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Trimedyne,
Inc. is a profitable company with patented products that address extremely large,
multi-billion dollar markets in healthcare
Healthcare
Medical Equipment & Supply
TMED:OTC
Trimedyne, Inc.
15091 Bake Parkway
Irvine, CA 92618
Phone: 949-951-3800
Marvin P. Loeb, Sc.D.
Chairman
Chief Executive Officer
Interview Conducted By:
Diane Reynolds
Co-Publisher
CEOCFOinterviews.com
April 2004
BIO:
Marvin Loeb is an experienced entrepreneur in the
health care field. Over a period of thirty years, he founded 25 companies, of which
he took 13 public by IPO (12 of which have been sold to or merged with larger companies),
6 were sold to larger companies without going through an IPO, four failed and two are
still privately held. He was awarded an honorary Doctor of Science degree and has
been issued 40 U.S. Patents, with an additional 8 patent applications pending.
Company Profile:
Trimedyne manufactures lasers used in minimally invasive medical procedures as an
alternative to conventional surgery. Trimedyne earned $1 million or $0.07 per share
on revenues of approximately $6 million in the year ended September 30, 2003.
CEOCFOinterviews: Mr.
Loeb, please give us an overview of Trimedyne.
Mr. Loeb:
“Trimedyne is located in Irvine, California. We are a manufacturer of lasers used in
minimally invasive procedures as an alternative to conventional surgery. Our procedures,
many of which are performed on an outpatient basis, reduce the cost and many of the risks
of surgery. In addition, the patients usually recover faster, return to work earlier and
have better results. For example, Trimedyne sells Holmium lasers and disposable
fiber-optic devices used to fragment urinary stones in the bladder, ureter or kidney, as
well as in arthroscopy for the treatment of damage in joints, such as the knees,
shoulders, hips and ankles, in ear, nose and throat surgery to treat sinus problems, and
in a number of applications in gynecology. However, the most important market for our
Holmium lasers and disposables is in the treatment of diseased or damaged discs in the
spinal column, to treat back, leg and neck pain.
Trimedyne has the only FDA clearance to market its Holmium lasers for ruptured or
herniated discs anywhere in the spine. The laser energy is delivered through a disposable,
patented, side-firing laser needle, which is only one-twelfth of an inch in diameter. It
can be rotated to vaporize a swath of tissue, like the beacon of a lighthouse. Our
ruptured or herniated disc procedures are minimally invasive and are generally performed
through a tiny puncture on an outpatient basis with only a local anesthetic. The patient
typically walks out with only a band-aid on the puncture, about an hour after the
procedure, and can usually return to light activities in a couple of days. If you’ve
ever known someone who’s had conventional surgery for a ruptured or herniated disc
they will tell you it usually entails a three to five inch incision, a two to five day
hospital stay, several weeks of severe post operative pain, general anesthesia, a risk of
infection and a recuperation period that often runs two or three months, or longer.”
CEOCFOinterviews: What
is the size of the market for treating these discs?
Mr. Loeb: “About
600,000 laminectomy and discectomy surgeries are performed each year in the United States
to treat herniated and ruptured discs at a cost of about $30,000 per case or $18 billion
annually. The cost of our procedures is less than half the cost of surgery. While most of
us think of that cost being done by insurance, if the policyholder has to pay 20% of the
cost, 20% of $15,000 is a lot less than 20% of $30,000. Based on published papers,
covering groups of 200 to 400 patients treated with our disc procedures, the good or
excellent success rates, one or two years after the procedure, are 88% to 95%,
significantly better than the published success rates for disc surgery.”
CEOCFOinterviews: How is
Trimedyne doing financially?
Mr. Loeb:
“Trimedyne is profitable. We had a profit of a little over $1 million or $0.07 per
share, fully diluted, in the fiscal year ended September 30, 2003, on revenues of about $6
million. In the prior fiscal year, we had a loss of $1.2 million, or $0.09 per
share. Trimedyne is a turn-around situation, with a significant swing to
profitability.”
CEOCFOinterviews: What
is preventing widespread adoption of your disc procedures?
Mr. Loeb: “We have
one problem. Insurance companies, HMO’s and Medicare pay surgeons based upon the
skill and the amount of time and effort the surgery takes. Since our procedure is shorter,
they pay the surgeon for our outpatient procedure about half what they pay for surgery.
When you get down to it, medicine is a business, and it’s hard to convince anyone to
take a 50% cut in pay. Those physicians that do our procedure (and they can be found on
our website) are physicians who put their patient’s interests first. However, their
doing so is not entirely altruistic. These surgeons go to the GP’s, internists and
family practitioners in their area and say “refer your severe back pain cases to me,
because I can treat them on a minimally invasive out-patient basis.” Most GP’s,
internists and family practitioners are happy to have a minimally invasive disc procedure
available for their patients. Our procedures typically take 20-30 minutes, versus two to
four hours for surgery. We have surgeons who do four or five of our procedures a day. So,
while the fee for each procedure is smaller, their aggregate income can be substantially
larger, and their patients avoid surgery.”
CEOCFOinterviews:
Tell us about Trimedyne’s potential for growth.
Mr. Loeb: “Our
products for use in the spine offer a significant potential for growth. In the
fragmentation of urinary stones, an optical fibers sells for about $500 and can be used
over and over. While our lasers carry slim margins, our disposable, side-firing laser
needle is patented and sells for $500, with a very good profit margin. We are expanding
into a new area of disc disease known as degenerated discs. Most people are familiar with
a herniated or ruptured disc, but degenerated discs lose moisture and resiliency, as we
grow old, which is why we become shorter as we age. A lumbar (lower back) disc, which is
normally about three-fourths to one-half inch in thickness, becomes thinner over time. A
number of nerves circle the outside of the disc, and as the vertebra move closer together;
they can pinch one or more of the nerves, causing constant pain. The only treatment today
for a degenerated disc is to remove the disc and attach a scaffold of metal rods and
screws that hold the vertebra apart. Usually bone paste or a bone plug, often from a
cadaver, is inserted into the space between the vertebras to stimulate the vertebra to
fuse together. This procedure is called “fusion” surgery. About 400,000 of these
surgeries are performed each year in the United States at a cost of about $60,000 per case
or $24 billion. Based on published papers, the good or excellent success rates of fusion
surgery are only about 40-70 percent.
A number of companies are developing an artificial disc, as an alternative to fusion
surgery. The patient’s disc is surgically removed and a metal artificial disc is
inserted between the vertebra to hold them apart. These devices require an incision of one
to two inches, 2 to 3 days of hospitalization, considerable pain and lengthy recovery
period, however much less than for conventional surgery. So far, no artificial disc
has been approved for sale by the FDA. Our laser and patented, side-firing needles are
being used with a new, smaller, artificial disc developed by Richard C. Richley, M.D., a
very experienced orthopedic surgeon in San Diego. His artificial disc is being used to
treat degenerated discs. It allows the vertebra to move and spaces them the proper
distance apart. He inserts the device in a minimally invasive, outpatient procedure
through a small incision, less than one-half inch. Dr. Richley’s procedure takes only
about 40 minutes, with only a local anesthetic. The patient walks out, typically with only
one stitch and a band-aid on the puncture, about an hour after the procedure. There’s
no overnight bed stay, and the patient is able to return to light activities in a few days
and, in his initial cases, to work in about 10-14 days.”
CEOCFOinterviews: What
success have you had with this artificial disc?
Mr. Loeb: “The good
or excellent success rates that Dr. Richley has achieved with an initial 15 or so patients
he’s treated, is 80% at one year after the procedure. Of course, there’s a
learning curve that goes with any procedure. As you become experienced you learn what you
can do better. By the next 20 patients, Dr. Richley believes he’ll be able to reach a
90% good or excellent success rate. We own the patent application on Dr. Richley’s
artificial disc.”
CEOCFOinterviews: What
must be done to obtain FDA approval?
Mr. Loeb: “Dr.
Richley’s artificial disc and our lasers and laser needles are not yet approved by
the FDA for treating degenerated discs. We believe FDA clearance might be obtained by
submitting the results of treating 20 or 25 patients, one year after the disc is
implanted, since the procedure is minimally invasive. It could take 18 months or so to do
this. However, the FDA may require a clinical study of at least 100 patients, with 50 to
100 controls, which would take at least two years to complete, with another year to go
through the regulatory process.”
CEOCFOinterviews: If you
get FDA approval, what will the disc sell for?
Mr. Loeb: “In
addition to our laser and a $500 laser needle being used in the degenerated disc
procedure, if and when it is approved for sale by the FDA, the artificial disc will sell
for about $3,000 and will carry extremely good margins. The spinal implant market is
considered by many to be the fastest growing, most profitable segment of health care,
today.”
CEOCFOinterviews: Lasers
are expensive, how can you overcome this obstacle?
Mr. Loeb:
“We’ve found a way to avoid the need to sell the hospital or surgery center an
expensive, $120,000 Holmium laser. Three years ago, we acquired an equipment rental
company that rents our lasers to hospitals and surgery centers, with a trained, licensed
operator, on a “fee per case” basis. It covers Texas and Oklahoma and is
expanding into other states in the Southwest and West. Renting lasers for a
“per case” fee is a growing business, our rental revenues are increasing about
20% a year, and it’s profitable. All the surgeon needs to do is learn the procedure,
and he can get started immediately, without the hospital or surgery center having to buy
the laser. Our truck comes to the hospital or surgery center with the laser and the
disposables. The driver is a surgical technician, and he operates the laser during the
case. The hospital staff doesn’t have to learn how to operate a complicated new piece
of equipment. Since insurance companies and Medicare pay the hospital or surgery center by
the case, they simply pay our “per case” fee out of the proceeds from the
insurance company or Medicare. Our objective over the next few years is to expand our
laser rental business to cover all thirty of the major metropolitan markets in the United
States.”
CEOCFOinterviews: How
about the International Market, do you see yourselves expanding in that arena?
Mr. Loeb: “We do
and we are. We are ISO certified and our products carry the CE mark. We currently market
our lasers and disposables in South America, Europe, the Middle East, the Far East and
places like New Zealand and Australia. These are excellent markets for us, however,
selling overseas is more difficult than in the US, because hospitals overseas do not have
the money to purchase expensive equipment and aren’t as modern in their acceptance in
new technologies as hospitals are in the U.S. So, it’s a more challenging market but
it’s one we are excited to be in.”
CEOCFOinterviews: Are
there other new products in development?
Mr. Loeb: “We have
developed new disposable devices for use with our Holmium laser in urology, and the FDA
has already cleared one of these new devices for sale. We’re in the process of
starting a small clinical study at a major university hospital to test it in the treatment
of benign prostatic hyperplasia or “BPH”, commonly referred to as an enlarged
prostate. This condition affects about 50% of men over age 55. We’re also developing
new laser devices for use in gynecology to treat conditions such as excessive uterine
bleeding, called Menorrhagia, and female stress urinary incontinence, which affects about
seven million women in the U.S. Presently, the only treatments for stress urinary
incontinence are surgery or injections of chemicals that can migrate and cause
complications. Clinical studies will be required to obtain FDA approval for our new
devices. However, instead of a big expensive laser, our new gynecology devices are
used with a small, solid state, diode laser about the size of a VCR that weighs 30 pounds
and will sell for about $40,000. That’s a price that a hospital or a surgery
center can afford. However, in most cases, once the FDA clears these devices for
sale, we’ll loan the laser to the hospital or surgery center, under a contract to
purchase the disposables.”
CEOCFOinterviews: Do you
need additional capital?
Mr. Loeb: “At
December 31, 2003, we had only $200,000 of long-term debt, no bank debt, $1.3 million in
cash and equivalents, receivables of $650,000, and $1.5 million in inventories, versus
payables of only about $550,000, which is normal for a company with revenues of about $6
million a year. Certainly, we would like to raise money to develop our new products and
expand our markets. However, we feel our stock is undervalued, and we’re not
currently looking to raise any capital.”
CEOCFOinterviews: What
was the biggest hurdle you had to personally overcome as being CEO?
Mr. Loeb: “When the
company was formed, the biggest hurdle was FDA. In those days Medicare typically
reimbursed anything that was approved by FDA. However, the targets have changed. Today
with the modernization act governing the FDA, we are actually getting responses from the
FDA at a satisfactory level. However, Medicare, probably because they are stressed
out over their funds not running beyond 2010, is now requiring exhaustive cost benefit
studies. Medicare is more difficult because it is an enormous organization and you
cannot find anyone to talk to. Medicare wants to know, if they spend a dollar are they
going to save any money on hospitalization in the future. So, today, instead of FDA,
Medicare is our greatest stumbling block. This problem is compounded, because most
insurance companies and HMO’s don’t have the staff to do the kind of analysis
that the Federal Government does. As a consequence, the insurance companies and
HMO’s follow Medicare’s lead, although they typically pay more than Medicare.
Medicare has a habit of paying less than cost which is a major problem for hospitals who
are being asked to care for patients who indigent or poor and cannot pay. Hopefully, over
time, things will straighten out, if the Medicare program through Social Security is able
to keep its costs in line and not see the amount of their funds declining as rapidly as
they have in recent past, mostly because of the rising cost of healthcare, we’ll get
some relief as well.”
CEOCFOinterviews: Why should an investor be interested in
Trimedyne?
Mr. Loeb: “We have
developed superb, patented products that address extremely large, multi-billion dollar
markets in healthcare. Our products have been cleared for sale by the FDA, and are used in
minimally invasive procedures, which are rapidly replacing conventional surgery. Most
importantly, we have demonstrated that we can operate profitably. We have about 14 million
shares outstanding, with a market cap of about $15 million. That’s low for a company
with $1 million of profit and excellent potential for growth.”
CEOCFOinterviews: In
closing, what is your long-term goal for Trimedyne?
Mr. Loeb: “Our goal
is to develop unique products with strong patent protection that address large markets and
enable people to avoid surgery. As we penetrate the market and our revenues grow, our
products become attractive to some of the larger healthcare companies. Few small companies
have been able to develop patented products, obtain FDA approvals, successfully market
their products and operate profitably. If we can continue to do so our future will be
assured.”
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