Trimedyne, Inc. (TMED.OB-OTC: BB)
February 5, 2010 Issue
The Most Powerful Name In Corporate News and Information
With Its New, Patented Side Firing Laser Fiber, Trimedyne Brings Exciting News To Men Suffering From An Enlarged Prostate Or A Herniated Ruptured Disc In The Spine
Trimedyne develops, manufactures and markets medical lasers and patented disposable and reusable fiber optic devices for use in minimally invasive procedures as alternatives to surgery. Trimedyne’s laser procedures, most of which are performed on an outpatient basis, have higher success rates than surgery and avoid most of the adverse effects and complications of surgery.
Trimedyne’s new VaporMAX® Side Firing Laser Fiber was recently cleared for sale by the FDA for use with Trimedyne’s and other Holmium lasers for the treatment of enlarged prostates, a condition which affects about 50% of men over age 55, typically on an outpatient basis. A similar device will be marketed by Lumenis, Ltd. through Boston Scientific Corporation (NYSE:BSX) in the U.S. and Japan and by Lumenis through its large sales organization elsewhere throughout the world, when Lumenis and BSX complete their audit of Trimedyne’s manufacturing process and quality system, which is expected to take several months. Lumenis is a medical laser manufacturer based in Israel with sales of about $300 million.
However, Trimedyne has begun production and will begin marketing its new VaporMAX® Fiber through its own sales organization in March, 2010.
Trimedyne’s Holmium lasers and fiber optic devices are also used in orthopedics for the treatment of herniated or ruptured discs in the spine and the treatment of damage in joints, typically on an outpatient basis, and in urology for fragmenting stones in the kidney and bladder, and for a variety of other uses, which requires a hospital stay of a day or longer.
Trimedyne also rents lasers with a trained operator to hospitals and surgery
centers in the southwest for a “per case” fee.
The Interview conducted by Walter Banks Publisher: CEOCFOinterviews.com, Published – February 5, 2010
CEOCFO: Dr. Loeb, tell us about the new product you are developing.
Dr. Loeb: Trimedyne has recently developed a new, patented, VaporMAX® Side Firing Laser Fiber for use with our 80 watt Holmium Lasers and other high-power Holmium Lasers for the treatment of enlarged prostates in men, technically called benign prostatic hyperplasia or “BPH”. Developing this new product has caused us to run at a loss for the last two years, but the development program has now been completed.
Our new VaporMAX® Fiber has been
cleared for sale in the U.S. by the FDA, and we expect it will be approved
for sale in the European Union in a few weeks. We had excellent reports from
physicians evaluating this new Fiber, we are commencing production and
expect to begin selling this new Fiber in March of this year. We expect
sales of these Fibers will begin to contribute to our revenues in the first
calendar quarter of 2010, and we expect to return to profitability in the
next quarter or two.
Our business is growing. In the Fiscal Year ended September 30, 2009, we had revenues of $7,422,000, a 26.4% increase over revenues of $5,871,000 in the prior Fiscal Year. In the current Fiscal Year, we had a net loss of $909,000 or 5 cents per share on a weighted average of 18,365,960 shares outstanding, a 42.8% reduction from our net loss of $1,590,000 or 9 cents per share in the prior Fiscal Year.
In the quarter ended September 30, 2009, revenues were $2,112,000, an 18.6% increase from revenues of $1,781,000 for the same quarter of the prior year.
Also, in the Quarter ended September 30, 2009, our net loss was only $37,000 or zero per share on a weighted average of 18,366,000 shares outstanding, a reduction of 90% from the net loss of $366,000 or 2 cents per share in the year ago quarter on the same number of shares. As you can see we are almost at breakeven.
CEOCFO: Tell us about your business and products and their uses, and how they fit in the market place.
Dr. Loeb: Our business is divided into three segments of about equal size. In orthopedics, our Holmium Lasers and Side Firing Laser Needles are used to treat herniated or ruptured discs in the spine (lumbar, thoracic or cervical), typically in 30 to 40 minute outpatient procedures, with published success rates of 85 to 94%. The patient walks out about an hour after the procedure with a Band Aid on the needle puncture, and can usually return to light activities in a couple of days and to work in about a week. About 600,000 people are treated for a herniated or ruptured disc each year in the United States.
In conventional disc surgery, called Fusion Surgery, the disc is removed, the space between the vertebra is filled with cadaver bone to fuse the vertebra together, over time, and the vertebra are rigidly attached to one-another with screws and plates. The published success rates for Fusion Surgery are only 40 to 77%, compared to our published success rates of 85 to 94%.
Also, in conventional disc surgery, the patient is hospitalized for 2 to 5 days, suffers substantial bleeding and pain, has several weeks of recuperation, usually has to endure up to six months of rehabilitation and exercise therapy and can be out of work for up to two months or longer.
Our lasers are also used with specially designed fiber-optic devices to treat damage in joints, such as the knee, shoulder, elbow, hip, wrist or ankle, typically on an outpatient basis, a procedure called Arthroscopy. About 1.2 million Arthroscopy procedures are performed each year in the United States.
Another segment of our business is in Urology, in which our Holmium Lasers and FlexMAX® optical fibers are used to fragment stones in the kidney, ureter or bladder. Our lasers have been shown in a published study to fragment stones faster and into smaller pieces than other lasers, making them easier to “pass” during urination.
Treating BPH with our Holmium lasers and our new VaporMAX® Side Firing Fiber is a new business for us. About 1.2 million procedures are performed each year throughout the world to treat BPH, about 200,000 of which are in the U.S. Urologists earn about 35% of their income from treating BPH, so this is a large, important new market.
The third segment of our business is renting lasers to hospitals and surgery centers with a trained operator on a “per case” basis to do orthopedic, urology and other procedures. Lasers are expensive and operating them takes training.
Many hospitals don’t want to invest $120,000 or more in a laser and have one of their people trained, who might leave, requiring them to send another person for training. Calling our 800 number and having the laser delivered, with our highly trained technician to operate it, makes this very convenient for hospitals and outpatient surgery centers.
Also, hospitals and surgery centers and their doctors want the newest equipment, and they don’t want to be stuck with an expensive laser, if a new laser or other device arises that does a procedure faster or better, so renting lasers on a “per case” business is cost-effective.
All three of these segments of our business are growing, as you can see in our year-over-year sales growth. We expect they will continue to grow, as our laser procedures entail less bleeding and fewer infections, usually avoid hospitalization and enjoy shorter recuperation times, allowing people to return to work earlier, which is important in this economy. And, our laser procedures cost less than conventional surgery.
CEOCFO: Would you tell us about the size of these markets and how you are positioned?
Dr. Loeb: An estimated 15 million people in the U.S. suffer from a herniated, ruptured or degenerated disc. About 600,000 surgical procedures to treat herniated or ruptured discs are performed each year in the United States at an average cost of about $34,000 each, a total cost of almost $20 billion per year. This is a market our patented lasers and side firing needles address. Our laser procedures cost insurance companies about $14,000, a savings of about $20,000 per case, compared to the cost of surgery. If the patient has to pay a 20% co-pay, 20% of $14,000 is a lot less than 20% of $34,000.
Presently, our lasers are used in only about 1 or 2 percent of these procedures, so we have a lot of room to grow in this business.
With President Obama pushing for a national healthcare plan, and with greater attention to technologies that save money, we expect this segment of our business will continue to grow.
In urology, millions of people take drugs to treat an enlarged prostate. When the drugs no longer control the prostate’s growth, each year about 1.2 million people throughout the world, about 200,000 in the United States, have their enlarged prostate treated in either a procedure using radiofrequency or “RF” energy, or laser energy.
The RF procedure takes an hour or more, requires a 2 to 3 day hospital stay and entails significant bleeding. Up to 10% of the patients lose more than a pint of blood and require a blood transfusion. Nobody wants a blood transfusion, because there may be a variety of dangerous viruses and organisms in donor blood, which is usually tested only for AIDS and hepatitis.
The RF procedure also entails a substantial infection rate, a week or two of recuperation, up to 10% of the men who were potent before the procedure become impotent, and up to 15% become permanently incontinent.
Our laser procedure to treat an enlarged prostate usually takes 30 to 45 minutes, is typically performed on an outpatient basis, with little or no bleeding or pain, and the patient can usually return to light activities in a couple of days. On the plus side, Medicare pays more for the laser procedure than the RF procedure, which makes this attractive to hospitals and surgery centers.
Over the past six or seven years, the use of lasers to treat enlarged prostates has grown from very little to about $150 million per year. We hope to gain a sizeable share of this market, both in our Urology business and in our “per case” laser rental business.
Lithotripsy, or the fragmentation of stones in the kidney, ureter or bladder, is also growing, as Holmium lasers have proven superior to other technologies for this application. Most large hospitals in the U.S. already use lasers for fragmenting stones. Now smaller hospitals in the U.S. and large and small hospitals overseas are buying Holmium Lasers for use in Lithotripsy.
Presently our “per case” laser rental business covers Texas and adjoining areas. We plan to expand this business into other metropolitan markets in the future, using our Holmium Lasers and patented VaporMAX® Side Firing Fiber for the treatment of enlarged prostates, and our patented Side Firing Laser Needles to treat ruptured and herniated discs in the spine, as a springboard to enter new markets.
CEOCFO: You were in litigation with Lumenis, Ltd. and ended up with a partner; would you explain how that happened?
Dr. Loeb: A few years ago, we sued Lumenis for infringement of our patents on side firing laser fibers and for certain anti-trust violations. Lumenis is the world’s largest manufacturer of medical lasers, with sales of about $300 million worldwide, and has a large, established sales organization.
We settled this litigation, and Lumenis agreed to purchase 100% of its requirements for Side Firing Laser Fibers, which emit laser energy, at 75º to 90º, and 75% of their requirements for Angled Firing Fibers, which emit energy at less than 75º, from Trimedyne. However, before we can start shipping Lumenis a side firing fiber similar to our VaporMAX® Side Firing Fiber, which emits laser energy at about 85º, Lumenis must audit our manufacturing process and our quality system, to be sure our products meet their quality requirements, which will take several months.
Lumenis presently markets their DuoTome™ Angled Firing Fiber for the treatment of enlarged prostates through Boston Scientific Corporation in the U.S. and Japan, and through Lumenis’ large sales organization elsewhere throughout the world. This settlement means that, indirectly, we will have the benefit of Boston Scientific‘s large presence in urology in the U.S. and Japan in marketing the Side Firing Fibers we will be selling to Lumenis.
Boston Scientific’s audit of our manufacturing process and quality system covers essentially the same items Lumenis will be auditing. While Boston Scientific is expected to accept Lumenis’ audit results, they may audit some items more extensively, so Boston Scientific’s audit could add a month or two to the total audit period.
While this audit process will take time, when it is completed, we will be picking up Lumenis’ existing volume from selling its angled firing fibers to Boston Scientific and through Lumenis’ own sales organization, so we will not be starting from “scratch”.
In the meantime, Lumenis is paying us a royalty of 7.5% on their sales of such Fibers.
CEOCFO: Tell us about you competition and what sets you apart?
Dr. Loeb: Laserscope pioneered the use of lasers and side firing laser fibers for treating enlarged prostates, and they are presently the leader in this market. In 2006, Laserscope sold about $100 million of lasers and side firing fibers to treat enlarged prostates. In late 2006, Laserscope was acquired by American Medical Systems (whose NASDAQ symbol is AMMD). The price was $715 million or $26 per share, up from about $2 per share in 2001. AMMD is our principal competitor.
CEOCFO: Going back to you new VaporMAX® Fiber, what countries are the best markets for it?
Dr. Loeb: At about $750 each, these Laser Fibers are expensive and are discarded after one use. Only in the U.S., Japan, the European Union and a few other countries is reimbursement sufficient to enable hospitals to pay about $750 for a disposable Laser Fiber.
Outside these countries, the patient often has to pay extra for the laser procedure to treat his enlarged prostate, which limits the market to middle and upper income men. Since the RF procedure to treat an enlarged prostate entails hospitalization, significant pain, the risk of severe bleeding, sometimes requiring a blood transfusion, and the risks of impotence and incontinence, if they can afford it, men have a good reason to pay extra for the laser procedure.
There are of course, affluent people in many other countries, such as the Middle East, Canada, Mexico, Brazil, Argentina, Russia, Australia, China, Korea and India. We expect these countries, along with the U.S., Japan and the European Union will be significant markets for our new VaporMAX® Fiber.
CEOCFO: When can we expect to see significant sales from your new Fiber?
Dr. Loeb: Lumenis has been marketing its angled-firing laser fiber for a number of years. It is not as fast at vaporizing tissue, and it is not as durable as our new Fiber. While we believe it will be several months until the audits by Lumenis and Boston Scientific are completed and Lumenis begins buying our new Side Firing Fiber, we will be marketing our VaporMAX® Fiber through our own sales organization, which is much smaller than Lumenis’ and Boston Scientific’s.
When Lumenis begins purchasing a copy of our VaporMAX® Fiber from us, which they will market under their new DuraMAX trademark, we expect to see a sizeable increase in our revenues.
Of course, we will be selling the new Side Firing Fiber to Lumenis on an OEM basis at a substantial discount. So, even though our marketing organization is small, we will earn a higher percentage of the sales price selling Fibers through our own people. A modest increase in our revenues from sales by our people, due to the larger profit margin, will have a disproportionate effect on our bottom line.
CEOCFO: What is the long-term outlook for Trimedyne?
Dr. Loeb: If President Obama is successful in implementing a national health insurance plan, which will expand health coverage to an additional 30 or 40 million Americans, the market for our products will grow substantially. If this new healthcare program gives preference to devices which have higher success rates and lowers hospital costs, I believe Trimedyne could see tremendous growth ahead.
We plan to use some of the profits we expect from sales of our new Side Firing Fiber to conduct more training courses for surgeons to expand our spinal disc market, increase the size of our sales organization and expand our “per case” laser rental business into other markets in the United States.
CEOCFO: Would you tell us about your management team, board of directors and how you work together?
Dr. Loeb: I founded the company in 1980, based on some of my patents. I’ve been issued about 60 patents for use in the treatment of a variety of medical conditions, of which about 20 were assigned to Trimedyne without compensation.
Glenn D. Yeik, our president and COO, is a superb engineer and has been with us for 14 years. He designed our Holmium Laser and new Side Firing Fiber, and he has developed a unique manufacturing process for our new Side Firing Fiber to insure its durability and fast vaporization rate.
Brian T. Kenney, our VP of sales and marketing, has been with Trimedyne for 9 years. He is responsible for appointing and training our sales reps and distributors, and he is adept at teaching our laser procedures.
Jeffrey S. Rudner, our chief accounting officer, has been with us 8 years and very ably manages our accounting, receivables, billing and customer service departments.
CEOCFO: What is the financial position of Trimedyne today?
Dr. Loeb: At September 30, 2009, we had about $1.6 million in cash and equivalents and current assets of about $5.1 million, versus payables and accrued expenses of only about $946,000. We have no bank debt and no long-term debt.
CEOCFO: How many patents does Trimedyne currently have?
Dr. Loeb: Trimedyne has 22 patents and four pending patent applications. We are developing a new type of laser, which may result in a new patent, and we have patents covering other new laser fibers which are in an early stage of development.
With so many public companies to choose from in the healthcare arena, why
should potential investors consider Trimedyne?
I’m from the old school. Now that we are at
breakeven and, hopefully, in the next quarter or two, we will be in the
black. I’ll “toot our horn” more aggressively when our profits grow, rather
than talking about things we hope to achieve.
CEOCFO: You mentioned some forward-looking statements in this interview, what would you like to say in closing?
To satisfy our SEC attorney, I must tell you this interview contains
forward-looking statements, as defined by the Securities Reform Act of 1995,
which include estimates, beliefs, plans and expectations, the accuracy of
which cannot be assured, and actual results may differ substantially from
those described herein.
I hope investors interested in Trimedyne will go to our website, www.trimedyne.com, for copies of our press releases, product information, financial statements and SEC filings, to learn more about our growing business.
CEOCFO: Dr. Loeb, thank you for sharing Trimedyne’s story with us.
Loeb: Thank you
for inviting me to do so.
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