Omnicell, Inc.

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Omnicell, Inc.

1201 Charleston Road
Mountain View, California 94043
U.S.A .
Telephone: (650) 251-6100
Toll Free: (800) 850-6664
Fax: (650) 251-6266
Web site: http://www.omnicell.com

Public Company
Incorporated: 1992 as Omnicell Technologies, Inc.
Employees: 626
Sales: $154.7 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: OMCL
NAIC: 334111 Electronic Computer Manufacturing

ORIGINS

EXPANSION

LIPPS AT THE HELM IN 2002

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

In 1999, research by the Institute of Medicine (IOM) provided statistical information on the severity of particular problems plaguing healthcare in the United States. The IOM, a nonprofit, nongovernmental arm of the National Academies, found that medical errors caused nearly 100,000 fatalities annually in the United States, enough to make such errors the eighth leading cause of death in the nation. The findings included an estimated 1.5 million medication errors, which caused as many as 7,000 deaths annually. Problems with patients receiving the correct medication at the correct time in the correct dose stemmed from the human element in providing care, an inevitability that healthcare facilities combated through administrative and regulatory controls. Tracking systems, largely manual and paper-based processes, provided a certain amount of control over the dispensation of medication, but as the IOM study revealed, a need existed for more effective safety measures. Lives were being lost. Healthcare facilities were losing money because of operational inefficiencies. Nurses, pharmacists, and other clinicians were diverting their attention away from patient care to track and deliver medications and supplies. A fundamental, systemic problem existed, one with profound ramifications and one that sparked the entrepreneurial energies of an industrial engineer named Randall A. Lipps.

Lipps, years before the IOM study was released, became familiar with the way a hospital functioned, but not in a professional capacity. He spent his career working for American Airlines, where he put to use engineering degrees earned at Southern Methodist University until his life was turned upside down by the declining health of his newborn daughter, Sarah Ann. Sarah Ann, Lipps’s fifth of ten children, was born in 1991, beginning life as an apparently healthy baby until she began to exhibit signs of distress after several days. Doctors were puzzled by Sarah Ann’s condition, unable to determine what ailed her. The Lippses remained at the hospital, watching doctors and nurses attend to their daughter in the trauma unit. Days turned into weeks before Sarah Ann was diagnosed with hyaline membrane disease, a condition that impaired her breathing. Sarah Ann recovered, and her father, after spending weeks observing how healthcare was administered, left the hospital determined to start his own business.

Lipps observed inefficiency and redundancy during his vigil at his daughter’s side. In September 1992, he formed Omnicell Technologies, Inc., to develop software and hardware that would automate processes related to ordering, stocking, tracking, and administering medication. His ultimate aim was an “end-to-end” system that would shepherd medication and supplies along their journey from the receiving dock at a healthcare facility to the patient’s bedside. Lipps enlisted the help of graduate students from Stanford University and developed a prototype of a system that automated many of the mundane yet essential tasks performed manually by nurses. In 1993, he began marketing his first supply automation systems, targeting single location community hospitals, government hospitals, and regional and national healthcare giants, setting his sights on the 5,800 acute-care hospitals in existence in the United States.

Lipps’s goal of a comprehensive, end-to-end system was reached in measured steps. As Omnicell expanded, its capabilities increased as well, enabling the company to address an increasing menu of needs that improved patient safety and operational efficiency. Initially, Omnicell marketed automation systems that managed and dispensed pharmaceuticals and supplies through modular, secured, and computerized cabinets. The cabinets were capable of tracking transaction data, inventory levels, expenses, and patient billing. Sales of such systems reached $7.7 million by the end of 1995 and nearly tripled the following year, swelling to $21.5 million. The encouraging rise in revenues in 1996 also marked the debut of Omnicell’s first pharmacy automation system, which was released late in the year. Sales of the two types of automation systems, supply and pharmacy, reached $48.2 million in 1998, the last year Omnicell would rely exclusively on automation systems to drive its growth.

EXPANSION

As Omnicell prepared to exit the 1990s, Lipps, presiding as chairman, widened the company’s operating scope, demonstrating a more aggressive stance towards expansion. In January 1999, he broadened the company’s pharmacy product line by acquiring the Sure-Med line of cabinets from Baxter Healthcare Corp. The acquisition gave the company two lines of pharmacy cabinets to complement its single line of supply cabinets. In September 1999, the company changed its name from Omnicell Technologies to Omnicell.com, a new corporate banner adopted to hail the launch of the Omnicell Commerce Network two months later. The Omnicell Commerce Network was an e-commerce service comprising two web-based applications, Omni-Buyer and OmniSupplier. OmniSupplier, designed for use in any nursing area in a hospital department that administered supplies, offered a secure dispensing system that automated the management and dispensation of medical and surgical suppliers at the point of use. OmniBuyer, designed to be used by any hospital employee initiating a purchase, was a web-based subscription service that provided workflow automation of purchase requisitions.

COMPANY PERSPECTIVES

As we grow, we believe it important in maintaining our corporate culture to define and articulate the core of what makes Omnicell special. While “Customer Intimacy” is simply a description of what has been our approach from Omnicell’s inception, we are adding that term into our daily language, to ensure that as more people join Omnicell, they understand our key focus “To provide the best customer experience in healthcare.”

By the end of the 1990s, Lipps had achieved considerable progress in shaping Omnicell into a formidable competitor. The company had installed more than 14,000 cabinets in more than 1,300 healthcare facilities by the end of 1999, when sales eclipsed $50 million. The progress was sufficient to convince Lipps that Omnicell was ready to make its debut on Wall Street, a decision also driven by the company’s need to pay off debt related to the Baxter Healthcare acquisition. Omnicell filed for an initial public offering (IPO) of stock in April 2000, but the timing of the proposed offering derailed Lipps’s bid to obtain an infusion of capital. The technology sector was on the verge of collapsing, creating inhospitable market conditions for a company looking to sell itself on Wall Street, particularly a company that had added dot-com to its corporate title. Omnicell’s IPO stalled, leaving the company to languish in registration for nearly a year. By March 2001, Lipps’s patience was at an end. He withdrew his company’s application, changed the lead underwriter of the offering from Deutsche Banc Alex to U.S. Bancorp Piper Jaffray Inc., and changed the name of his company from Omnicell.com to Omnicell, Inc. Less than a week after withdrawing Omnicell’s registration for an IPO, Lipps refiled for an IPO, eventually completing the conversion to public ownership in August 2001.

LIPPS AT THE HELM IN 2002

As a publicly traded company, Omnicell faced the scrutiny of the investment community. Poor performance, as perceived by investors and analysts, promised to deliver immediate repercussions by tarnishing the company’s image and draining its market value. Not long after guiding his company onto the public stage, Lipps felt the pressure of Wall Street’s scrutiny when Omnicell slipped into a slump, suffering from anemic financial performance and declining stock value. Lipps took action in October 2002 by assuming the CEO slot held by Sheldon D. Asher, who had served in that capacity for the previous nine years. Lipps also ousted several other top executives, purging the company’s senior ranks to bring in a number of executives from Silicon Valley, such as Dennis Wolf, a technology finance expert who was appointed chief financial officer. “I brought in a lot of folks managing companies in the billion-dollar range to take this company into the hundreds of millions,” Lipps explained in a January 22, 2004, interview with Investor’s Business Daily.

With a new team assembled, Lipps looked to ramp up revenues. Part of the problem, as perceived by Lipps, was the way Omnicell rewarded its sales representatives. The company paid commissions based on the number of units shipped, which led to undesirable outcomes. Pressed to meet their own financial goals, sales representatives were prone to scramble toward the end of each fiscal quarter, offering last-minute price reductions that crimped profit margins and inundated Omnicell’s manufacturing plant with orders, creating an end-of-quarter traffic jam. The compensation system also made sales representatives wary of selling to large hospital groups because the transactions took longer to close, hobbling Omnicell’s efforts to sell to the largest healthcare organizations in the country. Lipps did away with Omnicell’s compensation system and implemented a commission policy that paid sales representative on the value of installed units, not the number of shipped units. The new system encouraged sales to the nation’s largest healthcare operators and it placed an emphasis on completing installations in a more timely fashion, producing tangible results that fueled Omnicell’s sales growth. In 2002, the company averaged $75,000 in sales per customer. By 2004, the average sales per customer eclipsed $100,000.

Once in full control over Omnicell, Lipps redoubled his efforts at achieving his original goal of providing an end-to-end system to healthcare operators. Omnicell’s product line needed to be fleshed out to address the spectrum of needs within an acute-care facility. In August 2003, Lipps took another step toward reaching his ultimate aim by acquiring BCX Technology, Inc., a maker of wireless, handheld bar-code scanners that could scan patients’ bracelets and verify nurses’ identification to authorize and track pharmaceutical dispensation. The addition of BCX Technology’s product line brought Lipps, according to his own estimation, to a point where he could offer his customers 80 percent of a comprehensive, end-to-end system.

KEY DATES

1992:: Randall A. Lipps forms Omnicell Technologies, Inc.; the company sells its first supply automation system.
1996:: Omnicell releases its first pharmacy automation system.
1999:: The Sure-Med product line is acquired from Baxter Healthcare Corp.
2001:: After changing its name to Omnicell, Inc., the company completes its initial public offering of stock.
2003:: BCX Technology, Inc., is acquired.
2006:: Revenues reach a record high of $154 million.

Omnicell controlled roughly 18 percent of its market in the wake of the BCX Technology acquisition, ranking as the industry’s second largest competitor behind Cardinal Health, Inc. The company’s product line consisted of a range of products divided into two categories: medication-use products and medication and surgical supply products. Medication-use products included PharmacyCentral, an automated pharmacy storage and retrieval system; OmniLinkRx, a prescription routing system; SafetyPak, an automated bar-code medication packaging system; and SecureVault, a controlled substance, bar-code inventory management system, each of which were designed to be used in a hospital’s central pharmacy. For operating rooms, Omnicell sold a mobile system, Anesthesia Workstation, that managed anesthesia supplies and medications. SafetyMed, designed to be used at a patient’s bedside, functioned as mobile nursing workflow automation and bar-code medication administration system. Rounding out the company’s medication-use product category was OmniRx, a secure dispensing system that functioned as the hub for all of Omnicell’s medication control systems. Within the company’s medication and surgical supply category, were OmniBuyer and OmniSupplier and a third system, Optiflex, which utilized bar-code control in an open-shelf environment as opposed to a cabinet-based environment.

Omnicell’s suite of products and systems fueled impressive financial growth as the company began its second decade of business. Revenues slipped above $100 million in 2003, jumped to $123 million the following year, and reached $154 million in 2006, a year that also yielded $10.3 million in net income. In the years ahead, Lipps intended to add to the company’s capabilities as he promoted the use of automated, secure systems for healthcare applications. His efforts directed toward convincing healthcare operators to convert to more sophisticated ways of tracking and verifying the dispensation of pharmaceutical and medical supplies promised to find a large audience. Only half of the hospitals in the United States utilized automated medication and supply systems, providing Omnicell’s founder with a wealth of opportunities for growth as he led the company forward.

Jeffrey L. Covell