Dear Valued Shareholders,
This past quarter saw significant improvements in revenue, end market traction and in the regulatory and industry shift toward the sterilization of flexible endoscopes.
During the quarter, the Company shipped 40 STERIZONE® VP4 sterilizers to Getinge in partial fulfillment of our 2017 purchase orders we received from Getinge. Shipments continue in an orderly fashion and I am happy with our efficient and quality production processes. Additionally in the quarter we shipped our proprietary consumables to Getinge, who warehouses these along with sterilizers for resale to end customer healthcare institutions. Our gross profit was up, and we continued to make key investments in our extended regulatory claims efforts, product development and sales and marketing efforts with Getinge.
This led to another quarter of increased installations with end customers, both in North America and Europe and represents an excellent cross section of educational, urban and rural medical institutions. With these installations we have been able to prove our value proposition again and again.
Installations in 2017 are progressing much better than in 2016 and we are working with Getinge management to improve performance toward a possible ‘tipping point’ where end-demand will outstrip production. As an example, Getinge is participating in multiple weeks of TSO3 led training programs in our Myrtle Beach offices. We are implementing a Hospital Staff Super-User training starting in September. This training will help keep the end-user abreast of the growing instrument list that is validated with our sterilizer and tools available to maximize the efficiency of every load. Getinge is also receiving more new and repeat orders. These installations are coming in from high profile customers.
As we look at 2018 and beyond, we are planning for increased production capacity, our future product portfolio, and action steps in approaching the gastrointestinal endoscopy (GI) market with our innovative technology. At TSO3 we have stated that it is our purpose “to provide a sterile instrument for every procedure”, and this past quarter we believe that we saw evidence that we are not the only ones thinking this way. During the quarter, US regulators sent what we view as a message to the industry. In the future, 510(k) submissions by endoscope manufacturers (“OEMs”), required to introduce specific types of endoscopes must include validated sterilization indications for use. This is the new requirement in the United States. We are the only company today that has a validated and cleared technology that can terminally sterilize the duodenoscopes (claims in Canada and Europe only so far), colonoscopes and other flexible endoscopes included in the parameters of this new regulation. Almost immediately after this announcement, a number of OEMs reached out to us to get a pole position in our instrument compatibility work. We, of course, were pleased to oblige.
Just after the end of the second quarter, we submitted a 510(k) application for expanded claims for flexible endoscopes having unique elevator guide mechanisms (e.g. duodenoscopes). Our data confirm that our sterilizer can terminally sterilize duodenoscopes, which are ‘ground zero’ in the industry dialogue around ‘superbug’ contamination in endoscopes. This is a big step in our march to proving that a sterilized scope is possible, and giving hospitals and patients a way to deal with the significant risks they are exposed to by using non-sterile scopes. Meanwhile, the extensive litigation in this space is beginning to hold OEMs and hospitals accountable for defective reprocessing.
We believe this industry trend is real and likely to continue.
We thus ended the quarter with a growing list of reference customers, identified and pending sales opportunities, efforts toward extended duodenoscope claims, and a regulatory environment that is shifting in our favour.
I would like to thank the team for all their efforts in bringing real change to sterile reprocessing and our owners, the shareholders of this Company, for your continued support.
R.M. (Ric) Rumble
President and Chief Executive Officer