Sales of glucose test strips invigorate Woburn firm

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olymedica is sitting atop an enormous growth market: diabetes.

The Woburn firm began selling glucose test strips directly to diabetes patients in 1998 when a change in Medicare rules made it possible for patients to be reimbursed for their supplies. Such test strips now account for more than three-quarters of Polymedica's revenues, which surged from $73.8 million in 1998 to $220 million in its fiscal 2001, which ended March 30. For calendar 2001, revenues were $263.6 million.

The company claims to have 484,000 patients it serves with home supplies for the treatment of diabetes and other diseases, and a total of 1.2 million patients in its database. It pulls in more with television ads featuring Wilford Brimley, the crotchety actor who once exhorted Americans to eat their oatmeal on behalf of Quaker Oats. The ads have become such a fixture they were recently spoofed on "Saturday Night Live. "

Meanwhile, diabetes marches on: Type 2 diabetes, which accounts for more than 90 percent of all cases, climbed 33 percent over the past 10 years, according to the Centers for Disease Control, and now afflicts 17 million people in the United States.

"We never run out of patients," said Steven J. Lee, the firm's chairman and chief executive. "There's 800,000 to 1 million new patients a year."

Polymedica has plans to drive continued growth. It is selling additional products and services to its enormous customer base, such as prescription medications and therapeutic shoes. That also leverages Polymedica's proprietary customer service software, which juggles hundreds of specialized products and handles billing with thousands of insurance companies.

The firm, which employs 60 in a Massachusetts manufacturing facility but has most of its operations in Florida, is also planning to open a laboratory to process diagnostic tests for diabetes patients -- another way to generate additional revenue from its customer base.

With the growth have come some serious questions. The Securities and Exchange Commission conducted a formal inquiry into the firm's finances. The commission closed the investigation without taking any action in April, leading to a surge in Polymedica's share price.

Polymedica also faces an ongoing investigation by the US Department of Justice, which is looking at allegations of health-care fraud by the company's Liberty Medical Supply Co. and Liberty Home Pharmacy Corp. Since seizing records last summer, the Justice Department hasn't contacted the company, Lee said.

"At this point I can honestly say the government has not told us that we've done anything wrong," he said.

JEFFREY KRASNER