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EPMedSystems, Inc. (EPMD) |
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CEOCFO CEOCFO Monthly Analyst |
"To print this page go to file and left click on print" EPMedSystems
–bringing new and innovative diagnostic and therapeutic technology to cardiologists
and electrophysiology labs worldwide Bio of CEO: ViewMate™ CEOCFOinterviews: Mr.
Schmidt, please give us a brief history of EPMedSystems. Mr. Schmidt: “EP Med started in 1993; its first product was a stimulator product used in the diagnosis of cardiac electrophysiology (“EP”) disorders, and the second product a few years later was an EP monitoring/pace/record system called the WorkMate®. The company went public in 1996 and today we are in over one thousand EP labs with our pace and recording platform worldwide, which is about 30% of electrophysiology labs in the world.” CEOCFOinterviews: What is electrophysiology? Mr. Schmidt: “Electrophysiology is an area of cardiac medicine that deals with the diagnosis and treatment of faulty electrical conduction systems within the heart. These types of electrical conduction problems affect millions of people worldwide. Irregularities in the heart’s conduction system create various problems for patients, and some are potentially fatal. Atrial fibrillation, or AF, is chaotic electrical conduction affecting the atria of the heart that causes it to ineffectively pump blood, and can cause loss of consciousness, fatigue, dizziness, and the formation of clots within the heart that can be potentially very dangerous. Ventricular tachycardia, or VT, is an abnormally rapid heart rate that can be fatal. In electrophysiology, the electrophysiologist tries to identify what part of the heart’s conduction system is contributing to the patient’s condition. Once the condition has been properly diagnosed, the electrophysiologist may elect to treat the patient with antiarrhythmic drugs, ablation, a pace maker, or an implantable defibrillator." CEOCFOinterviews: Are the EP-Work Mate® and the EP-3i Stimulator your main products today? Mr. Schmidt: “Those products currently represent approximately 80% of our revenues to date. We sell directly in the United States and through the distributor network in the rest of the world. For about three years now we have been working to expand from the present diagnostic EP-WorkMate® platform to more interventional technology. In November of 2002, we received PMA approval from the FDA for an internal cardioversion technology platform called the ALERT® system. We see significant promise with this. We also are working on regulatory approval, which we recently filed for our ViewMate™ intracardiac ultrasound catheter technology, which we think will positively affect our revenue results in 2003 as well.” CEOCFOinterviews: What they are these two products used for and how they are different from what is out there now? Mr. Schmidt:
“During the diagnosis or treatment of cardiac electrophysiology disorders, the
physician will try to reproduce the patient’s conduction problem. This is
similar to any engineer troubleshooting any type of problem, from you car mechanic to the
person fixing an appliance in the home—you have to reproduce the problem to
understand where it is and how to fix it. In the case of a patient experiencing
atrial fibrillation (AF), the electrophysiologist will use our computerized stimulator to
stimulate the area of the heart that may contribute to AF. By finding the exact
spot within the heart that is producing the patient’s problem, the physician is then
better able to treat the problem. The current standard of care to get the heart to a
normal sinus rhythm is drug therapy, which is successful up to about sixty percent of the
time and this success often deteriorates over time, and these are very powerful and toxic
drugs, which can cause significant harmful side effects. You can also cardiovert
externally by putting defibrillation paddles on the patient’s chest and using about
360 joules of power; this is a procedure where the patient must have general anesthesia
and afterwards will probably experience some traumatic muscle pain and possibly some skin
burns. This treatment is generally successful for a period of time for most
patients. Where this may not be as successful is in patients that are obese or have
enlarged hearts, or have had previous unsuccessful external cardioversion treatment. CEOCFOinterviews: What is the next step after market approval? Mr. Schmidt: “As a PMA device that has been approved by the FDA, we are allowed to sell the ALERT® PA catheter in the United States, along with the Companion energy source. In Europe, we have had approval for the PA catheter and the Companion energy source for approximately two years. We have recently filed for approval for the CS/RA diagnostic and cardioversion catheters and we are expecting that approval early in the first quarter of this year. In Europe, we also have approval for the TD thermodilution/cardioversion catheter. Both of the filings in the U.S. for the CS/RA and the TD catheters will be accomplished in early 2003, but we first had to get the PMA approval from the FDA for the ALERT® system, which was the base filing, and now we are filing supplements to the base PMA approval for those catheters. CEOCFOinterviews: How do you reach your customers and who buy your products? Mr. Schmidt: “Our sales force is very well versed on where every electrophysiology lab is geographically located, and they keep the professionals that staff the EP labs up-to-date on our current technology, which is unique in the field of EP. The same people that utilize our EP-WorkMate® systems (we currently enjoy about 40% market share of new system sales) and our stimulator technology are the same professionals that will utilize cardioversion technology in the EP lab. The ALERT® TD catheter technology is utilized in the critical care arena, and we will be developing a distribution channel for that product through an alliance with a company that currently sells to the critical care segment, which is a call point that we do not address. Another technology that we have applied for approval on and are expecting in early 2003 is the ViewMate™ intracardiac ultrasound catheter system, which is a small catheter with an ultrasound transducer at the tip. The ViewFlex™ catheter is placed inside the heart and validates catheter/tissue contact in ablation procedures, assists pacemaker lead placement removal, guides transeptal needle punctures, and identifies internal cardiac abnormalities that the physician is generally unable to visualize. We see the ViewMate™ as a significant technology for us in the second half of 2003. It will be made available in EP to the same people that currently buy and utilize our WorkMate® system, and outside of electrophysiology to the critical care market, an area that we will be working on with a distribution alliance with a major supplier in that particular clinical setting.” CEOCFOinterviews: Am I correct is saying that your ALERT® system is not out there in any form? Mr. Schmidt: “Not in the US. The ALERT® system is a first-to-market kind of medical device, which required the FDA PMA approval process. In Europe, there are some manufacturers that have technology similar to this, and we are currently competing with them in that application. There is one other manufacturer of the intracardiac ultrasound technology, which has a similar application as ViewMate™. We have some characteristics regarding how our system works that are different from theirs as far as the efficacy of the technology, and we see significant growth for us in that segment because both platforms bring to our business consumable products, and not just a medical device. This is significant for a company of our size and position.” CEOCFOinterviews: What is the market size for your products? Mr. Schmidt: “The total market for cardiac rhythm disorders is a three-billion dollar industry, which includes pacemakers and other arrhythmia disorder devices and products. The diagnostic EP Recording market is about a twenty million dollar market worldwide and we currently enjoy almost forty percent of that today. We see the ALERT® platform with its three segments (PA, CS/RA, TD) we were talking about being a total available market of up to two hundred million dollars, and we see the intracardiac ultrasound market being a total market of two to three hundred million.” CEOCFOinterviews: I would suspect that as the population of the U.S. continues to age, the market would increase. Mr. Schmidt: “Yes. Right now there are over four-hundred thousand diagnostic and ablation catheter procedures a year in the U.S.; there are five million patients with atrial fibrillation worldwide and about 350,000 new patients a year present themselves. The demographics and efficacy of these treatment patterns are all contributing to double-digit growth within the industry. Our revenues in the EP-WorkMate® and the stimulator business, in the past year before the new product approvals, have been growing twenty-five percent over the prior year. We believe that the new products will drive significant expansion to accelerate that growth as we get our approvals in 2003.” CEOCFOinterviews: Do you manufacture your products and if so could you tell us about your facilities. Mr. Schmidt: “All of our products are manufactured and assembled in the U.S. We have a facility in West Berlin, New Jersey; it is a little over 15,000 square foot manufacturing facility and then we have another 5,000 square foot customer service facility. We are ISO 9001, GMP compliant. We have about seventy-five employees involved in the manufacturing of the electronics and the catheters at our New Jersey headquarters, and an additional twenty employees that staff our globally based service support organization." CEOCFOinterviews: Do you need to maintain much inventory? Mr. Schmidt: “The sales team wants more inventory and the finance team would want more efficient management; higher turns of inventory. Over the course of 2002, we were working toward a two million dollar inventory level at the close of the year, ranging from two million to 2.6 million during the course of the year, due to the cyclical nature of the market and the ordering process." CEOCFOinterviews: With regard to the ALERT® system, how will you get it in wide use now that it is approved? Mr. Schmidt: “There
are three delivery applications for this technology. One is for the treatment of
patients who have a large body profile, or have failed external cardioversion (ALERT®
PA), one is for patients undergoing EP procedures that may require cardioversion (ALERT®
CS/RA), and the other is for patients developing atrial fibrillation after open heart
surgery. The question is: what are the areas of clinical use that have that particular
profile of patient. Each of these types of applications requires a particular
channel of delivery, and we will be addressing those channels ourselves, or through an
alliance with a major manufacturer. CEOCFOinterviews: How does all of this get funded? Mr. Schmidt: “We have been doing it the hard way by spending about thirty percent top line revenues on R&D, and we have been efficiently funded as far as our development efforts. If you compare what we have spent on expenditures to others in the industry, they have significantly less technology than we do. We have been very efficient, but we have also been burning our operating cash negatively for a number of years as we complete the technology rollout. We think 2003 will be the transition year when we can put our R&D budget in line with our revenues, and continue revenue growth as the final release of products come to market in the course of 2003, and contributes significant new growth. Each year we have done some partial funding through strategic partners. We have industry investors in our business: Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX), as well as institutional investors. The investment support has helped to fund the completion of the new products, and will help underwrite the cost of rolling them out to the market this year.” CEOCFOinterviews: Do you have a need for new people as you transition from development into marketing, and how do you handle it all internally so that it goes as smoothly as possible? Mr. Schmidt: “In the last sixteen months that I have been at EPMedSystems, we have made a significant investment in bringing in expertise. In early 2002, we brought in John Talarico to head up our regulatory group, and that has allowed us to accelerate the approval process on a number of things. We brought in Richard Gibbons as director of operations to improve the manufacturing process and improve our customer service program. He continues to make contributions, which lower our costs of production. We have also brought in Matt Hill in July of 2002, to lead our financial operations. We also recently hired Mark Adams to lead the sales and marketing departments, and he will head up the team that will successfully bring the new technologies that EPMedSystems has been working on for well over five years to the market." CEOCFOinterviews: Are there things in the pipeline that we should know about? Mr. Schmidt: “One of the big opportunities that we have as a business, and it is going to be the development project of 2003, is the technology called SilverFlex™. This is a process that replaces metal electrode bands on catheters with a non-metal technology, which will allow catheters to be more flexible, lighter and softer. The SilverFlex™ process will save on production time and costs because the platinum and other materials used in catheter electrode bands are quite expensive. We see this as the most significant technology opportunity that the company has in its portfolio, and the application of that technology is very stable as it is utilized in EP. We will be beginning the necessary clinical trials, which will take a significant amount of time and effort. We see this being the project for 2003, which will contribute to revenues in 2004 even more so than 2003.” CEOCFOinterviews: What should shareholders and future investors know that perhaps they don’t realize when they look at EPMed? Mr. Schmidt: “I
think what is lost on many people that are caught up in the big-name companies is that
EPMedSystems has a significant installed base in the quickly growing field of
electrophysiology. We are very well positioned with these multiple new products; they fit
quite nicely into our installed base and this will help drive early acceptance. We are
more in line to being viewed as an operating company today than we ever were in the past.
Lastly, if you look at the valuation of EP Med and you look at the acquisitions that have
occurred in our industry, you will see that we are very much undervalued. disclaimers |
