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Business Observer Friday, Jun. 29, 2018 2 months ago

Company shifts focus after six-year, $4 million legal saga

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Chasing a bigger chunk of sales can sometimes be the wrong move, at the wrong time.
by: John Haughey Contributor

When 3B Medical emerged from six years of nonstop legal battles early last year, CEO Alex Lucio was faced with the type of leadership decision that happens after a business overcomes a longtime obstacle: How to best capitalize?

The Winter Haven-based respiratory therapy device manufacturer and distributor Lucio co-founded in 2011 had secured a confidential settlement with market giant ResMed. The January 2017 agreement ended 16 patent-related court actions across three continents. Legal fees the company faced surpassed $4 million.

Lucio intended to go hard after the lucrative direct-to-patient sales market, shifting away from 3B Medical’s niche of being a supplier for durable medical equipment distributors and national medical product companies.

Then Lucio paused.

“We got a lot of feedback from our customer base — our DMEs, the dealer network that is our customer base, our strength,” he says. “We are small enough that we can’t alienate our customer base. They are our bread and butter.”

Lucio says 3B “rethought” direct-to-patient sales, counterintuitively forgoing a potential bigger revenue stream. But in doing so, the company instead redefined itself as a manufacturer and doubled down on its commitment to grow within its market, rather expand into a new one.

“We are primarily a product company and we will stay in that capacity,” he says. “Direct-to-customer is not in our wheelhouse. We have a large customer base that is happy with us as a product development company.”

The legal saga delivered other epiphanies for the company. Lucio, for one, says a lesson learned from “getting beat on the head” with patent-related lawsuits is 3B must “develop our own intellectual property portfolio through both acquisition and new product development.”

The revised strategy came to fruition in March, when 3B announced it had purchased VBOX, a Minnesota research and product-development firm that holds an array of intellectual property. The company’s portfolio includes the design and regulatory approval for the world's smallest and lightest oxygen concentrator.

The acquisition gives 3B the licensing rights to 15 U.S. patents, six pending U.S. patents and eight foreign patents. “Since we’ve taken on the Minnesota team, they are developing a new product every 90 days,” Lucio said. “It’s pretty cool to look at what is in the pipeline.”

'Direct-to-customer is not in our wheelhouse. We have a large customer base that is happy with us as a product development company.' Alex Lucio

Meanwhile, 3B plans to debut at least six sleep therapy and oxygen devices in early June during the annual Sleep Medicine Show in Baltimore. Those product lines, says Lucio, help “flesh out the company's product offering into three categories: sleep, oxygen and disinfection. We expect each of those three categories to continue allowing us to grow sales aggressively.”

Liberated from litigation, refocused on product development and recommitted to its DME customer base, Lucio said 3B’s sales have doubled in the past 12 months, to about $25 million. 

Lucio says 3B will maintain its sales and administration office in Winter Haven — where it employs about 50, including 10 direct employees and 40 commissioned sales people. Its product development team will remain in Minnesota, ditto for its warehouse and distribution center in St. Louis. “We’re keeping headquarters in Winter Haven — everybody lives around here,” he says, although he can envision a move “probably a little closer to I-4” where 3B can add manufacturing space.

Lucio says 3B eventually plans to add a production center that will create up to 30 manufacturing jobs in Winter Haven but, with the increasing demand for its products, “it is definitely easier to ramp up by contracting out to China with an eye towards moving it here.”

The threat of tariffs, some up to 25%, in U.S.-China trade war posturing underscores the danger of relying on a “single-supply source” for any element of a business’s operation, he says.

“We’re making a concerted effort to branch out to different (manufacturing) locations, and that includes bringing it here,” Lucio says. “It would be a lot easier for us. Rather than being spread out in small offices, I would like to see us move into one facility that includes manufacturing.”

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