To Our Valued Shareholders,
What a great year.
Fiscal 2016 represented TSO3’s largest move forward in our 18 year history. We grew revenue to over $13 million in the year, sold a record 110 STERIZONE® VP4 Sterilizers, made significant strides in production flow, supply chain and productive capacity, witnessed sustained deliveries of our technology through our channel partner, Getinge Infection Control, established strong strategic ties with leading academic healthcare institutions, reinforced our management team, and once again made history with our unique industry changing regulatory clearances. I think we can safely say we are off to a solid start.
During fiscal 2016, our exclusive distribution arrangement with Getinge resulted in shipments of 110 STERIZONE® VP4 Sterilizers, some of which were installed into US hospitals in the year and others of which are targeted for 2017. This performance provided us an important entry point into the end market, an endorsement of our technology by an industry leader, and a source of operating cash flow to support our internal marketing, development and production improvement efforts. Critically, it also provided a vehicle to demonstrate our solid value propositions and established clear understanding of how to sell new technology into the healthcare market. To top off the year, in November, Getinge provided TSO3 with a purchase order for STERIZONE® VP4 Sterilizers scheduled for delivery in 2017.
These orders and delivery visibility provided us with an opportunity to learn how to produce our sterilizers in volume and at reasonable cost. With these stable and predictable orders, we were able to transform our assembly facilities from one used to support small orders and research needs, to one that has the ability to produce hundreds of high quality sterilizers each year. In addition, by the end of the year we had added warehouse capacity and facilities in Myrtle Beach, and we target production of our proprietary Hydrogen Peroxide consumable solution in the United States in 2017. Our suppliers are on board. Our assembly personnel are well trained. Our systems are well defined.
In July 2016, the Company announced that the US Food and Drug Administration had cleared TSO3’s expanded indications for use (IFU’s) of the STERIZONE® VP4 Sterilizer, which demonstrated the truly superior capabilities of our STERIZONE® Sterilization System. We are now the only company with a validated technology that is cleared for sale in the United States, Europe and Canada for the terminal sterilization of multi-channel flexible endoscopes, such as gastroscopes and video-colonoscopes, up to 3.5 meters in length and with four or fewer channels. Many patients do not realize that these devices are currently not terminally sterilized between patient use; and a growing body of industry research indicates that current device reprocessing procedures involving incumbent technologies need improvement. These extended claims further expanded our technology leadership – offering enhanced patient protection in applications where terminal sterilization was not previously possible, and providing us the potential to revolutionize the medical industry’s standard of care.
Meanwhile, TSO3 remains committed to further expansion of our US claims – including filing for sterilization claims specifically addressing duodenoscopes. TSO3 is already cleared for the sterilization of these devices in Canada and Europe. These specific devices have repeatedly been implicated in patient to patient cross contamination of multi drug resistant organisms. Such contamination has led to illness and in some cases patient death.
As I write this letter, TSO3 has completed all testing required to support the use of our sterilization process with selected duodenoscopes. The Company believes it has an opportunity to file a targeted instrument claim together with specific endoscope manufacturers (OEM), which when completed would be a significant opportunity for both parties. This OEM has suggested requirements for their portion of a filing, and TSO3 expects to be involved in this testing. We feel confident that, should we pursue such a collaborative submission, it will be more valued by end users and will pass through the regulatory process in a shorter time – potentially more than making up for any additional time for the OEM testing to be completed. I assure you that we are working with numerous OEM’s on many fronts and on many instruments, but given the highly visible nature of communications on duodenoscopes, TSO3 has and will continue to be cautious, making sure that our science is firmly out-front of our communications. This is just one of a number of initiatives we are working on in the rapidly evolving gastrointestinal endoscopy reprocessing market segment.
This means that we will continue to drive change with existing industry partners in both traditional low temperature sterilization markets and the gastrointestinal endoscope reprocessing market. With this in mind, we founded a Strategic Partnership Program with different leading medical institutions in the United States. Working with these institutions, we look forward to bringing published independent third party evaluation and study of our technology in real hospital settings. In support of all of this activity, we completed the construction of our Myrtle Beach facility during 2016 – which now boasts a fully equipped laboratory. We can now offer instrument compatibility services to OEM’s and medical facilities, as well as a training facility for end users both clinicians and engineers.
During the year we enhanced our training systems and delivered a number of training events to members of our channel partner’s team and prepared to extend this training to location outside the US in the first quarter of 2017, which at this time I can safely say is firmly on tract.
Finally, this past year we built a strong executive team with experience in all key components of our business - a team that is expected to deliver more in operations, science, and in opening new and substantial markets. Each team member is clear on his or her objectives, and we are driving forward in a focused manner in 2017, and in preparation for 2018.
I would like to thank the Board of Directors for their support and guidance, our employees for their dedication and you our committed shareholders for your patience and encouragement.
R.M. (Ric) Rumble
President and Chief Executive Officer