June 21 Conference Call Transcript (Part 2)
DARBY MACFARLANE CONTINUED:
I know the obvious fundamental questions you will all have:
(1) What does the recently announced distribution agreement mean for the Company?
(2) How will the products be distributed in each market?
(3) How big is the market size?
(4) Who is our manufacturer?
(5) When will the Company start staffing additional management?
(6) How will we market internationally?
(7) How will we handle marketing our other applications?
I will try and address these issues. But first I can assure you that, although we are indeed a small Company, we do have many highly qualified consultants and professionals in various technical, legal and financial related fields of expertise who have been and are continuing to help us through our growth period. And historically, in spite of our size, we have persevered successfully through many difficult challenges.
We have faced sever contractual mass manufacturing deadlines and always delivered on time. We have overcome R & D hurdles that required a few miracles in the invention area. And, over the years we have made it through the Federal Courts (when we brought a patent infringement lawsuit and settled the case with our patent remaining presumed by law to be valid and enforceable in addition to millions of dollars in monetary recovery). All this during the same period we were managing what was involved with the SEC in going public. We also continued through the 10 year process with clinical trials and the FEA. We then survived a devastating short raid on the Company, but persevered to contract on our own our third party manufacturer, received ISO 9000 certification and authorization to CE Mark our product (which is required for foreign distribution), established a highly professional Sales and Marketing Division ably let by Sheila Kempf with 10 excellent sales and inservicing personnel led by Dennis McClinton.
On June 7th, we signed a Marketing and Distribution Agreement for the U.S. with a premier distributor, Datex-Ohmeda and its Ohmeda Medical Division, and now thanks to Lehman Brothers' recent financial support we currently have about $6,000,000 in the bank, a commitment for another $4,000,000 more along with hundreds of instruments and over a million Lensettes being currently manufactured. We are at last moving into a new era and we expect this next new era for our Company to be an exciting time.
Now back to the more detailed issues. I'll take the manufacturing area first. Now that our distribution deal is complete, I would also like to introduce you at long last to our world class manufacturer, Nova Biomedical in Waltham Massachusetts. Their production of the TLc-BiliTest Systems has been of the highest quality and we couldn't be happier with their acceptance in the field.
As we announced over 2 thousand additional units will be in the manufacturing and shipping process over the next 6 months, and we still have over 1000 units of the briefcase model which are being reserved at this time for South America.
The next important issue is how we plan on opening up the Marketing Distribution channels. We have granted the exclusive License and Distribution rights in the United States for the TLc-BiliTest™ System to our new U.S. Distributor, Datex-Ohmeda and its Ohmeda Medical Division for 3 important markets, the Hospitals, the Pediatrician offices and the non-consumer section of the Home Health Care Market where the test is administered by a health care professional.
In selecting our distributor from many companies' proposals, an important aspect of the Datex-Ohmeda's proposal was its strength in the Home Health Care Marketing channels. Most every potential distributor had the ability to handle the Hospital market, and the Pediatrician Market while it has high volume of potential device placements (there are 50,000 U.S. pediatricians), the volume of the single patient use Lensettes will not be as high as the other 2 markets so not the priority early focus in marketing strategies. But very few companies had a strong Home Health Care marketing capabilities however Datex-Ohmeda does. At this point I would like to read to you, from Andy Krakauer, the President of Ohmeda Medical, a summary of our new distributor's structure in this market.
ANDREW KRAKAUER:
Mr. Krakauer states, Ohmeda Medical leverages its Datex-Ohmeda sister divisions Alternate Sales Channel to sell Ohmeda Medical's BiliBlanket® Plus Phototherapy, Suction and Oxygen Therapy devices, and patient monitors such as pulse oximeters into the home care market. This highly experienced sales group works with Ohmeda Medical's marketing team to very effectively sell products to Home Medical (HME) dealers.
The BiliBlanket is a real good example here. The BiliBlanket was initially launched to the hospital market and was then transitioned to home care. Now home care makes up a significant percentage of phototherapy sales.
We expect that our unique ability to coordinate distribution efforts between hospital, home, and pediatrician markets; as well as the ability to offer a complete jaundice management program will lead us to great success in this endeavor.
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The Home Health Care Distributors have been providing for the increasing need for bilirubin monitoring by the visiting nurse or technician sent to the home, (and I would like to go on as this is the end of Mr. Krakauer's quote), but the Home Health Care Distributors are experiencing and even greater need at this time to provide the parents with a screening device for bilirubin at home.
As there are over 4,000,000 babies born annually in the U.S., this is in essence a consumer market (and it is perhaps relevant to note here that our instrument does require a disposable for each use. A “disposable” in the medical device marketing vocabulary is like the proverbial razor blade to the razor). Currently the instructions to parents as they leave the hospital are “watch and see if your baby gets an increased yellow cast to the skin” – I think you can imagine the obvious problems, especially for the Hispanic, Black and Asian children.
So two problems have emerged – either the parents have been constantly calling and a visiting nurse must go to the home, only to discover no problem in the first place, which is a very expensive trip for the Home Health Care Medical Distribution Company. Or in the case of parents' uncertainty or inadequate care, the baby is being brought in days later – very yellow and in danger of potential central nervous system damage.
The #1 reason for babies being readmitted to hospitals after discharge today is newborn bilirubinemia. It's a big problem for the medical community. The TLc-BiliTest™ System can help solve that problem – at first where the test is administered by a health care professional through our new distributor.
But then there is the parents market which CCSI still has not licensed which offers consumer related potential. CCSI is in the process now of developing its business plan and related regulatory requirements for our own Medical division to expand into this market.
And of course this market is only a new and incremental one to the well established market existing in the hospitals, clinics, pediatrician offices and the traditional medical community, where non-invasive monitoring would be of great value to physicians in management of patient care. And in these markets, I would like Sheila Kempf our Vice President of the Medical Division to describe the Marketing Strategies contemplated by our new distributor and the Division's support role over the next year.
SHEILA KEMPF
Thank you Darby, and Good Afternoon everyone. First, I do want to emphasize that Datex-Ohmeda and its Ohmeda Medical Division's concern that we are dealing in a competitive environment. For that reason they would like to remain generic when discussing our sales and marketing strategies, profit margins, cost of goods and other information that our Distributor would not want disclosed to competition or their customers.
Having said that, the main objective during the next few years is to facilitate a change in the standard of care for jaundice management to include using non-invasive bilirubin monitoring for all infants after birth, upon discharge of the baby from the hospital and after discharge in the home, clinics and/or pediatricians offices.
This goal is based on the fact that the experts of neonatal and pediatric medicine believe that the incidence of kernicterus (or brain damage) from hyperbilirubinemia is on the rise. They also believe that the new trend of early discharge has contributed to this problem and they are looking for solutions. CCSI and its Distributor will strive to work with these experts to educate the parents, physicians and nurses on the continuing problem of infant jaundice and the potential changes for management of this disease.
The immediate sales goal is to aggressively market to and penetrate the largest birthing hospitals of which 1000 such hospitals account for approximately 76% of the births in this country. Concurrently the physicians and home care agencies who service these hospitals will be persued. Datex-Ohmeda and its Ohmeda Medical Division has a strong presence, excellent reputation and superb relationship in these markets as well as a specialized type of sales force. Our Product requires a highly skilled sales force of clinical specialists to educate and train our customer on a new technology for a new standard of patient care for which a commodity's salesman or one with lesser sales skills would not be adequate. From years of neonatal marketing and sales experience I for one, strongly recommended the Datex-Ohmeda/Ohmeda Medical Distributor in our final selection process.
Our CCSI sales, marketing and clinical staff will work hand in hand with our new Distributor's force to assist with training, technical sales and inservicing support during the first year transition period. We will begin the process of training our New Distributor's sales staff over the next 3 weeks. We will also be actively involved with large and complex accounts, experts and corporate accounts (such as Premier, Columbia HCA, etc.)
I would like to emphasize that the main goal is to place as many monitors as possible. Each of these monitors will generate an annuity of calibration standards over the ensuing years. Because these placements do not occur on the first day of the year but rather during the course of the year you will not see the full effect of the revenue potential early on, but rather a building effect year after year. This in the nature of the razor, razor-blade concept.
We will also be working with our public relations firm and media in reaching the expectant mother to help the parents become more aware of this painless monitoring system. We believe that the parent will be a significant driver to both the pediatricians and hospitals to adopt this technology.
Finally I would like to say that I am truly excited to be working with such a quality organization such as Datex-Ohmeda and its Ohmeda Medical Division. This is exactly the type of partnership that can truly benefit the hospitals and more importantly the babies and their parents. Thank you Darby.
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