Dear Valued Shareholders,
During the third quarter of 2017, TSO3 assembled and shipped 44 STERIZONE® VP4 Sterilizers to our distributor, Getinge. To date in 2017, TSO3 has shipped 120 sterilizers to Getinge and is on target to ship the backlog of orders for 2017 delivery with which we started the year.
There are currently 50 sterilizers delivered to end-user locations. All but a few of them have been installed. Together with our distribution partner, we are continuing to build a growing list of medical facilities using our product and experiencing our unique value proposition. The backlog of future deliveries continues to grow. As a result, we are targeting a total of 70 deliveries to end-users by year-end and, consequently, TSO3 is increasing our resources to support installation and startup activities.
During the quarter, as reported, we received questions from US regulators concerning our submission to further enhance our sterilizer claims to include duodenoscopes. The questions revealed concerns with already established high level disinfection practices and requested that TSO3 perform a limited set of work to document the impact of using our sterilizer on “challenge features” that are part of the design of these scopes. This work is well underway and at the time of this letter, continues to be on pace to enable us to respond to the agency by the end of November.
Separately, during the quarter a landmark presentation was given during the World Federation of Healthcare Sterilization Science (WFHSS) which took place in Bonn, Germany. The presentation was specific to sterilization of duodenoscopes using the TSO3 STERIZONE® VP4 Sterilizer. This was the first time data had been presented uniquely relating to TSO3’s advanced technology. The initial results are positive and we look forward to seeing additional data as it is available. Since this presentation, at least one additional hospital in Canada has initiated terminal sterilization of their duodenoscopes and others are planning the same.
Additionally, a hot topic of discussion in the industry this fall has been the standards setting organization, the Association for the Advancement of Medical Instrumentation (AAMI), facilitating an open dialogue on the topic of transitioning flexible endoscope reprocessing standards from their current practice of High Level Disinfection to that of Terminal Sterilization. The evidence appears overwhelming to support a higher standard of reprocessing and we feel strongly that our technology is a key contributor to this discussion. Supporting this is a recently published peer reviewed paper titled “A new method to sterilize multichannel flexible colonoscopes” appearing in the Fall issue of the Canadian Journal of Infection Control.
2017 continues to be a year of growth and in less than two years the Company has reached the capacity of existing assembly facilities. As a result, we are moving forward with plans for a new high-capacity assembly facility in South Carolina to complement our Quebec facilities. In the second half of 2018, we expect that our combined assembly operations will be in a position to deliver sterilizers to Getinge at a pace in excess of our current capacity, and, in total, more units than we delivered in all of 2017.
Over the past years, the Company has continued its R&D efforts towards a new “80L” Sterilizer. Given our available resources and opportunities, the Company has decided first to incorporate the advancements identified in the 80L Sterilizer into our VP4 Sterilizer. TSO3 and Getinge have discussed these feature improvements, which will make installations faster and easier, and we are planning to deliver this enhanced product direct from our factories in the second half of 2018. In the interim, TSO3 is planning to adjust, for a charge, inventory currently held by Getinge, as these product enhancements have been deliberately designed to be fully “retrofittable” with the current version of the sterilizer.
Recently, Getinge announced another organizational change. TSO3 met with the new Global Chief Commercial Officer and the President of the Surgical Workflows Division to discussed plans going forward. We have seen tangible results in the delivery of and increased order intake for our sterilizer, but there is room for further improvement from where we are today. Not all of the conditions outlined in the Getinge Agreement have been met by Getinge, including meeting its original minimum order quantities, but the Company has decided at this time to work with Getinge toward the parties’ mutual objectives. We established with Getinge that productivity increases with the support of TSO3. Thus, TSO3 shall resource additional sales, clinical and technical support personnel immediately to assist in driving Getinge performance beyond the current levels. In addition, these same resources will be leveraged to further develop our emerging GI business.
In summary, we remain laser focused on developing demand for our product within the sterile reprocessing department of hospitals and developing the market for GI applications. Significant progress is being made and we are doubling down on our efforts to drive accelerated acceptance in the short term. We currently anticipate using our existing cash resources to fund these various initiatives.
As always the support of the TSO3 team, the Board of Directors and our shareholders is appreciated.
R.M. (Ric) Rumble
President and Chief Executive Officer