NANOSONICS LIMITED — Interim / Quarterly Report 2013

Jan 30, 2013

February 2013 | ISSUE 4

Nanosonics Shareholder

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Dr Ron Weinberger, CEO

IN THIS ISSUE:

Q2 FY2013 sales

Focus on the UK market: Views from UK Country Manager Bryn Tudor-Owen

New scientific data builds case for high level disinfection

Dear shareholders

At Nanosonics we are strong believers in the utility of our rapid, safe and environmentally-friendly Trophon EPR technology and the many advantages it offers over conventional approaches to ultrasound probe disinfection. This belief is now increasingly backed by scientific evidence, with new studies and metaanalyses emerging which confirm the cross infection risk associated with low level disinfection methods and the added effectiveness of our technology.

The growing body of scientific evidence is very important as we continue to educate potential buyers and key opinion leaders of the benefits of Trophon EPR. This, combined with our recent investment to expand the reach and experience of our sales team, is bearing fruit and is evident in our sales figures for Q2 2013 and our progress in the North American market.

Q2 FY2013 Sales Results: Growth in sales and strong cash position

Following the release of our 4C quarterly cash flow statement, I am pleased to report that sales revenue for the second quarter of the current financial year demonstrated strong quarter-on-quarter growth, and a notable uplift when compared to the previous corresponding quarter. Sales revenue for the second quarter, ended 31 December 2012, was $3.234 million, representing a 173% increase on the previous quarter (Q1 FY13 was $1.186 million) and a 16% improvement when compared to the same quarter last year (Q2 FY12 was $2.797 million).

At the end of the December quarter, Nanosonics’ cash position was $25.76 million.

Momentum Grows in North America

The increase in sales revenue is a result of our continued growth in North America, both as a result of our greater penetration being achieved via our distribution partner GE Healthcare and as a result of the company’s direct investment in sales in this market. Our US based sales team has delivered substantial value by closing deals in conjunction with GE Healthcare and via customer education programs, customer support and additional training of GE’s sales teams.

It is very encouraging that a number of luminary sites in the USA and Canada are now actively using, and are repeat purchasers of Trophon EPR; these include the Harvard Medical System, Scripps Medical facilities in California, Children’s Hospital Boston and the University of Indiana. We’ve also seen continued purchases by the US Navy and Army. The commitment these institutions have made to Trophon EPR provides excellent third-party validation of our technology and places the Company in a prime position for ongoing growth.

North America Quarter on Quarter Growth

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Rising sales of consumables

As the installed base grows, the company will see a shift in the mix of revenue generation from sales of new units alone to the sale of consumables for installed Trophon EPR units. It is early days for this shift but we are beginning to see rising revenues from consumables. This is an important aspect of our business model and revenues from consumables will grow in significance into the future.

As our footprint increases in the US we are concurrently looking to strengthen our presence in Europe and Asia. Applications for regulatory approval in Japan and South Korea are on track for submission in Q3 and we have just received approval to sell into Singapore. Developing sales traction in Europe is also an area of major focus, we have recently invested in key sales personnel in this market to help drive demand and reinvigorate distributor relationships.

The need to improve disinfection methods of ultrasound probes is increasingly on the radar of health authorities. This is particularly the case in the UK following a contamination incident which has triggered a review of practises. In this issue we also talk to our recently appointed Regional Sales Manager UK, Bryn Tudor-Owen for his insights into the UK market for Trophon EPR.

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Dr Ron Weinberger Managing Director

Insights into the UK market: An interview with Bryn Tudor-Owen, Country Manager, UK

With stricter ultrasound probe disinfection standards expected following a contamination incident, the UK market opportunity for Trophon EPR is Bryn Tudor-Owen, in a positive state of flux. Country Manager, UK

We spoke to Nanosonics’ newly

What is your main focus at the moment and what are your plans to grow sales of Trophon EPR in the UK?

“Marketing all the way! The top three outputs include A. Establishing and engaging with a distribution partner. B. Establishing strategic user sites across the UK. C. Lobbying the relevant regulatory and professional bodies as well as the Department of Health to encourage the introduction of national guidelines in England, Scotland and Wales.”

What impact has the 2012 ultrasound probe contamination incident, and resulting review of probe disinfection practices, had on awareness and investment in HLD methods?

“The contamination incident has clearly raised awareness of the current poor practice and the imperative need to make changes. The process of review, and evaluation of options, is currently well under way by both Scottish and Welsh Health Boards; soon to be followed by the English Health Board. Nanosonics is engaged in these discussions. Every NHS Hospital Trust is reviewing its own protocols for probe decontamination, so this is a key moment for Trophon EPR.”

What is the level of awareness of Trophon EPR in the UK health system?

“The last quarter has seen a most definite increase in Trophon EPR awareness and the demand for knowledge accelerates. The continued campaigns will ensure that our key messages reach the key stakeholders.”

How does the UK market differ from the US and Australian market for Trophon EPR?

“I would say the greatest difference currently would be US and Australia have clear guidelines in place for the High-Level Disinfection (HLD) of Semi-Critical Devices. They are yet to be introduced in the UK. We hope and expect this will be an outcome of the current reviews underway. Also, chemical agents currently available in the US and Australia, such as Cidex OPA, are no longer permissible for use in the UK and have been banned by the Health and Safety Executive. Therefore, as guidelines are introduced, the options available to the end user will be limited to a couple of expensive manual wipe systems which cannot be validated or a fully automated Trophon EPR System offering full validation combined with its far superior patient and user benefits.”

appointed UK Country Manager Bryn Tudor-Owen to gain his view on the changing market dynamics for Trophon EPR in the UK and what attracted him to the role.

Mr Tudor-Owen has more than 20 years experience in UK healthcare sales and marketing, including senior sales and marketing positions with GE (6 years) and Cardinal Health (6 years). Most recently, he was engaged with a German SME (JOTEC 3 years) to drive their start-up phase in the UK. He joined Nanosonics in October 2012.

What appealed to you about the role at Nanosonics?

“Clinical Governance is the main vehicle in improving the quality of clinical practice and patient care in the UK’s National Health Service (NHS). One area where UK patient care is currently being severely compromised is the cleaning, and disinfection, of ultrasound probes. Introduction of Trophon EPR as a new, and innovative, solution for this shortfall in care not only satisfies this essential need but clearly introduces a game changing “gold standard” into the NHS. Nanosonics will be recognised as pioneering this change!”

nanosonics limited | shareholder quarterly report

Growing awareness of the need for high level disinfection of intracavity ultrasound probes in Europe: Summary of key scientific papers

There is rising scientific interest, and research, globally into the cross infection risk posed by ultrasound probes. Two recent studies from France have shown the probes are not free of contaminants despite using a cover plus Low Level Disinfectant (LLD) used in some European countries. Trophon EPR is the only way in which a hospital could negate this increasingly recognised cross infection risk in a sealed unit and without potentially exposing the user, or patient, to toxic chemicals. Trophon EPR uses hydrogen peroxide as a potent High Level Disinfectant (HLD), and which then breaks down to oxygen and water.

High Risk HPV Contamination of Endocavity Vaginal Ultrasound Probes: An Underestimated Route of Nosocomial Infection?

A French study has confirmed “high-risk” strains of the Human Papillomavirus (HPV), and other genetic material, can be found on ultrasound probes which have undergone low level disinfection (LLD).

Researchers in Lyon collected more than 400 samples from endovaginal probes that were in regular use, and routinely disinfected, in accord with the hospital’s standard procedure.

Swabs were taken from the disinfected probes just prior to use or, in another phase of the study, after use and disinfection was complete.

Human DNA – a marker for possible transmission of infectious pathogens from the genital tract - was detected in 28% of pre-examination samples and 18% of samples taken postexamination.

When scientists looked specifically for DNA from high-risk HPV strains, this was found on 2.2% of probes overall (1.8% before use and 2.5% after use).

“Our study reveals that a considerable number of ultrasound probes are contaminated with human and HR-HPV DNA, despite LLD disinfection and probe cover,” the researchers concluded.

This emerging scientific evidence is important for us, particularly in Europe, where there is a greater requirement to educate potential buyers compared with the US, Canada, Australia and other countries where HLD is a mandated requirement.

We have summarised two recent papers which add to the growing body of evidence that supports a strong case for use of Trophon EPR as the first choice for high level disinfection of ultrasound probes.

Infectious risk of endovaginal and transrectal ultrasonography: systematic review and meta-analysis

More than one in ten (12.9%) endovaginal or rectal ultrasound probes which have undergone low level disinfection (LLD) may still be contaminated with pathogenic bacteria, a meta-analysis has found.

And one in a hundred (1.0%) will still carry human papillomavirus, herpes simplex virus or cytomegalovirus, according to the research review which took in 32 relevant scientific papers. “There appears to be a risk of transmitting bacterial or viral infections via endovaginal/rectal ultrasound transducer, and the present meta-analysis provides an estimate of this risk,” the France-based author said.

“The pooled prevalence of infected patients after transrectal ultrasound and guided biopsies was estimated to be 3.1%.” The study noted LLD of ultrasound probes and use of a probe cover was commonplace in France, and the appropriateness of this approach was an “ongoing and vexed question in gynaecology, obstetrics and urology”.

The research was published by the Journal of Hospital Infection in September 2012.

http://www.sciencedirect.com/science/article/pii/ S0195670112002447

“In all hospitals, where LLD is performed, the endovaginal ultrasound procedure must therefore be considered a source for nosocomial HR-HPV infections.

“We recommend the stringent use of high-level disinfectants, such as glutaraldehyde or hydrogen peroxide solutions.”

The study was published in the open access journal PLOS One in October 2012.

http://www.plosone.org/article/ info%3Adoi%2F10.1371%2Fjournal.pone.0048137

nanosonics limited | shareholder quarterly report

Trophon EPR – the green solution

With Trophon EPR delivering both superior disinfection and safety compared to conventional modes of ultrasound probe decontamination it is easy to overlook a third major advantage – reduced environmental impact.

Australian Clean Tech (ACT) is not prone to such an oversight. The organisation tracks an index of more than 70 ASX-listed “clean tech” companies and publishes a quarterly Top 20 list.

Nanosonics is currently 10th on the index, which is ranked by market capitalisation and dominated by a major metals recycler (Sims Metal Management) along with waste and energy-related companies.

“Whilst Nanosonics is a slightly unusual inclusion, the overall philosophy for inclusion is that the main activities of the company have both economic and environmental benefits,” said John O’Brien from ACT.

“Nanosonics has been part of the Clean Tech Top 20 since it was first included into the Index in July 2010.”

Companies in the index derive a majority of their revenue, or future revenue for those not yet in revenue-generating phase, from “clean tech activity” as defined by ACT.

The index is benchmarked against both the S&P/ASX200 and the S&P/ASX Small Ordinaries, and it has underperformed the market on these measures since mid 2009.

“On the overall sentiment towards clean tech, it is still hard work to get investors to understand the benefits that will come to companies that have reduced environmental impacts and the Index provides a good demonstration of this,” Mr O’Brien said.

“Globally however, the demand for environmentally efficient products is growing rapidly.”

“We do a lot of work in Asia and the understanding of the need is far greater than in Australia where people are (understandably) still chasing their fortunes on digging up patches of dirt.”

Trophon EPR is an enclosed, bench-top technology that provides rapid, high level disinfection of ultrasound probes and produces non-toxic emissions. The disinfecting agent is hydrogen peroxide, which breaks down to water and oxygen.

Australian Clean Tech’s latest report can be found here:

http://www.auscleantech.com.au/PDF/index/1H13%20 Performance%20Report.pdf

The ACT “Top 20” Clean Tech Stocks by Market Capitalisation at December 31, 2012

	Rank	Company
	1	Sims Metal Management
	2	Transpacifc Industries
	3	EnergyDevelopments
	4	Sylex Systems
	5	Tox Free Solutions
	6	GalaxyResources
	7	Infgen Energy
	8	Orocobre
	9	Pacifc Energy
	10	Nanosonics
	11	Pro-Pac Packaging
	12	Ceramic Fuel Cells
	13	CoffeyEnvironments
	14	Gale Pacifc
	15	Novarise Renewable Resources
	16	Bluglass
	17	Wasabi Energy
	18	Carnegie Wave Energy
	19	CO2 Group
	20	Geodynamics

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Trophon EPR – The first fully automated system for disinfection of ultrasound probes

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Nanosonics Limited

Unit 25, 566 Gardeners Road Alexandria NSW 2015 Australia T +61 2 8063 1600 E info@nanosonics.com.au www.nanosonics.com.au

Please contact McGregor Grant, CFO at info@nanosonics.com.au.