Systems, files trademark infringement lawsuit against Mr. Osbon and SOMA Blue for using the Osbon name in marketing material.

January 2000:

SOMA Blue will launch advertising and marketing campaign.

ReachDamon Cline at (706) 823-3486.