AUGUSTINE MEDICAL,INC.
Augustine Medical ,Inc. was founded by Dr.Scott Augustine, an anesthesiologist. His experience had convinced him that hospitals need and desired a new approach to warming patients after sugary. His medical knowledge, coupled with a technical flair, prompted the development of the Bair Hugger Patient Warming System.
The Bair Hugger Patient Warming System has several advantaged over water-circulating blankets. First, warm air makes patients feel warm and stop shivering.
Second, the system cannot cause burns, and water leaks around electrical equipment are not a problem , as they are with water-circulating blankets. Third, the disposable blankets eliminate the potential for cross-contamination among patients. Finally, the system does not require that the patient be lifted or rolled. Augustine’s Personal experience indicated that all of these features would be welcomed by nurses and patients alike. Features and benefits of the Bair Hugger Patient Warming System are detailed in the company’s sale literature, shown in Exhibit 3.
Investor interest in Augustine Medical and the medical technology it proved produced an initial capitalization of $500,000. These fund were to be used for further research and development, staff support, facilities, and marketing. It was believed that this initial investment would cover the fixed costs (including salaries, leased space, and promotional literature) of the company during its first year of operation. The company would subcontract the production of the heater/blower unit and would manufacture warming covers in-house using a proprietary machine. Only minor assembly would be performed by the company.
The Bair Hugger Patient Warming System Would be sold by and though medical products distributor organizations in various regions around the country. These distributor organizations would call on hospital , demonstrate the system, and maintain an inventory of blankets. The margin paid
Set at 30 percent of the delivered (that is, less discounts) selling price on the heater/blower unit and 40 percent of the delivered (discounted if necessary) price on the blankets.
Preliminary estimates from subcontractors and a time-and-motion study on assembly indicated that the direct cost of the heater/blower unit would be$380. The cost of materials, manufacturing, and packing of the plastic disposable blankets was estimated to be $0.85 per blanket.
The central issue at this time was the determination of the list price to hospitals for the heater/blower unit and the plastic blankets, given the widespread incidence of price discounting. Immediate attention to the price question was important for at least three reasons. First, it was felt that the price set for the Bair Hugger Patient Warming System would influence the rate at which prospective buyers would purchase the system. Second, price and volume together would influence the cash flow position of the company. Third, the company would soon have to prepare price literature for its distributor organizations and for a scheduled medical trade show, where the system would be shown for the first time.