Rev. December 1, 1991
Advanced Medical Technology Corporation
Early in April 1986, Tom Winter, vice president and loan officer of the Western National Bank of San Francisco, California, was reviewing a loan request for $8 million from Peter Haskins, president of Advanced Medical Technology Corporation. Advanced Medical Technology Corporation (AMT) developed, manufactured, and sold scientific medical instruments, needles and catheters that allowed rapid and less invasive access to a number of different organs and vessels. These products represented an alternative to traditional surgical procedures and allowed analysis or corrective treatment with less risk and trauma and at lower cost. An example of the products were catheters that could be introduced into a blood vessel and then manipulated through partially closed arteries or into the heart itself. AMT had experienced extraordinary growth, fueled by heavy spending on research and development and a rapid expansion of its sales force. Its technical staff was very well regarded at developing new products with a wide range of applications. The combination of state-of-the-art products and a rapidly expanding market resulted in sales growth in excess of 30% per year. Mr. Haskins believed that industry sales would continue to grow at this rate and that any failure to maintain AMT’s market position would be damaging in terms of competitive position and internal morale. Sales volume, which had grown continuously from the start, was always large in relation to the available capital. The situation was exacerbated by large operating losses as AMT entered new markets aggressively. Management met the financing pressures by heavy reliance on short-term credit, by leasing some manufacturing facilities, and by establishing a connection with Biological Labs, Inc., a leading pharmaceutical firm. Biological Labs had been eager to participate in the large and rapidly expanding medical instrumentation market, but had failed in its internal efforts to enter the business. By 1983, Biological Labs had fallen behind in catheter and instrumentation technology. Management abandoned its internal efforts and entered into an agreement with AMT. At the initial closing on June 2, 1983, AMT received a cash payment of $7 million in exchange for 5% of the outstanding shares and the right to purchase an additional 13% of the outstanding stock over a 5-year period ending June 1988 for $12 million. If Biological Labs purchased the $12 million of additional stock, it would also have the right to require AMT to merge into Biological Labs in 1992. The price would be based on a multiple of average earnings in 1990 and 1991. Subsequent to the agreement, Biological Labs made four purchases of stock, as shown in Table A.
This case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1986 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1
Advanced Medical Technology Corporation
Equity Investments by Biological Labs
June 1985 $2,000,000 October 1985 $2,000,000 May 1986 $4,000,000
April 1985 $4,000,000
On April 14, 1986, at the suggestion of his public accountant, Mr. Haskins visited the Western National Bank to discuss the possibility of securing a line of credit. He met with Mr. Winter, vice president and loan officer of the bank. Mr. Winter explained that although he was unfamiliar with AMT’s products, he...