Md. firm dreams of making billions off sleep disorder

Sleep Technologies makes profit running 60 labs in 11 states

Medical services

July 06, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

The latest acquisition by National Sleep Technologies Inc. -- its 10th in two years -- has finally put the 7-year-old operator of sleep laboratories in the black.

And with only about 5 percent of the estimated 18 million Americans who suffer from a disorder called sleep apnea getting treatment, the Annapolis company sees healthy growth potential.

Apnea is a disorder in which the airway becomes blocked during sleep -- causing a person to wake up dozens of times, often without realizing it.

The disorder, along with causing drowsiness, makes the heart work harder, potentially leading to high blood pressure, heart attacks and strokes, according to the National Institutes of Health.

A study published in the March 18 issue of the New England Journal of Medicine also found that people with undiagnosed sleep apnea are seven times more likely to have traffic accidents than people without the condition.

National Sleep Technologies owns or operates 60 labs in 11 states -- including 12 labs in Maryland -- and conducts about 16,000 patient sleep studies a year.

Chief Executive Officer and President Bill Niland founded the company in 1992. The firm started out by operating sleep labs, then in 1997 purchased five labs outright, another three in 1998 and two this year.

The latest acquisition was the purchase in June of Ambulatory Services of America Inc. in Elmsford, N.Y. The price was not disclosed.

"With the last acquisition, we turned to a positive cash flow," said Niland, 42. "We might acquire up to five [additional companies] this year."

Niland said he expects the privately held company to have $13 million in revenue this year and $30 million to $35 million by the end of 2000.

"The goal here is $100 million in annual revenue, and we expect that in 2004 or 2005," Niland said.

Sleep apnea is generating just under $1 billion in treatments, said Mike Thomas, the company vice president for sales and marketing. But if the 18 million people estimated to have the disorder got treated, it would be a $20 billion industry, he said.

The company's sleep labs look more like hotel rooms than offices. The atmosphere is intended to be as homelike as possible -- the main difference being that when patients spend the night, they have about two dozen electrodes attached to their bodies to measure eye and chest movement, breathing patterns, and heart and brain activity.

If a patient is diagnosed with sleep apnea, he returns for a second night of tests and is fitted with a mask that will be used at home to force air down the throat to aid in breathing.

Sleep apnea in children -- which some say is occasionally misdiagnosed as Attention Deficit Disorder -- is generally treated by removing the tonsils and adenoids.

About 2 percent of the country's children suffer from sleep apnea, said Dr. Carole Marcus, medical director of the Pediatric Sleep and Breathing Disorder Center at the Johns Hopkins Children's Center.

"[Sleep apnea in children] can lead to serious problems because their minds are developing," said Marcus, who is also associate professor of pediatrics at

Hopkins. "It can affect behavior, growth and be a strain on the heart. Some children die from it, although that's rare."

The Hopkins center chose National Sleep Technologies to operate its sleep laboratory because it could not afford to update the lab's equipment on its own, Marcus said. Under the operating contract, Hopkins technicians were offered higher-paying jobs with National Sleep Technologies.

"It's worked well," Marcus said. "We have a very collegial relationship."

Building relationships with physicians is a key part of the company's growth strategy. A company sales and marketing team visits doctors' offices to educate them about sleep disorders.

"We try to convince them our services are of value and to send their patients to our labs," Thomas said. "It's pretty difficult because people like pharmaceutical reps are also vying for their time, and they can offer free samples. We have nothing free to give -- just information."

Along with acquisitions, National Sleep Technologies is also trying to increase revenue through joint partnerships with teaching hospitals and hospital chains; disease-management programs; and starting free-standing labs.

Niland said he will likely take the company public sometime in the next two years.

"Only two medical service companies went public in the last year -- it's a difficult time to go out because of the [health care] market right now," he said. "If Internet companies do not start to make or sustain profits, you'll probably see people going back to sectors like health care and medical products."

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