He had been running a weekly projection of the cash flow at BMD, and the drawdown was now getting perilous.
The flagship product of Bartlett Medical Devices had been the "balloons" used in heart angioplasty that inflate and expand clogged arteries. They were marketed together with stents, miniature metal mesh supports that keep coronary arteries open after angioplasty. The problem was that in 27 percent of the cases, the stents manufactured by BMD caused scar tissue to form, a process called restenosis, and re‑block an artery, requiring a repeat of angioplasty or even a bypass operation. Other manufacturers' numbers were not any better. But a few months back, out of the blue, Hemotronics, a competing company near Boston, had introduced stents coated with drugs that prevented scarring. BMD's piece of the $2.6 billion angioplasty market had plummeted from 13 percent to 4 percent and was still dropping like a stone.
Add to that, two titanium joint replacements for arthritis patients that they'd pinned their future on—along with millions in cash—still had at least two years of human trials left before
they could hope for FDA approval. Long story short, BMD was in a mature product cycle with its most lucrative hospital hardware, with nothing major in the pipeline for at least two years. They had bet the ranch on the stem cell research at Gerex.
"W.B., I just got last week's numbers back from the green‑ eyeshade chaps downstairs. As you asked, I had them refine all the assumptions. Remember the union contract. There's going to be a three percent wage increase for all hourly personnel at the end of the month. And we didn't hedge our Euro exposure and now it's going against us. That's my own bloody fault. And since we don't have any pricing flexibility in that territory at the moment it's like a four percent haircut right off the bottom line. Remember we ran that in a worst‑case scenario a while back. Well, chances are we're about to see it for real."
Bartlett had been watching the rate of cash burn and trying not to let the problem be evident. The logical thing to do, start laying off workers in the fabrication divisions, was out of the question. If you had a make‑or‑break deal cooking, you couldn't afford to look like you were on the ropes.
"Give me some parameters," Bartlett said.
"You know we've already hit our credit lines at Chase about as hard as we dare without them calling for a review. So unless we try to refinance some real property, say the flagship building downtown—and in this interest‑rate environment any rational lender would put a gun to our head—we've got to ink this deal with Cambridge Pharmaceuticals in two months max. Right now we're living on borrowed money and it's about to be borrowed time too."
You don't know the half of it, Bartlett thought. I'm already living on borrowed time.
What's more, if word of the Beta gets out, we can kiss the buyout adios. The adverse publicity and legal problems ... Nobody's going to buy into that kind of liability. Not Cambridge, not anybody. Bernd doesn't know about it yet. If he did, then he'd really be worried.