Toronto Medical: doing well in joint-healing ventures

By Gord Graham

In the late 1970s John Saringer was an entrepreneurial-minded engineering graduate doing research, teaching and consulting at the University of Toronto. Meanwhile, on another part of the campus, Dr. Robert Salter was a renowned orthopedic surgeon whose research was an entrepreneur's dream.
  When the two hooked up, the result was a revolutionary medical product and the seed of an industry now yielding an estimated US$40 million in annual worldwide sales and probably US$100 million by 1990. The product is the "continuous passive motion" (CPM) machine. Based on an idea by Salter, with prototypes built by Saringer, it helps joints, ligaments and tendons heal more effectively after surgery by keeping them moving rather than immobilized in a cast.
  Treatment involves strapping a patient's leg, arm, or hand in a CPM machine built to put a specific joint through a series of

motions continuously for at least a week. Leg units are worn while the patient lies in bed; hand and arm units can be worn while the patient moves about.
  Today Saringer is president of Toronto Medical Corp., the only Canadian manufacturer of CPMs. For the year ending May, 1986, the company had CPM sales totaling $1.5 million, with after-tax profits of $440,000, and Saringer expects sales to hit $2.4 million this year. Close to 90% of Toronto Medical's CPM units are exported to more than 40 countries, in competition against more than a dozen companies, most in the US.
  Saringer estimates he's captured the largest world market share of any single company for hand and arm CPM units (priced at $600-plus and $2,000-plus respectively) and 15% of the world market for leg units ($2,500 each). But this success came only after the company suffered some serious body blows,

including a miscalculated expansion that almost put it under.
  Saringer entered the world of CPMs in 1978. Salter, professor of orthopedic surgery at the University of Toronto and former head of orthopedic surgery at The Hospital for Sick Children, had just completed original research that suggested jont cartilage would repair and regenerate itself after surgery if the joint were kept moving. When Salter was ready to test this theory of continuous passive motion on a human being, Saringer was asked to build a prototype CPM machine. "The concept made sense to me immediately," recalls Saringer, who designed a machine for the human knee that was successfully tested on a young woman at The Toronto Hospital for Sick Children.
  By 1982 Saringer felt ready to start producing CPMs commercially. He used $28,000 he had made from real estate investments and consulting to buy a   -->

John Saringer is selling a revolutionary product of pioneering research done in Canada

Small business

bankrupt machine shop to house production. To arrange distribution, he began dealing with Synthes (USA) Ltd., the US branch of an orthopedic instrument and implant supplier based in Switzerland. Synthes, while negotiating for exclusive world-wide rights to distribute Toronto Medical products, put in $480,000 of advance orders, and Saringer geared up for full-scale production.
  Over the course of a year or so, he says, "we went from a two-man company to 12 employees, from virtually nothing to $450,000 in sales and $100,000 in pretax profits by the end of 1982-'83. I was aiming for the sky when the roof fell in."
  The roof that fell in was the Synthes deal. Saringer had been pursuing Ontario's IDEA Corp. (a now-defunct government agency that backed innovative firms with venture capital) for $500,000 in return for one-third
ownership. But Synthes wanted to be the principal investor in Toronto Medical, replacing IDEA. Saringer preferred the hands-off involvement of IDEA, so he turned down the Synthes offer of investment and Synthes in turn canceled its orders. Unfortunately, once the distribution deal was canceled, IDEA was no longer interested in backing Toronto Medical.
  By the winter of 1983, the company was down to three employees and so "utterly out of cash" that Saringer had to return raw materials for credit and sell a scientific research tax credit worth $130,000. To make matters worse, he was facing increasing competition from manufacturers in France and the US who had studied Salter's research and beaten Toronto Medical to the market. The company seemed doomed until it attracted Douglas Davidson, a business
veteran who had spent 35 years selling specialized medical equipment around the world. Now Toronto Medical chairman and one-eighth owner, 60-year-old Davidson has taught 31-year-old Saringer how to avoid depending on any one customer. Today, instead of searching for a worldwide distributor, Toronto Medical makes a separate deal for each country and has three different distributors in the US. One-third of its exports go to the US, one-quarter to Europe and another quarter to the Pacific Rim. New markets are opening up in such countries as Poland, Japan and Cuba and the company is now back up to 17 employees, plus a six-man direct sales force in Canada.
  Toronto Medical ultimately did receive a $480,000 investment from IDEA, although this year Saringer plans to buy back the 25% ownership still held by the agency. Salter, whose ideas
started everything off, accepts no remuneration, but the Research Institute of The Hospital for Sick Children receives a 2% royalty on every CPM unit Toronto Medical sells.
  Today, even their competitors predict continued success for Saringer and Davidson. "Toronto Medical is very innovative in their approach," says Steve Diehm, director of marketing for Sutter Biomedical Inc., a major US competitor. "I expect them to do very well. And the more work they do, the more this market will develop for everyone."
  As for Saringer, he isn't putting any limits on future growth. "I don't think the company is big enough yet," he says, eyeing goals of $10 million in annual sales, a more diversified product line and a public share offering. In Saringer's eyes, Toronto Medical is a once-ailing body now definitely back on its feet. $