Like its fabled namesake, Quixote Corp. is armed with an artillery of dreams, with wins and losses under its belt and forever ready for the next joust.
The company`s name was inspired by writer Miguel de Cervantes` character Don Quixote, the dreamer who went off in search of adventure.
But Philip E. Rollhaus, chairman and president of Quixote, said the difference between Cervantes` mythical Quixote and the Chicago-based corporation is that the company is doing more than dreaming.
”We create growth by managing innovation,” Rollhaus said.
In keeping with this philosophy, Quixote has taken an adventurous turn into the area of health care. Quixote, along with the venture capital arm of Allstate Insurance Co., became a founding shareholder in 1985 in Synthetic Blood Corp., which is developing a whole-blood substitute for emergency and other medical applications.
Although based on components taken from human blood, Synthetic Blood removes certain substances, notably red cells.
”The product has the look and feel of human blood, and on transfusion it can maintain or restore normal circulating volume and blood pressure. Only your body will know the difference,” said Dr. Bernard Ecanow, a scientist with the University of Illinois at Chicago Department of Pharmaceutics, who invented Synthetic Blood.
”The idea for Synthetic Blood really came about as an offshoot of theories I`ve had about evolution and the cell,” said Ecanow.
He said the blood product has two advantages over human blood in that it cannot be typecast and the fear of transmitting disease through transfusion is eliminated.
Ecanow said Synthetic Blood is a sterile product composed of substances already present in the body; the substance has little potential for the adverse reactions associated with the use of human blood, plasma or blood expanders.
”It possesses universal donor characteristics,” said Ecanow. ”There is no blood typing, such as A, B, O and other combinations. Synthetic Blood matches whatever blood type.”
While testing has not yet been done on humans, Ecanow said limited small- animal studies have been successful in showing that Synthetic Blood circulates freely throughout the vascular system, transports and releases oxygen and carries carbon dioxide from the lungs.
Tests also have shown the product can be metabolized normally and maintain or restore normal circulatory volume and blood pressure in transfusions.
Because Synthetic Blood is a biological product, it must be approved by the Food and Drug Administration. Under the FDA`s biological guidelines, about 3 1/2 years of testing is needed before the first human test can be done.
Ecanow said that means additional experimentation.
Rollhaus said the Synthetic Blood product will take between two and four years to perfect and qualify, requiring an investment of up to $20 million to meet FDA regulations.
”Synthetic Blood is still in the process of completing all the necessary tests,” said Rollhaus. ”You get only one crack at the FDA and we all want to be ready when that time comes.”
Thus far, he said, ”feedback from the health care community is pretty much what you`d expect.”
Some health professionals ”are skeptical and most have the not-invented- here attitude, which stems from their own pride, and the fact that someone else has broken ground in a new area.”
If the Synthetic Blood concept seems like a long shot, that`s exactly what it was when it came to Quixote`s attention.
Rollhaus said the proposal for Synthetic Blood was among those presented to Quixote`s division of mergers, acquisition and venture capital projects, known informally in the company as Long Shots Inc.
Despite its unofficial moniker, ”we take it very seriously. We take the time to sift through ideas and to put the people in touch with someone who can help them better than we can in the development of their ideas,” Rollhaus said. ”Sometimes, as in the case with Synthetic Blood, we learn of ideas we`d like to fund.”
Putting a good idea to work in one form or another is the quixotic spirit in which Quixote was founded in 1969.
”We`ve used our winners to help support our losers,” said Rollhaus.
”Our main thrust is to stay in business.”
One of Quixote`s biggest winners is Energy Absorption Systems Inc., Quixote`s first wholly owned subsidiary.
Energy Absorption came about as a result of the company`s idea to make a plastic energy-absorbing bumper for vehicles, which was first filled with liquid and later with foam.
Unfortunately, the idea for the patented bumper was not received well in the automotive industry and the idea was curbed.
The young Quixote then transferred the bumper idea into a workable one for highway crash cushions, yellow or gray plastic barrels filled with sand, water or foam. The result was Energy Absorption, which manufactures and markets energy-absorbing highway crash cushions for protection of motorists.
”Many thousands of our patented highway crash cushions have been installed since 1970, with some 40,000 lives saved and some 400,000 serious injuries prevented,” Rollhaus said. ”All because we learned to listen to what the marketplace was telling us and we were willing to switch, in an instance, from working hard on one product to quickly developing another.”
Rollhaus said the crash cushions ”have become an integral part of highway design and are used on highways across the United States, in Germany and the Mideast.”
With the profits Quixote reaped from Energy Absorption, Quixote looked to expand its operations and purchased Skokie-based Stenograph Corp. in 1979. Stenograph supplies shorthand equipment and materials to the court reporting profession.
Quixote had room for still another adventure in 1979 and developed LaserVideo Inc., the only wholly American-owned compact disc manufacturer that masters, replicates and supplies discs to the music label business.
Other members of the Quixote fold include Ocean Scientific Inc., which develops automated medical diagnostic equipment for the biotechnology industry; Amtel Systems Corp., which manufactures and markets proprietary message-management systems for the office; and RapidWriter, a high-speed entry system for personal computers.
While Quixote`s sales have more than doubled in the last four years, some analysts say the company`s performance has been a disappointment.
Sales for the year ended June 30 reached a record-setting $45.2 million, up 29 percent from $35 million the year before. Net earnings for the year increased 37 percent, to $1.9 million from $1.4 million.
Earnings per share were 27 cents on 7.31 million average shares outstanding, up from 22 cents on 6.45 million average shares outstanding for fiscal 1985.
”The company has a lot of good products out there, but just when things seem to be looking up for them, they`ll go out and make an acquisition, and the cost of the new acquisition affects earnings,” said Matthew Reich, an analyst with Drexel Burnham Lambert Inc. in New York.
”We`ve only recently stopped following the company,” said Reich. ”The products have a great deal of potential, but Quixote`s earnings have been a disappointment.”
Describing Quixote as a family of diversified technology companies, Rollhaus said the company essentially does what many large corporations are afraid to do.
”For most corporations, research and development funding is generally the first area to be cut. They are not willing to take risks to grow,” he said.
Rollhaus said larger corporations also fall into the trap of trying to
”please securities analysts, so they look for short-term earnings and they reward CEOs for short-term performance.”
Alan Bernstein, an analyst with Oppenheimer & Co. Inc. in New York, said Quixote is on target with LaserVideo.
”Their clear growth vehicle is LaserVideo,” Bernstein said.
”LaserVideo will become a larger part of the company each year.
”Stenograph and Energy Absorption are the company`s strongest businesses and provide it with its safest sources of cash flow. The biggest question mark is Amtel Systems. It`s still too early to tell about their involvement with Synthetic Blood.”
Gary Wirt, an analyst with Chicago Corp., said Quixote`s strength will need to be measured over the long term.
”This is not a short-term company,” said Wirt. ”The long-term potential is there, but it carries some risks. It has been a leader in the highway crash cushion field, but they haven`t been as successful as they had hoped with the LaserVideo or Amtel. Both have been a drain on the company.”
Taking risks and plotting life`s next adventure have been second nature for Rollhaus, who founded Quixote.
He majored in English at Wesleyan University in Connecticut and joined the Navy after graduation. His career took an unusual turn when he filled out a naval form and abbreviated his major as ENG. Navy brass mistook that designation for engineering, sending Rollhaus to Panama to help run the canal locks.
His engineering duties also took him to the Persian Gulf, where he was stationed in Karachi, Pakistan. Once his crash course in engineering with the Navy was over, Rollhaus enrolled in Oxford University, but dropped out to go to Paris to make his mark in literature.
He admits to getting as far as chapter three in his efforts to write a novel after five years of trying. But his time in Paris was not wasted. He worked as a freelance writer, washed dishes, delivered messages and founded the literary magazine Parnassus Review. He also started a chain of 17 laundromats in Paris, but saw his equity shrink when he raised expansion capital.
With his background in foreign languages, he shifted to leading seminars for Business International, a Chicago-based information and consulting firm, and became a consultant in Chicago before starting Quixote.
Quixote is traded over-the-counter on Nasdaq and listed as QUIX. Analysts said Quixote stock has been on a roller coaster since last year, plummeting as low as $5 but recently holding around $10 a share. It closed Friday at $10.62.
