Fillauer family builds global medical supply business

Get to know the family:• George Fillauer Sr. (worked 1914-55) - Founded the Red Star Pharmacy at 930 E. Third St. in Chattanooga• Carlton Fillauer (worked 1933-2002)- Took the company public, expanding manufacturing• Karl Fillauer (current) - Bought the company back, took it private• Michael and David Fillauer (current) - Oversee manufacturing and patient care, respectivelyCompanies and locations• Fillauer Companies Inc. - Chattanooga• Fillauer LLC - Chattanooga• Fillauer O & P Patient Care - Chattanooga• Hosmer Corporation Campbell - California• Center for Orthotics Design Campbell - California• Motion Control - Utah• Centri Sollentuna - Sweden• Topis Sollentuna - Sweden• Trautman Equipment Line - Chattanooga• Emotis Salt Lake City - Utah• OTS Corp. Asheville - headquarters in North Carolina with manufacturing in FloridaSource: Fillauer Companies, Inc.Company Timeline• 1914 - Founded as Red Star Pharmacy• 1931 - Red Star expands to provide surgical supplies• 1972 - Merged with Durr Drug Co., Durr-Fillauer goes public for $19.5 million• 1979 - Fillauer LLC moves to Amnicola from downtown• 1992 - Durr-Fillauer has revenues of $1 billion, net income of $20 million and 1,300 employees in 16 states• 1993 - Bergen Brunswig Corp. buys Durr-Fillauer for $470 million• 1993 - Karl Fillauer buys orthopedic and prosthetic division (about 1 percent of total company) for $13 million, an attractive purchase because it has profits of $3 million• Fillauer acquires eight other companies to achieve vertical integration - 1996-2012Source: Fillauer Companies, Inc., Forbes, former company president Eddie AdairCompany at a glance• About 300 employees• 10 subsidiaries• 30,000 separate products• The orthopedics and prosthetics industry has grown 6 percent annually, which Fillauer says it outpaces• Prosthetic limbs can cost from $5,000 up to $70,000Source: Fillauer Companies Inc., Cordova Ventures

Karl Fillauer, like many successful entrepreneurs, says his life isn't about money.

But unlike so many others, that's a family tradition, not a marketing motto, he says.

"You hear these cliches like we want to be good, we want to be the best, we want to be the biggest," Fillauer said. "If it happens, that's fine. But it isn't the goal." Fillauer said.

Pointing to the cross above the door, he says that he works "for that guy right there," not for himself.

His grandfather and father told him from childhood that "the earning of money is a byproduct of good services - you're not chasing the dollar, you're chasing good products," said the CEO and chairman of Fillauer Cos, a worldwide manufacturer of orthopedic and prosthetic devices.

Though it's not about the money, he says he's grown revenue at his family business at an average rate of more than 6 percent a year since he took it private for $13 million in 1993.

Fillauer Cos. now earns millions of dollars annually and ranks in the top five companies in its industry.

"People don't know how large we are," Karl Fillauer said. "If you ask people about Fillauer, they'd say we're a manufacturing company on Amnicola, but they don't know that we're global specialists."

Fillauer's 100-employee corporate home on Amnicola Highway houses a large manufacturing operation as well as the headquarters for the company's 10 subsidiaries spread around the globe.

Last week, the Iraqi minister of health, Haitham Qasim Taher, visited Fillauer's offices to learn about the company's products.

"We have the ability as a large company to flex our muscles internationally, but we still let the individual subsidiaries keep their identity," said Michael Fillauer, head of manufacturing.


Fillauer has acquired operations from California to Sweden since 1996, but the 62,000 square-foot Chattanooga location still is the heart of the company.

The factory floor in Chattanooga smells of solvents and epoxy, as it has since Fillauer began making artificial limbs in the mid-20th century.

Tools and materials that, taken separately, could be used to create a dress, a barn or a pizza, hum away in the skilled hands of laborers who use them to breathe new life into patients across the planet.

Instead of the wooden legs of the early 1900s, the company manufactures more than 30,000 distinct products for customers who have a missing or injured limb.

A replacement leg these days can cost consumers anywhere from $5,000 to $70,000, depending on whether it contains microprocessors and hydraulics or is simpler model.

Now on the cusp of five generations of family leadership, Karl Fillauer looks back with a bit of pride on a 97-year-old family business that in 1914 was founded in a small pharmacy across the street from Erlanger Hospital.

Most importantly, he's still having fun.


D.W. Dorrance began selling the first split, two-fingered hook in 1912. Though Fillauer now owns the company Dorrance created, it would be two years before Karl Fillauer's grandfather founded his Red Star Pharmacy in Chattanooga.

"Back then, there were only one or two choices for people, mainly wooden legs," Karl Fillauer said.

George Fillauer, a German immigrant, noticed that he was getting a lot of demand for orthopedic devices from Erlanger.

"He had four seamstresses making custom corsets and back supports," Karl Fillauer said.

When the doctors said they needed artificial limbs for their patients, some of whom were returning from World War I, he brought an "orthomeister" over from Germany named Lawrence Porten to make the devices.

Besides founding a family company that later would turn into a global giant, George Fillauer started another family tradition: the CEO as clinical practitioner.

Each family owner has remained a practicing medical professional, seeing clients in between plant visits and sales meetings.

Even so, the company itself has drifted toward manufacturing, Karl Fillauer said.

The business expanded from the pharmacy to the next storefront over, and eventually took over the whole building.


His father, Carlton Fillauer, helped lead the business away from patient care and toward manufacturing orthopedic and prosthetic devices, which were becoming more popular.

Carlton Fillauer merged the company in 1972 with Durr Drug Co., and Durr-Fillauer went public for about $19.5 million, Karl Fillauer said.

But Karl himself was more interested in patients, and found success working directly with people as the family business, he said.

"I took over the patient care part of the business, and he stuck primarily to manufacturing," Karl Fillauer said of his father.

While Carlton Fillauer oversaw the production of the company's product, Karl worked in the family's orthopedic clinic. The facility was originally founded in 1934 to research and develop new products, making it the oldest orthopedic clinic in the city. But the clinic evolved into a straight patient care facility, said Fran Jenkins, vice president.

As time went by, the manufacturing arm of the company fell out of favor with Fillauer's parent company. They "didn't want the orthopedic division," Karl Fillauer said, and attempted to sell his family business in 1993.

"When it came up for sale, some investor groups were looking at it, and I said, 'I don't think so,'" he said.

With the help of a private consortium, he bought back the manufacturing division for about $13 million, and set about returning it to its former glory.

The pharmaceutical and surgical supply divisions still are owned by others: Durr-Fillauer was purchased by Bergen Brunswig, which was later taken over by Cardinal Health Care, Jenkins said.


Since he took over the company, Karl Fillauer went about buying up competitors and turning enemies into friends, he said.

A practicing Catholic, the third-generation business owner calls work "fun," and "a gift from the guy upstairs."

"Adding all these acquisitions is a fun thing, then to have both sons involved is just extra," he said.

Over the course of a conversation, he often uses the word "blessed" to describe his feelings about the company.

Even during the recession, "we were very blessed. Despite the economic hardship, we hit our budget every year," he said.

With the manufacturing business stabilized, he's anxious to return to his first love, patient care.

"I enjoy interacting with people," he said.

In patient care, "You get to bring things to closure. You see the beginning and the end, where with some jobs you only get a glimpse of the middle."

Karl Fillauer won't reveal all the secrets of the privately held company, but he does say that the family secret is passion.

"We enjoy what we do," he said. "We've passed on to our children that work is a gift."

And to prove it, he's not even close to thinking about retirement, he said.

"We've got new products coming out, and probably another acquisition," Fillauer said.

He was recognized in March by the American Academy of Orthotists and Prosthetists with a lifetime achievement award, which the Academy calls "the highest level of recognition" it can bestow.

Michael and David Fillauer, the family's fourth generation in business, are already shepherding along the family's fifth generation.

"The oldest is 5," Michael Fillauer joked. "We'll have him in the shop in a couple years."

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