1st Paper

In 1997, Dr. Charles Casper and John Frost founded ATH MicroTechnologies Inc. to develop, manufacture, and sell a new medical imaging product. Dr. Casper (47), a radiologist, had trained at Johns Hopkins medical school and, after a research fellowship at Harvard Medical School, joined a private practice in Florida. Casper specialized in the use of imaging systems for the medical practice. Over time, he had experimented with different procedures, such as ultrasounds and x-ray, until he became interested in a new technology based on sending electronic impulses through electrodes attached to the skin and observing how these impulses changed as they went through the body. Together with John Frost-an engineer who specialized in digital imaging for medical applicationsCasper perfected the technology, reducing its cost and improving its resolution. Both founders anticipated a significant market potential for their product. Relatively low cost combined with improved image quality made it a very attractive alternative for applications where other imaging systems were prohibitively expensive to use. With these expectations, they convinced a group of doctors to invest in the venture. The company started with $3.6 million in paid-in capital.

In 1998, ATH MicroTechnologies received regulatory approval to market its first product-an imaging system to work in conjunction with minimally invasive surgical procedures. Building on this initial success and after a detailed sales and profit projection over a five year period, a deal was struck with Alumni Capital Partners, a venture capital firm, which agreed to invest $8.7 million to support the launch of the new product. The business plan anticipated the introduction of new products with increased image resolution and a broader range of applications to pull the company into profitability by the end of 2001. During this period, all the cash of the business would be invested in product development, production tooling, and marketing. Professor Robert Simons and Doctoral candidate Antonio Dávila prepared the original version of this case, "ATH Technologies, Inc. (A): Making the Numbers," HBS No. 100-016, which is being replaced by this version prepared by Professor Robert Simons. Certain details have been disguised. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008, 2009 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 www.hbsp.harvard.edu/educators . This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. 108-092 ATH MicroTechnologies, Inc. (A): Making the Numbers The product was launched in December 1998 and gained a toehold in the marketplace. Additional managers, scientists, and marketing personnel were hired. Some were given equity positions in the company in lieu of fully competitive salaries. As expected, the investment in product development and manufacturing processes absorbed all the cash that the business generated. In 1999, the venture capital firm organized another round of financing, bringing other venture capital firms into the company which invested $8.0 million. At this point, the board was comprised 60% inside directors and 40% outsiders. During 2000, the company improved the product and a new generation was developed. That same year, the founders received an offer to sell the company to Scepter Pharmaceutical, Inc. (a pseudonym), a $10 billion pharmaceutical and medical products company that wished to increase its presence in this market segment. The offer seemed attractive to all the parties involved. The venture capital firms would be able to cash out profitably, Scepter would add a new and successful product to its product line, and ATH would have access to cash to finance faster growth. The business could add more people, expand facilities, and buy n