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Healthcare
Medical Equipment & Supplies
NASD: MDWV

Medwave, Inc.

435 Newbury Street
Danvers, MA 01923
Phone: 978-762-8999



Timothy O’Malley
President and
Chief Executive Officer

Interview conducted by:
Walter Banks
Co-Publisher

CEOCFOinterviews.com
May 2002

Bio of CEO,
Timothy J. O’Malley is President and Chief Executive Officer and a Director of the Company. He has served in these positions since October 1999.  From 1984 until 1999 Mr. O’Malley was an employee of Siemens Medical Systems, Inc. throughout his employment he served in a variety of Technical, Sales, Marketing and General Management roles. At the time of his departure from Siemens, Mr. O’Malley was Vice President/Division Manager of Siemens Medical Systems, Electromedical Division for North America. Prior to joining Siemens Mr. O’Malley worked as a BioMedical Engineer at a small privately held company in the Chicago area, selling and supporting Medical Equipment Service and Maintenance agreements. Mr. O’Malley received his Associates of Applied Science Degree in 1983 from Oakton College in Desplaines Illinois, and attended DePaul University of Chicago from 1986 until 1991, with an emphasis in Business Management and Marketing.
 
Company Profile:
Medwave, Inc. develops, manufactures and sells a continuous, non-invasive direct arterial blood pressure monitoring device. Its Vasotrac® APM 205A system monitors patient blood pressure through a sensor placed over the radial artery in the wrist. The wrist piece applies pressure to the artery, and the sensor reads the blood pressure and produces waveforms every 15 heartbeats. It does not require a cuff, which enhances patient comfort, contains no mercury and stores up to 900 readings. It is marketed to healthcare professionals, in hospitals, outpatient surgery centers and higher-end cardiology offices.

New features and products include Pediatric capabilities, High Motion Tolerant Software, and the NIA V-Line Interface Package. The NIA V-Line transforms Medwave's Vasotrac® continuous, noninvasive, blood pressure monitor and allows it to emulate an invasive arterial catheter. The NIA V-Line connects Vasotrac® to any patient monitor for true integration. The company has an OEM supply agreement with Japan-based Nihon Kohden to develop a module of Vasotrac® for use in Nihon Kohden's larger systems.

Medwave has also developed a handheld version called the Vasotrax™, which is targeted towards the nursing community, the physician office market and even some of the higher-end oral surgery dental market. It can be clipped to a belt or scrubs. With a single charge, you can take approximately 200 readings. At the end of a shift, the unit can be placed in a Vasoport-4 recharging station. The stored measurements will offer future capabilities, allowing the readings to be downloaded into a computer-based system while the unit is recharging. On the next shift, it is ready to go again. Vasoports are available in two, four and eight bay configurations. Two eight-bay units may be configured to create a 16-bay unit.

CEOCFOinterviews: Mr. O’Malley, please give us a brief history of Medwave.

Mr. O’Malley: “Medwave was incorporated in 1985. The initial goal of the company was to develop a technology that would allow the clinical community to monitor a patients blood pressure as accurately and almost as frequently as what the clinical community was used to getting with the invasive arterial catheter, however with the conveniences and the elimination of risks that is often associated with non-invasive parameters. The first of many research and development attempts was re-generated into a second attempt in the early 1990s and after a couple of generations of product we came up with a universal product in late 1999, which is our Vasotrac® continual monitor. This is a blood pressure monitor with a sensor-based technology, which mounts on the wrist. It allows the clinical community to monitor the patients blood pressure about every twelve to fifteen heartbeats and the accuracy of this has been compared scientifically to the invasive catheter. The correlation is within a few percentage points.”

CEOCFOinterviews: How many products are you currently selling into the market place?

Mr. O’Malley: “We have three products that are being sold today; one is a continual monitor, the Vasotrac, that is being targeted toward healthcare professionals, in hospitals, outpatient surgery centers and higher-end cardiology offices. The second is a hand-held device, the Vasotrax, that takes a single reading that is targeted towards the nursing community, the physician office market and even some of the higher-end oral surgery dental market.”  The third is an OEM version of our Vasotrac Monitor, allowing other companies the ability to integrate our patented technology into their larger systems.

CEOCFOinterviews: Have you looked at the over the counter/consumer marketplace?

Mr. O’Malley: “Our devices today, are not intended to be sold over the counter. If a patient today has hypertension, they are told to go and purchase a blood pressure monitor; those cuff-based devices can be purchased through drug stores or large chains. We are not at that point yet, however we believe that eventually our hand-held device will be able to migrate into the consumer market and when it does that, the patient who may be geriatric or ill or someone frail will be able to use it with relative ease in regards to the user interface.

The higher-end product, the Vasotrac® continual monitor is really a hospital-based product. That product is used in surgery, cardiology, and critical care areas of hospitals. It is used in some outpatient areas like surgery centers but typically; it is a high-end application product. The hand-held Vasotrax™ product, which is used in step-down areas like a physician’s office market would be the product that we would migrate into the consumer market eventually.”

CEOCFOinterviews: How big is the market that you address?

Mr. O’Malley: “It is huge. If you combine just the professional market today that we address, it is in the range of about a billion and half dollars a year. We believe that over the next two or three years that we will migrate into the consumer market as well because our hand-held was designed initially to be able to store and transport data over an electronic medium. We believe over the next few years that we will be able to perfect that and enter the consumer market. Once we do that, this becomes about a three and a half billion-dollar market.”

CEOCFOinterviews: Which product would you say has the greatest potential for you?

Mr. O’Malley: “We believe that over the next several years that we will look for partnerships with meaningful companies; we could possibly co-develop and further enhance the hand-held based product. We believe that when we do that; we have access to a 1.9 billion dollar consumer market and when we allow the hand-held to become a consumer based product that it will become a reality; then that becomes the best potential for the company.”

CEOCFOinterviews: What is the most exciting news that you have today?

Mr. O’Malley: “I came to Medwave just over two years ago from a very large multi-national company and I was running a division for the company for several years and was very pleased with 30-40% growth which was tremendous for the size of company that we were. I came to Medwave because of the innovation that was here. There aren’t many times in a person’s life that they will have the ability to change something that will have an impact for years and years to come.

There has only been two ways to monitor a persons blood pressure, one is with an arterial catheter, which was introduced in the 1950s, another was with a non-invasive blood pressure cuff, which we all see in the physician’s office and emergency rooms and sometimes the dental office. It has been around for over a hundred years and unlike other medical technologies has not benefited from advanced technologies coming into the market. I believe that what we have will change the standard of care in blood pressure monitoring over the next several years and to me that is extremely exciting.”

CEOCFOinterviews: Are there any risks involve with using your products?

Mr. O’Malley: “No, absolutely none! When a physician or a nurse is taking a patients blood pressure with a cuff there is squeezing the arm until blood flow has stopped, and the blood pressure cuff by design is measuring either sound or oscillation from the artery when the artery is reopened. If you are in the physicians office, when they are releasing the cuff pressure you will feel the pressure releasing, and what the clinicians are doing is that they are actually waiting for the artery to reopen after its been closed. However, with our device we never close the artery, therefore we never squeeze the artery to the point of closure, we squeeze only to the point that we get pulse waves off of the artery and then we look at the amplitude of those signals. The reason we can do this is that we are using a sensor and we are not using a mechanical or a pneumatic blatter like you would find inside a blood pressure cuff.”

CEOCFOinterviews: How accurate is your device?

Mr. O’Malley: “With our continual device, because the frequency is every 12 to 15 heart beats, clinically there’s not a lot that is going to happen that we would not catch between a 12 to 15 heart beat period. We are talking roughly 15 seconds, and with that capability, and with accuracy that is comparable to an invasive catheter, we are now hearing from many clinicians that they are using our device instead of an invasive catheter. There are many patients out there that for whatever reason, a catheter is not a good option. We now give the clinical community an option where they can take blood pressure almost as accurately and almost as rapidly, without invading the body. That becomes a tremendous healthcare benefit for the patient as well as the institution, because there is a tremendous cost savings with that capability as well.

Studies have shown that almost 10% of the people that have an arterial catheter put in have a significant enough complication that can extend their stay in the hospital. One day in an acute care area can cost several thousand dollars per day. Lets face it, if you are a patient the procedure is uncomfortable, and you would rather be at home than spending more time in a hospital. Secondly, there is a tremendously high cost associated with having an arterial catheter put in.  Studies that have been performed have shown our technology to be within a few percentage points of an invasive catheter.

CEOCFOinterviews: So your product could help lower healthcare costs.

Mr. O’Malley: Absolutely!

CEOCFOinterviews: Where are you with market penetration right now?

Mr. O’Malley: “When I started with Medwave, we really were focused on the operating rooms (OR), and the reason for this is because in the operating room, patients are relatively still; there is not a lot of movement and it is a fairly controlled environment. That is where most of the catheters are inserted for the patients for the physician’s sake. Over the last couple of years, we have developed some enhancements that have allowed us to interface into large patient monitoring systems that may be part of the infrastructure of the hospital already. A hospital may have gone out and bought a million to two million dollars worth of patient monitoring system that has become a platform for them. All of those systems that have basic catheter capabilities also have blood pressure cuffs incorporated as part of that system.

Over the last six months, we have introduced an interface package that now allows the clinical people to plug our monitor into where they would normally plug the catheter.  Now they can integrate all the data that is collected off of our sensor and monitor into that existing platform without having to go back to the ‘well’ if you will, for additional monies to refit a platform that may only be a few years old that doesn’t have the enhanced capabilities that we offer with the Vasotrac®. That allows us now to become a relatively universal platform. We now have started to migrate into not only the operating room but also, critical care areas, sleep study areas, cardiology departments, physiological wards, emergency departments, pediatric environments, recovery areas, and outpatient areas.

Within the last six months we have received approval for marketing the product within the pediatric environment. We recently have been endorsed by Child Health Corporation of America, which is a consortium of about forty of the largest children’s hospitals in the United States. They basically put the ‘seal of acceptance’ on products that they feel are most conducive for pediatric health care. They only choose ‘one in the class’ if you will, and we have been chosen for the blood pressure product. Our market entry has broadened over the last six months. Today we address greater than 50% of all institutional based blood pressure monitoring market segments.”

CEOCFOinterviews: Could you find the hand held device with the EMT?

Mr. O’Malley: “Yes, you probably will find our hand-held device there, although some of those technologies in that space have started to incorporate more advanced capability and there are mobile ICUs now where you would probably find our continual monitor on some of those.

The hand-held device is a great tool for the paramedic because now the paramedic or the EMT can put the hand-held on to their belt. One of the challenges that those people have is motion and noise; a lot of time they are measuring blood pressure with a stethoscope and a cuff and listening for the sounds to occur in the back of a bouncing rig, but it’s pretty difficult to do that. However, with our hand held if they apply it on a patient in that environment, pressing the hand held down for about 15 seconds they will get a blood pressure and a heart rate without having to worry about the external noise, and we are fairly immune to that type of motion. Therefore, they don’t have those challenges with our technology that they would with conventional cuffs.”

CEOCFOinterviews: Are you marketing your products globally?

Mr. O’Malley: “We started in the United States in early 2000, entering distribution channels.  Shortly after that, we started to enter into distribution agreements both in Europe and in Asia. Our focus right now, as it has been over the last few years is to build up our distribution models across Europe and Asia as well as the United States and Canada.”

CEOCFOinterviews: How do you market and distribute your products?

Mr. O’Malley: “Outside of the United States, it is primarily done through distribution partners that have been established in the European and Asian countries. In the United States, it is a combination; we have specialty distributors that we have set up in the regional portions of the country. We also have a team of direct sales professionals that are out there either working with the dealers or working on their own to penetrate the U.S. market.”

CEOCFOinterviews: In building out market penetration, will it be necessary to build out your own sales force or is it more in developing partnerships?

Mr. O’Malley: “I think it is a combination of a few things; first of all you need to have a fair amount of clinical validation on the technology especially when you have something that you are trying to displace or disrupt that has been out there for 100 years like a blood pressure cuff.  What we are starting to hear from clinicians is “ I can use your device on patients that I can not do cuff readings with.” However, I could not say the same is true the other way around where they could not get readings with our device but they could with a cuff. That is starting to happen fairly routinely where we are getting reports back from clinical people telling us that they couldn’t get blood pressure readings with this patient because they were severely obese or had Diabetes or peripheral vascular disease. Whatever the situation they just couldn’t get a comfortable blood pressure reading with a cuff or they couldn’t get any and then they put our device on with a sensor and they were able to get readings every 15 seconds.

We are providing an instrument panel for them to fly in the clinical field where the cuff just doesn’t do that in some cases. What I see happening now is that we have gotten more clinical validation through papers and abstracts that have been presented on our technology that are continually validating its usefulness in various environments. I think that is the beginning of a ground swallow of interest in the market place. That is one of the big components you need in this market is consistent and repetitive validation in multiple environments and multiple types of situation.

The second thing is distribution; having a direct sales force is important because they are very focused on your product line and not necessarily a multitude of other product lines. Thirdly, we have licensed our technology to patient monitoring companies. Our most noted partnership is with Nihon Kohden in Japan, which has about 50% of the patient monitoring market in Japan, and they are beginning to purchase our technology in a module form that they will imbed within their technology. I see this occurring for us with other companies over the next several quarters, it becomes at that point that the “Intel inside” strategy applies.  The major difference, is we also are actively selling our own stand-alone devices that plug into global systems.   We offer the ability to sell to those global systems if they want to imbed it themselves, or sell stand alone devices which can integrate through our NIA V-Line Interface package.”

CEOCFOinterviews: What is your next challenge in the global market?

Mr. O’Malley: “Have just recently received approvals from the Japanese government to market the products into the Japanese market, we are now working with our Japanese partner Nihon Kohden, to do that. I think that is going well and I think over the next several quarters we will continue to see benefits from that. We are also in the process of waiting for approvals from the Chinese market. I believe that between China and Japan, they will offer some pretty substantial market possibilities for growth in Asia.”

CEOCFOinterviews: What is the difference in the Japanese and European marketplace?

Mr. O’Malley: “In Japan, our partner Nihon Kohden is taking a lot of ownership over of the technology and launching it into the Japanese market. We have not yet entered into such an agreement with a European national company. It is a different market place in Europe; a little bit more fragmented than in Japan. We do have regional distribution agreements in Europe in the Major countries but we don’t have it as we have it with Nihon Kohden in Japan.

CEOCFOinterviews: Has your product pipeline been built through R&D or acquisitions?

Mr. O’Malley: “Through R&D.”

CEOCFOinterviews: Are you still dedicating a great deal of your revenues toward research and development?

Mr. O’Malley: “We actually flipped our R&D investment around where two years ago we were investing about 1.2 million a year in R&D. Today we have taken that and invested it in sales and marketing, and we diminished our investment into R&D bringing it down to a reasonable level, almost half of what it has been historically.”

CEOCFOinterviews: How does your patent protection currently stand?

Mr. O’Malley: “We have twenty patents that are issued and seven that are pending.  We also have numerous patents filed or issued in several countries outside the U.S.”

CEOCFOinterviews: Can you describe your revenue model for us?

Mr. O’Malley: “The revenue model as we look at it over the next several years, is going to be a capital equipment revenue stream and then a semi-disposable stream that we have today. The sensors that we have, which we sell today are replaced at six-month intervals. Going back to the module discussions and agreements; we eventually are going to be selling thousands of those modules and all of those are going to have sensors replaced every six months. The sensor revenue will become quite significant over the next several years. There are disposables and we are working on creating a single patient use sensor that would enhance that disposal stream.”

CEOCFOinterviews: Could the revenues from sensors ever surpass that of the actual product?

Mr. O’Malley: “It could but I don’t think it will happen short-term. I think that over several years that it could happen for sure.”

CEOCFOinterviews: Do you have the cash or credit to continue to build out your organization?

Mr. O’Malley: “We were out last year raising capital and the purpose of doing that was to build the sales organization. We have adjusted the company in different areas to reduce cost and over-head. At the end of our third quarter, we had about sixteen months of capital remaining. I think that that is a very realistic number. As our revenues grow, our cash burn diminishes dramatically. We will take another look at that over the next few quarters, to see if we need to go out and raise additional capital, or if we will be able to fund further growth ourselves.”

CEOCFOinterviews: In closing, what would you like to say to your current shareholders as well as future investors?