SENSORMEDICS HIGH FREQUENCY OSCILLATORY VENTILATOR STUDIES FOR HYPER-SECRETING RESPIRATORY PATIENTS TO BEGIN IN MID-1993; FIRM GOING PUBLIC IN $23 MIL. OFFERING

SensorMedics plans to begin clinical studies in mid-1993 that will evaluate its high frequency oscillatory ventilator (HFOV) technology for "use as a secretion removal treatment for hyper- secreting respiratory patients, such as patients suffering from cystic fibrosis," the Yorba Linda, California-based company says in a Jan. 11 registration statement for an initial public offering. In contrast to conventional ventilators, which pump air at regulated pressures, volumes and times to approximate normal breathing, the HFOV pumps very small volumes of air at higher frequencies and lower pressures. Because of the active "exhalation component of the oscillatory cycle, the HFOV may loosen and expedite the removal of secretions,"thereby making the treatment of the underlying problem "more effective," the firm says. The HFOV Model 3100 was approved in July 1991 for the treatment of respiratory complications in neonates. Pursuing additional indications for the HFOV technology and further infiltrating the neonatal respiratory market are among the top objectives SensorMedics identifies in the filing. The company submitted a PMA supplement for pediatric use of Model 3100 in June 1992 and has been conducting clinical studies on a version of the device for adult patients since February. In late fiscal 1994, SensorMedics hopes to begin researching applications for the HFOV technology in surgical and post-surgical settings. Since most major surgeries that use anesthesia require that the patient also be ventilated, the HFOV could "allow for a reduction of anesthesia required during surgery because of increased diffusion of gas across the lung surface," the firm explains. A second surgical application would involve using the device during thoracic, cardiac and brain surgeries. By holding the lungs at a nearly constant inflation, the HFOV would reduce the motion of breathing. For these types of surgeries, the company suggests, "having a relatively motionless operating field can be of great benefit." In addition to investigating new markets, SensorMedics is trying to establish its HFOV as the "standard of care" for the treatment of neonatal respiratory ailments both in the U.S. and abroad. SensorMedics asserts that its HFOV "possesses superior technology and greater efficacy for neonatal applications than conventional ventilators and alternative forms of high frequency ventilators currently on the market." The "most significant advantages of the HFOV are superior oxygenation at lower peak pressures, active inspiratory and expiratory cycles, reduced lung damage and greater effectiveness with patients suffering from pulmonary airleaks." In addition, "use of the HFOV on newborns immediately after birth has resulted in reduced time on ventilatory support and shorter hospital stays," the firm maintains. SensorMedics says that it is "actively pursuing strategic relationships with national health care organizations to establish the HFOV as the standard of care." Another key goal of the company is enhancement of its "worldwide market leadership in selected respiratory diagnostic segments," including the pulmonary, metabolic and sleep diagnostic markets. The firm's "primary strategy" for the respiratory market focuses on the development of a mobile respiratory cart that would "offer each of SensorMedics' pulmonary, exercise and nutrition products as smaller-sized, modular components." The device "would allow a single product to satisfy the distinct diagnostic needs of multiple areas within a hospital or clinic setting." Among other products under development is a non-invasive blood gas monitoring system, the FasTrac II, which "will measure the partial pressure of oxygen on a continuous basis through the patient's skin." Like its predecessor, the FasTrac, the second- generation device will also measure a patient's hemoglobin oxygen saturation and carbon dioxide concentration. All of the company's products are used, in some form, to "measure, monitor or enhance" the lungs' ability to exchange oxygen and carbon dioxide. The company derived 56.5% of revenues for the fiscal year ending Sept. 30, 1992 from its pulmonary exercise and nutrition products, such as the 2130 Spirometer and the portable Deltatrac Monitor for measuring resting energy expenditure. Non-invasive blood gas monitors accounted for 11.8% of the 1992 revenues, while 7.1% was generated from sleep diagnostic products, such as the 4250 SomnoTrac. The Model 3100 HFOV accounted for 5.7% of the 1992 revenues, up from 1.7% in 1991. Incorporated in August 1983 to acquire the physiological measurements operation division of Beckman Instruments through a management-led buyout, SensorMedics reported revenues of $49 mil. in fiscal 1992, up 1.7% from 1991, and net income of $1.1 mil., compared to a loss of $113,000 the prior year. The company markets its products in the U.S. primarily through a direct force of 22 sales representatives, who are assisted by eight clinical specialists that "perform clinical demonstrations of the company's products." The firm notes that it "anticipates hiring additional sales representatives and clinical specialists during the next 12 months to meet...increased product sales objectives." SensorMedics has augmented its distribution capability by entering into national account agreements with groups including Health Services Corporation of America, Humana, Voluntary Hospitals of America, American Health Care Systems, Hospital Corporation of America, and Shriners Hospitals for Crippled Children. Outside the U.S., SensorMedics' products are marketed in over 35 countries through a wholly owned subsidiary in the Netherlands, SensorMedics B.V., which sells directly in the Benelux countries and the U.K. and through distributors in other countries. Non-US sales represented 25.8% of revenues in fiscal 1992. SensorMedics is expecting to net $23 mil from its offering of 1.7 mil. shares of common stock at $15 per share. Following the offering, which is being underwritten by Lehman Brothers and Vector Securities, 5.7 mil. shares will be outstanding. The proceeds from the offering will be used to retire all $6.8 mil. of the company's outstanding "subordinated indebtedness" and $4 mil. of outstanding revolving bank debt. Remaining proceeds primarily will go towards general corporate purposes, including new product development and potential acquisitions of complementary businesses. SensorMedics' Chairman is James Weersing, who has held the title since 1983 and previously served as president of Royco Instruments and chairman of Sutter Biochemical. George Holmes joined the company as CEO in July 1987, after serving as president and COO of Silicon General and president of Squibb Vitatek. Upon completion of the offering, SensorMedics' officers, directors, and other existing shareholders will own 70.4% of the issued and outstanding shares of common stock.