To Our Valued Shareholders,
The third quarter of 2016 can be summed up in three words, “Steady Forward Progress”. We continue to make steady forward progress on our key near term operating objectives – selling our STERIZONE® VP4 Sterilizers, helping Getinge Infection Control, our exclusive distribution partner, sell sterilizers into North American hospitals and prepare for its European launch, building our sales, marketing and operating infrastructure to prepare for future growth, and facilitating the entry into the GI market.
During the third quarter we assembled and shipped 30 sterilizers to Getinge and recorded revenues of $3.5 million for the quarter. So far this year we have recorded $9.6 million in revenue, which represents a new high watermark for the Company. Thanks in part to the contribution of these revenues; in the quarter we used only $1 million of our US$21 million in cash balances for operations despite making significant investments in our future.
So what have we been up to?
Our primary goal remains to support North American end-user adoption of the STERIZONE® VP4 Sterilizer while preparing for its international introduction. To this end, the Company allocated its resources to sales and technical support toward the existing low temperature sterilizer market. This support included multiple end-user presentations throughout the United States, Canada, China, Europe and Australia, both with and without Getinge and we were pleased with our progress., particularly considering this past quarter is normally associated with the vacation season.
We led sterilizer installation training at several locations, and made progress establishing supply chain processes with Getinge that are required to support an increased demand for consumables. The installed base of STERIZONE® VP4 Sterilizers is growing and end-users are telling us that our sterilizer is meeting or exceeding expectations, and utilization from these US accounts continues to be in excess of our original estimate of three cycles per day per machine.
In the quarter we also invested in our Myrtle Beach technical facility. This additional laboratory space will be primarily dedicated to expanding our device Compatibility Testing Service (CTS) in support of documenting an increased number of instruments and loads that may be processed in our sterilizer.
Also, we announced that the U.S. Food and Drug Administration (the “FDA”) had cleared our expanded indications for use (IFU’s) of our STERIZONE® VP4 Sterilizer – making our sterilizer the only sterilizer validated to terminally sterilize large (3.5 meter long and four or fewer channels), multi-channeled flexible endoscopes such as video-colonoscopes and gastroscopes. These extended claims further expand our technology leadership – offering enhanced patient protection in applications where terminal sterilization was not previously possible.
While this clearance is supportive of our next generation technology, we aren’t done yet. During the quarter we continued rigorous scientific testing with a goal to create sufficient documentation to add duodenoscopes, which represent a major health safety concern to many hospitals, to our existing claims of video-colonoscopes and gastroscopes. We expect this testing to conclude by year end.
Meanwhile, scope contamination post reprocessing has been identified as a major concern by several independent sources in the health care industry and the issue is surfacing in the general limelight. The struggle of delivering contaminant free scopes to patients recently was even the focus of an episode on a popular TV series. Alarmingly, there appears to be no break in recommended practice that causes this contamination. Simply said, it appears that people are resigned to the fact that current practice simply cannot consistently deliver a contaminant free device to each patient. At TSO3 we believe we are the solution to this rapidly increasing and documented problem. During the quarter, several US and other hospitals and manufacturers asked TSO3 to work with them to evaluate programs that might lead to the terminal sterilization of every scope between patient use. This change won’t happen overnight, but it does appear that our belief that each patient deserves a sterile device is shared by many.
For the past several quarters the Company has been pleased to state that we have a strong and positive relationship with our channel partner Getinge. As they too are a public entity, their news can sometimes create new questions for TSO3 shareholders. During 2016 our channel partner has gone through multiple changes, but a few things remain clear based on the meetings we have had with Getinge senior management: we remain strategically important to Getinge (and vice versa) and each party remains committed to the collective success of our exclusive relationship.
As we look to the last quarter, you should expect to see us begin adding select resources that will further assist in our support of Getinge’s commercial activities, expand our sales and marketing efforts inside and outside of the US, communicate our progress in testing results for selected high impact endoscopes.
I wish to extend my appreciation to the TSO3 team for their dedication and efforts, the Board of Director for their advices and our shareholders for their continued support.
R.M. (Ric) Rumble
President and Chief Executive Officer