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Executives

Barry Jenkins - Chief Financial Officer

Kevin Richardson - Chairman

Dan Jorgensen - Chief Medical Officer

Pete Stegagno - VP, Operations and Regulatory Affairs

Iulian Cioanta - Vice President, Research and Development

Analysts

Brian Marckx - Zacks Investment

Spencer Lee - RedChip

SANUWAVE Health, Inc. (OTCQB:SNWV) Q1 2014 Earnings Conference Call May 14, 2014 10:00 AM ET

Operator

Greetings. And welcome to SANUWAVE Health First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Barry Jenkins. Thank you sir. Please go ahead.

Barry Jenkins

Thank you, Brenda. Good morning. We appreciate your interest in SANUWAVE and in today’s call. Yesterday afternoon we announced our Q1 2014 financial results and filed our Form 10-Q with the SEC. If you have not received the news release or like to be added to our distribution list, please call SANUWAVE at (678) 578-0103 or go to the Investor Relations section of our website at www.sanuwave.com.

Before we begin, I’d like to caution that comments made during this conference call by management will contain forward-looking statements that involve risk and uncertainties regarding the operations and future results of SANUWAVE.

We encourage you to review the company’s filings with the SEC, including without limitation our Forms 10-K and 10-Q, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 14, 2014. SANUWAVE undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I’d like to turn the call over to our Chairman of the Board, Kevin Richardson.

Kevin Richardson

Thanks, Barry. Good morning everyone and thank you for joining us. Let me take a moment to introduce myself. I may be a new voice on this conference call but I have been active with SANUWAVE since Prides Capital purchased the non-urological chocolate [ph] business from Healthtronics back in 2005. I have been Chairman of the Board since that time in both through Prides Capital and on personal level has invested in the company throughout all the funding rounds, including those in 2014.

Prior to Prides Capital, I was a partner at Blum Capital when they invested successfully in Kinetic Concepts, a large wound care company with negative pressure products and saw an unmet need in the market and potential in the wound care space.

SANUWAVE has a very experienced management team focused on the dermaPACE clinical trial and I look forward to continuing to work with them.

I would also like to thank Joe Chiarelli, our former CEO for his efforts over the last 14 months and wish him the best in all his future endeavors. Joe remains an active member of our board. With the assistance of an executive search team, we will continue to search for an experienced CEO to lead the company into 2015 and beyond. We are very excited about the future and feel confident we will attract the right leader that shares in our excitement as well.

Now looking at the first quarter and the recent week, we've achieved two significant milestones in the last two months. First, we completed a private placement which provides resources to complete the dermaPACE clinical trial and assuming positive clinical results, obtain FDA approval in 2015.

Secondly, we reached a major milestone of achieving the minimum enrollment of 90 patients in the dermaPACE clinical trial. Dan Jorgensen, our Chief Medical Officer will discuss the clinical trial in more depth later in our presentation.

Now I will turn it over to Barry who will provide a review of the first quarter 2014 financial results.

Barry Jenkins

Thank you, Kevin. During the quarter, we strengthened our balance sheet significantly by completing a private placement with aggregate proceeds of $9.3 million from the sale of stock and warrants.

As Kevin noted, this transaction provides us the resources to get – towards FDA approval in 2015 assuming positive clinical results. We remain focused on keeping our cash expenses low while we press forward with the very important dermaPACE clinical study.

Looking at the quarter, revenue for the three months ended March 31, 2014 was $145,000 which compared with $201,000 for the same period last year, a decrease of $56,000 or 28%. Revenue results primarily from sales in Europe, Asia and Asia-Pacific of our dermaPACE and orthoPACE devices and related applicators. The decrease in revenue for 2014 is due to lower sales of devices in Europe. Note that our device sales can be lumpy and so it can change significantly on a quarterly basis and as you saw Q4 last year was a higher revenue month and we saw some of the decrease in this quarter.

And note that our device sales – our applicators generate significant recurring revenue as they must be refurbished every 3 to 4 months of use and they also have very high margins and that's why our gross margin increased to 87% this quarter from 72% last year.

Our research and development expenses increased by $420,000 or 122% to $765,000 for 2014 as compared to $345,000 for last year and that was due to the increased cost of the dermaPACE clinical study which started patient enrollment in June of 2013.

General and administrative expenses for the three months ended March 31, 2014 were $1.3 million which compared to $852,000 in 2013, which was an increase of $448,000 or 53%. Now if you exclude the non-cash stock based compensation and non-cash costs for stock – for consulting services, G&A expenses on a cash basis increased by $205,000 or 46% to $649,000 this year as compared to $444,000 in 2013. And the increase in 2014 was primarily due to increased expenses due to our capital raises during the first quarter of 2014.

The net loss for the three months ended March 31, 2014 was $2.6 million or $0.06 per share which compared with a net loss of $5.4 million or $0.25 per share last year. The decrease in the net loss of $2.8 million was a result of a non-cash loss of $3.7 million last year for the embedded conversion feature of the senior secured notes which were converted to equity last year in the third quarter, which is offset this year by increased expenses in 2014 for the dermaPACE clinical study as discussed earlier that was included in our research and development expenses.

Looking at cash. As of March 31, 2014 we had cash on hand of $7.2 million and that compared to $182,000 at the end of 2013.

Looking at cash flow. Our cash and cash equivalents during the quarter increased by $7.1 million as compared to $601,000 increase in the same period of 2013. Our net cash used by operating activities for this quarter was $2.1 million compared with $1 million in 2013 and that increase in 2014 was primarily due to the increase in expenses with dermaPACE clinical trial of $367,000 and a reduction in our accounts payable and accrued expenses in 2014 of $600,000.

Net cash provided by financing activities for 2014 was $9.2 million and that consisted of the net proceeds from the private placement of $8.6 million and the proceeds from the 18% convertible promissory notes of $815,000 which we raised during the first quarter, that also converted into equity in March of 2014.

Last year net cash provided by financing activities was $1.6 million and that consisted of the net proceeds from some senior secured notes that we issued that were converted into equity in July of 2013. So we continue to project our cash burn rate from operations will be approximately $550,000 to $650,000 per month in the first half of 2014 during a very critical enrollment and follow-up phase of the dermaPACE clinical trial.

Now let me turn the call back over to Kevin Richardson for a business review.

Kevin Richardson

Thanks, Barry. I will have each of our senior members of the management team discussed their respective areas, so now we will have Dan Jurgensen, our Chief Medical Officer walk you through the status of the dermaPACE clinical trial. Dan?

Dan Jorgensen

Thank you, Kevin. On April 30, we announced the randomization of a 90th patient in our Phase 3 supplemental clinical trial using dermaPACE for the treatment of diabetic foot ulcers. This is an important milestone. The initial efficacy analysis is based on the first 90 patients completing their 12-week assessment visits. This will occur in late summer and the results will be reported by our data monitoring committee, also known DMC in the third quarter this year. In the meantime, the study will continue to enroll new patients. These additional patients will be included in a confirmatory analysis in the third or fourth quarter this year.

After reviewing the data from the initial and confirmatory analysis, the DMC may recommend that we stop the study for success or stop the study for futility. Alternatively, the DMC may recommend that we increase enrollment to 130 or 170 patients and then repeat the analysis.

Please note that we are using a Bayesian analysis for the primary endpoint. This gives us credit for positive data collected in the previous dermaPACE study and therefore the ability to conduct the initial analysis with only 90 subjects. In addition, the Bayesian approach in this trial makes an adjustment for multiple analyses. In other words, if we need to analyze the data at a later time, say after 130 patients, we do not jeopardize our ability to determine if a difference is statistically significant.

In statistical language, this is an adjustment of the type 1 error, also known as alpha. This plan was agreed upon by the FDA and it’s consistent with the FDA’s guidance for the used Bayesian statistics in medical device clinical trials.

As a reminder, the goal of the trial is to demonstrate that healing [ph] of dermaPACE is statistically superior to that of sham at 12 weeks post initial device application. Patients enrolled in the study received four non-invasive procedures dermaPACE or sham during the first two weeks. In addition, after four additional non-invasive procedures, dermaPACE or sham are delivered biweekly between weeks 4 and 10. After the 12-week efficacy evaluation, [indiscernible] filed for an additional 12 week for safety.

While enrolment in the study is winding down, members of the clinical team, including SANUWAVE personnel, CTC staff – CTC is our CRO -- and contract monitors, our verysigned [ph] patient information in a blinded fashion including the database. We want these data to be valid for the initial efficacy analysis. I'm happy to report that the data cleaning process has been [ph] scheduled. Of course, a clean database does not guarantee a successful study in and of itself. All effort is being made to enroll and retain the highest quality patients, even now after reaching the 90th patient milestone.

I would like to give credit and thanks to our study investigators and their dedicated staff for recruiting these patients in a relatively short timeframe.

In summary, we’re pleased by the enrollment and the quality of the study and by all the data cleaning efforts. We look forward to seeing the results of the study later this year and if positive, we believe dermaPACE can address a significant medical need among diabetic patients.

Kevin Richardson

Thanks, Dan. We are very excited to have reached the 90 patient minimum enrollment and look forward to the feedback from the data monitoring committee on those patients in the third quarter and updating shareholders at that time.

Pete Stegagno, our VP of Operations and Regulatory Affairs will summarize the progress we've made internationally.

Pete Stegagno

Thank you, Kevin and good morning everyone. While everyone's primary focus within SANUWAVE is on the dermaPACE DFU trial, we continue to work with our existing distributor base in Europe and the Far East.

Additionally we continue to pursue possible opportunities in the Arab Gulf Coast states. Just this past weekend, our Australian distributor for dermaPACE participated in the 10th National Australian Wound Management Association Conference. This is the preeminent wound care conference in Australia. We were pleased and excited to learn that a dermaPACE user presented a case study report on their positive experiences using dermaPACE in diabetic foot ulcers.

We're hoping that this type of user base communication touting the effectiveness of their personal experiences using the device will help to jumpstart increased interest in dermaPACE in Australia. We will be working closely with our distributor there to supply them with any and all support necessary to make dermaPACE successful there.

We continue to have interaction with Wirthlin, a Dentons Innovation Group Partnership in regard to establishing dermaPACE introduction into the Gulf Coast Cooperative, also known as the GCC. This is defined as the Kingdom of Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Bahrain.

Wirthlin has conducted substantive and constructive communications with GCC government and wound care agencies in determining the interest in dermaPACE for the treatment of diabetic wounds. We are still early in discussions in regard to marketing strategy and we will continue to provide updates as this continues to progress.

Back to you, Kevin.

Kevin Richardson

Thanks, Pete. To complete our presentation, we wanted to update you on our recently issued patent we received, the potential non-medical uses of our technology and also to review some very interesting preclinical work that is being started at Baylor University.

Let me turn in over to Iulian, our head of research and development. Julian?

Iulian Cioanta

Thank you, Kevin and good morning to everyone. In the period from our last conference call, we have received the U.S. patent 8685317 on cleaning and sterilization of industrial waters and food liquids. This is the first patent approved for non-medical applications of our shockwave technology and together with the development of our mobile small-scale model for water cleaning process represents the foundation for collaboration discussions with potential interested parties in the field of water treatment equipment industry.

According to Forbes, the market for water treatment equipment could hit 1 trillion by 2020 which emphasizes the strategic importance for us to tap into this field.

Also this new patent may provide an economical approach for sterilizing liquid foods as milk and natural juices using shockwave technology.

On the medical research front, we put the base for collaboration in the dental field with Baylor College of Dentistry which is part of the Texas A&M Health Science Center. The focus of our initial efforts will explore the healing of [indiscernible] related osteonecrosis of the jaw which is an affliction that causes unhealed intra-oral ulcerations. This condition is seen in patients taken [indiscernible] medications as Boniva, Fosamax commonly prescribed for osteoporosis or bone cancers. There is presently no known treatment or cure for this affliction.

Practically patients suffering terminally [ph] with these oral ulcerations and exposed necrotic alveolar jaw bone. We think that our shockwave technology may benefit this condition due to its oestrogenic potential, angiogenic capacity and antibacterial activity. Kevin?

Kevin Richardson

Thanks, Iulian. This has been very exciting year for SANUWAVE so far. We are getting the funding in place and patient enrollment necessary for our very important dermaPACE clinical trial. Two very important achievements for us.

I will stop here and we’re happy to answer any questions that you may have. I will now open up the call for your questions. Brenda, if you could help us on that.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Brian Marckx with Zacks Investment.

Brian Marckx - Zacks Investment

Dan, in the event that DMC comes back and says that you need to enroll more patients, will they give you the number of patients initially at that first feedback point?

Dan Jorgensen

Hi Brian, basically Bayesian plan is already set up so that if additional looks are needed they are at designated sample sizes. For example, if we don't achieve our primary endpoint at 90 and the DMC gives us the green light to continue on work, then the next sample size we would go to would be 130. And likewise if we did not reach that 130, it would go to 170. So there are three designated sample sizes, 90, 130 and 170.

Brian Marckx - Zacks Investment

Okay, and the patients that you’re continuing to enrol, you mentioned the confirmatory analysis, are those patients included in the first feedback point from DMC?

Dan Jorgensen

So that’s a very good question. So as I said we have the three designated sample sizes for these analyses. The initial one is with 90 patients. However we have to confirm the results of that analysis and the confirmation or the confirmatory analysis would include additional patients who have enrolled after the 90th patient has enrolled. We refer to these as pipeline patients.

Brian Marckx - Zacks Investment

And then how about in the event that you do need to continue to enroll another 40, can you give us some sort of estimate on kind of timelines and how long you'd expect that to take?

Dan Jorgensen

Right now we’re continuing to enroll at least through May and June. And we believe that will get us if we need to be to go beyond 90 depending on the recommendation of the DMC, we feel by enrolling at least through the end of June that we will get – have a pretty good bump and get fairly close to what that next level would be 130. And then we have to decide if we want to go beyond June in order to get closer to that. I don't know – I am unable to say anything more than that right now. We’re still thinking about it internally.

Brian Marckx - Zacks Investment

So is it fair to say that the patient enrollment past 90 is essentially similar to what it was up to the 90? It was a fairly – in my opinion a fairly rapid pace?

Dan Jorgensen

Yes, the plan is to keep that consistent pace.

Brian Marckx - Zacks Investment

So on the other side, so assuming DMC has good news and you can stop enrollment when they give you feedback and hopefully in Q3, is there sort of best guesses on timelines when you think you may have initial efficacy data that you can talk about and potentially when a filing could be made?

Dan Jorgensen

As far as the first part of your question, the confirmatory analysis where we could say, look, this is a successful study, we can stop, that will occur at a certain time point after that initial 90. And that time point will depend again on how many additional patients are in that pipeline. But in any event that would be towards the end of the year, Q4 probably.

As far as the second half of your question around filing timelines, that's probably best answered by I think Kevin or Peter who have been working on those timelines.

Pete Stegagno

This is Peter. Really it’s the same after – as far as the filing, it’s all completely contingent on [indiscernible] those occurring. And the final analysis, so assuming the DMC looks at 90 and gives us the thumps up – the monitoring success criteria on that is the additional analysis once all the patients have finished the 12 week. And then from there it is a series of domino effects after that. So the filing – there is a lot that will have to happen as far as interfacing with FDA is pre-submission meetings, that have to be set up in dealing with the scheduling aspect of talking with FDA. So it’s a bit premature to give a complete timeline that it would be month after we learn of the final analysis results.

Brian Marckx - Zacks Investment

And if I could come back to the confirmatory analysis on the patients in that, is there a minimum number that have to go through the treatment protocol before the DMC will look at the data?

Dan Jorgensen

There is no minimum number beyond 90. It's really sort of a de-risking exercise on our part as to how many to go on 90 right now. But the point is that those 90 have to get to their 12 week, those additional patients just like the first 90 have to get through their 12 week assessment visit, to be then included in that confirmatory analysis.

Brian Marckx - Zacks Investment

And you guys were able to talk a little bit about sort of what you were seeing I guess as far as dropout rate on the last couple of calls, can you add any I guess more recent color to that topic?

Dan Jorgensen

I would – there really hasn’t been much change actually now versus the last call in terms of the rate if anything they may have gone down a little. And it’s consistent if not better than what we had seen in previous dermaPACE trial.

Operator

Your next question comes from the line of Hank Walt who is a private investor. Hank Walt, your line is now live. Please check to see if you are muted. Okay, and our next question comes from the line of Spencer Lee with RedChip.

Spencer Lee - RedChip

And I had a couple questions here. So based off of Brian’s first couple of questions about additional -- whether there would be additional enrollment or if you know, if things go according to plan how that would affect the estimated cash burn that you guys anticipate having?

Kevin Richardson

Let me have Barry to help on that. Right now, Barry maybe go over if we enrolled to June 30 and then if we had to go to 130 or 170, what that would imply.

Barry Jenkins

Okay, Spencer, what we’ve got already built in to our cash projections, even the number that I was saying 550 to 650 per month, that’s including the thought that we would continue to enrol through June 30. So all along we have [indiscernible], we would continue to put patients in after that 90 patient mark. If we continue enrollment after that, we would really just continue at that pace of cash burn. I think we had – we put out there that we would probably see that going down anywhere from 50 to 100,000 once we complete enrolment. So it’s somewhere probably at $50,000 to $100,000 difference per month if we continue enrollment past June 30. So not a significant amount of cash just for the patient it’s more for the timing.

Spencer Lee - RedChip

And also can you guys give us some insight into your plans following the end of your Phase 3 trial, assuming positive results and FDA approval in 2015?

Kevin Richardson

Hi, Spencer, it’s Kevin. We’re reviewing a lot of that right now. We’re having a lot of discussions with various potential partners that can help us both internationally and domestically. Then it's premature to give absolute direction on where we will be headed. I think that's something that the board and management team will explore over the summer and probably it might be a better question on the next conference call.

Spencer Lee - RedChip

Fair enough. And can or would the results of the clinical trial affect sales of the dermaPACE internationally?

Kevin Richardson

I think it would definitely help anytime you have a positive confirmatory studies coming out to help support the sales effort, it’s a positive. But with that said, like for example in the GCC, there's an interest in our product today prior to our positive results based on our last trial. The device does show that it does work. We may have missed our primary endpoint in the last trial but it does help on the healing process. And so a positive result would only help us internationally. Maybe Pete or -- Pete if you could comment a little there too?

Pete Stegagno

Sure. One thing that a lot of international users and distributors have commented to us is – well the question is why the fixation or complete wound closure as opposed to the benefit of saying from the wound area reduction. And quickly, I mean our reason for going to wound closure is the FDA guidance on wounds and burns which it directs [ph] us to this endpoint. However with the positive results we saw in wound area reduction, it’s actually been a good talking point with our distributors and what the distributors to their potential customers, it gets especially in countries that have nationalized -- national health services and national healthcare, their desire is to get the patients out of the most expensive facilities into general management. And so getting seriously ill patients out of expensive hospitals into the general practitioners is their primary goal and then the dermaPACE with the wound area reduction benefits definitely helps in that aspect.

So right now our prior results already are helping in that discussion and any further positive results will definitely help that further.

Spencer Lee - RedChip

And I know you guys mentioned a few new patents. Should we expect any other patent activities for other areas in the short to mid term?

Kevin Richardson

I will let Iulian answer that question.

Iulian Cioanta

Yes, practically we are going to have a new announcement on the new patent which is very important for us. We didn't do it on this phone call because that comes on May 20 that there’s going to be a patent on stem cells, and then we are waiting for approval for other set of patents related to different applications in cardio and non-medical applications. Practically we continue to increase our presence in the non-medical but we have a sustaining effort in the U.S. and Europe and all over the world to get approval for the new patents on cardio stem cells, blood sterilization and so on.

Spencer Lee - RedChip

What would you say the average life of your patents are and do you have any plans in place to protect these patents beyond their expiration?

Iulian Cioanta

Practically there is no -- you cannot protect them beyond the 20 years lifetime of the patents. But with all these new patents that were approved, our life is increasing constantly. Actually I will say that we have beyond 10 years average and the range of our coverage runs from the 3, 4, years to 20 years.

Spencer Lee - RedChip

And then just one last question for you guys. Really what kind of characteristics that you’re mainly looking for in the new CEO candidates?

Kevin Richardson

Sure, this is Kevin. So we’ve been working with the search firms on identifying someone that can understand medical devices and have good partnering relationships and understand on the nonmedical side. Ultimately it's -- I think the discussion about the patents and research and development and where we go with the device from a size and application standpoint are going to be the drivers of how we get more uses, more indications with the device. And so it’s really understanding how from an R&D standpoint to develop the company but also developing relationships where we can drive good partnerships and also make sure that we’re getting the best returns for shareholders on the capital that we’re deploying.

So it’s got to be someone who can understand multiple channels, multiple verticals. Right now our singular focus is really on the derma study that we’re undertaking. But in the future we will be focused on things in the orthopedic side, cardiac as Iulian mentioned, dental as was mentioned earlier on the call, some on the cosmetic side and then on the industrial applications there is whole host of things. So someone who can understand managing all the different verticals within the medical device universe. So hopefully it’s someone who has had a successful experience doing something similar and we’re hoping to attract someone that can really drive returns for shareholders.

Operator

(Operator Instructions) Our next question comes from the line of David Levine with Accredited Members [ph].

Unidentified Analyst

Hi guys, I have a question about the fixation on the endpoint, and you’re probably asked this 100 times and it’s actually been explained to me, so maybe I am just not bright enough to figure it out. But is that -- that still seems like a little bit of a subjective process to me and I guess what I worry about is somebody at the FDA looking at it and they had a bad afternoon, so their version of a completely healed wound is different than somebody else's. Is that a subjective thing or is it far more scientific than I'm giving it credit for?

Kevin Richardson

Why don’t we have Dan and Pete answer that? Dan, maybe if you can go first on that.

Dan Jorgensen

I think it’s a very good question. And I think Pete can also fill in some history behind that same point as well. But from a clinical standpoint it actually is a little more objective than what it seems on the surface. There actually has to be what we call re-epithelialization. That is we have to observe a layer of cells filling in and completely covering that wound in order to say that that wound is hundred percent closed. And that objectively goes a step further in the sense that it's not just the investigator making that determination, although in the end it's his or her call. What I mean by that is we have a wound core lab with a panel of physicians and they review all of the pictures of these wounds to check and double check out whether these wounds are completely closed and then they adjudicate if there's differences between their opinion and that of the investigator.

So we do have checks and balances in the system on top of what is probably a little more objective than what may seem to the casual observer, that is there is a definition and it depends on re-epithelialization of the cell layer over the ulcer.

Kevin Richardson

Peter, would you have anything to add?

Pete Stegagno

I really don’t have anything else to add. Dan hit it all.

Kevin Richardson

And David, I think one of the things is that checks and balances that Dan alluded to, in the past study we did not have a check and balance in place as robustly as we do this time. And so I think again that’s another reason why we feel confident about our study this go around.

Unidentified Analyst

Okay, so there is some process for you to challenge a decision or a conclusion in that regard, I guess?

Kevin Richardson

Right, that’s correct.

Unidentified Analyst

And in the end, it would be interesting because -- earlier along the same lines you alluded to something that -- haven't been in the back of my mind and that is, it seems to me that this device would have an incredible amount of value even if you didn't reach that endpoint in terms of improving people's lives and I guess to the degree that people are aware of just how bad diabetic foot ulcers are, I think they would come to that conclusion. Is there any other answer in this country for the use of this product outside of that complete total endpoint? I mean it still seems to me like there's value in some way, maybe through reimbursement issue or whatever but it still seems like that there's value in this, even to get these wounds to the point where you -- I guess where you got them before frankly – I mean that’s just not – is that never going to be an end game on this, if you don't get to that actual endpoint?

Kevin Richardson

It’s Kevin. I will probably have the guys chime in on this but our goal all along is get to the endpoint. And I think the changes that we made in this go around to help improve our success, that's why we’re confident about what we're doing right now. And if the case is, we don't hit that endpoint are there other things that we could do? I'm sure we can explore those possibilities but right now the singular focus of every employee at the firm is really on the success of the study and ensuring we’re doing all the things right to derisk the study. But if we get to that event where we – it’s a negative outcome for us there are other actions that we can take as evidenced by some of the international activity that we’re engaged in today.

As Pete said earlier, a lot of it's about the wound area reduction in the prior study, that was a massive difference between the active arm and the sham arm. And add on to that that the number of indications that we could reduce, those are pretty big numbers. But again the focus here is with our confidence on how we will be successful on the current study. Dan or Peter if you have any thoughts?

Dan Jorgensen

You pretty much said it all, Kevin. There are alternative plans should we not hit the primary endpoint for this trial. We will have significant data based on the two trials and we already know with the first trial whence [ph] and we’re highly confident that the second trial will confirm prior result and also give us our primary endpoint. But we do have – I prefer not to comment on right now, but there are alternative solutions that we can pursue. It’s really very much premature to even – just follow that until we know what the results are from this trial.

Operator

And our next question comes from the line of [indiscernible] who is a private investor.

Unidentified Analyst

I really appreciate these conference calls, we’ve been with you guys now for a number of years hoping that everything will finally reach the endpoint. One thing that concerns me though is the devices that you're using internationally now, Europe, Australia, Korea and so on, are they pretty much what the devices that is being tested now and that would – that you hope to reach the endpoint with?

Kevin Richardson

Peter, could you answer that?

Pete Stegagno

Yes, they are. Both dermaPACE, and the sister or brother device orthoPACE which is the orthopaedic side are being orthoPACE, that’s a long way off as far as discussions for the US. As far as dermaPACE goes it’s the same device.

Unidentified Analyst

Okay, so in other words, the endpoint that you wish to reach in this country is an endpoint that’s already applicable in other countries?

Pete Stegagno

Well the device is already licensed and/or approved – and it’s CE mark in Europe, it’s approved – it’s registered in Canada, Australia and the indication is a bit more open and it’s treatment of skin conditions of both acute and chronic and that covers not just diabetic foot ulcers but a number of other skin conditions. So it's really up to the distributors and the strategies within the countries, to get the device into the hands of users and then generate the word-of-mouth and start seeing additional success of sales.

Unidentified Analyst

Okay, you, or somebody mentioned that one of the positives about reaching this endpoint with this particular device is that in national healthcare countries, they are shooting for less expensive treatments which is smart. And the way healthcare system in this country is going way it looks like that it would end up with two with a single-payer system under Obama. So I would assume that that would be a huge advantage with this product because it's going to be getting people out of these expensive treatments in hospitals and into a less expensive treatments, is that correct understanding?

Pete Stegagno

Yes.

Unidentified Analyst

It is. Okay. Now why then, because many of these other countries that you are in, I think particularly in Europe, are national healthcare countries. But several times I've noticed that when there's been a decline in revenues, it's been attributed to a decline in revenues in Europe. And I'm assuming that most of the countries there since we’re trying to model this country after them, have this national care set up. Why would the revenues be declining in those countries if the ideas that with national care it's actually going to increase the desirability of using this product?

Kevin Richardson

Barry or Peter, if you could address that?

Barry Jenkins

Yes, this is Barry. So there is two things. In Europe, primarily right now our sales are orthopaedic devices, and so when you see a decline there, it’s really more in the sales of the orthopedic and not in the dermaPACE. But on the other side also especially in Europe when you’re talking about their national healthcare and treating wounds, their standard of care is much different than it is in other areas and they really do not have right now the spending on advanced therapies. So it is correct that we are going to be a lower cost than a lot of the advanced therapies that are available out there. We are lower cost, but the other side of that is in many of countries the national healthcare system is not putting forth the resources for the advanced therapies, they are just sticking with a very basic standard of care.

Unidentified Analyst

Imagine if we are trying to model this country’s healthcare system after their type of healthcare system, that there is a good possibility we’re going to be confronted with that same situation here.

Barry Jenkins

Well, I mean I think what you’re going to see is –

Unidentified Analyst

Not but I mean that’s the way things are going, it looks like.

Barry Jenkins

What you’re going to see here is there is still so much of people are – their expectations are much higher as far as what they want out of the healthcare system and how they want to be treated. And much different than what you experience right now over in Europe. So we clearly see that we’re going to be, once we had on the market approved here in the US, that the reimbursement for us as we see it will be lower cost that we’re going to be used significantly because just as you said, the healthcare system is going to demand that costs come down overall while usage goes up. And so we’re going to fit right into that scenario, because we will be, able to be used more but overall will cost the healthcare system less.

Unidentified Analyst

Okay, good. Well that sounds good. What about Canada, because that's kind of in between I suppose Europe and us as far as the demand for good health care and at the same time a nationalized healthcare, have you been able to make substantial inroads into the Canadian market or not?

Pete Stegagno

We really – we have a distributor up there and he has actually been quite helpful. One of our key sites in the current clinical trial is a Canadian site and that site is one of our higher enroller as well. So we’re hoping to springboard off of this particular site after the trial is complete and start generating word-of-mouth as well as getting working within the Canadian healthcare system to start generating additional buzz and interest in the dermaPACE.

Unidentified Analyst

Are they going to be relying a lot on what the FDA says here?

Pete Stegagno

As far as – actually no, I mean healthcare in Canada is quite different from this and because the indications are different. The results will stand in its own within each country.

Unidentified Analyst

And just one last question, you are diversifying – I mean you always have been as far as the application of this product. Is there -- are you concentrated – I know you’re concentrated on reaching the endpoint with the diabetes situation and that's certainly I think very wise. But as time goes by, are you going to concentrate more on the medical aspects of this thing such as the cardio or dental, or cosmetic and so on, or will there be an equal amount of efforts put forth in the industrial side of the application for this product?

Kevin Richardson

Sure, it’s a good question. And it really comes down to allocation of capital and where we can get the greatest returns for shareholders. Everything we do is focused on how do we get the maximum value for shareholders in the long term and with -- in the medical side there are certain benefits when you go through a process that we’re going through, specifically on dermaPACE right now. It is the process, it's very well structured, reimbursement can be a beneficial thing to shareholders. There's other established partners that can help ramping sales rather quickly. On the industrial side, it’s not where our background is but they’re also -- quite frankly it can sometimes be quicker to market and there are partnerships there that we would engage in that could lead to good returns quickly.

So I think from a focus standpoint right now, as I have said before, the singular focus is on the dermaPACE study and then it's really a question of how do we allocate capital and resources to where we’re going to get the greatest return for our shareholders. So it really depends but right now the focus is on the study.

Unidentified Analyst

So is anything developed in the prototype for the oilfield application that you are working on – making a prototype of some kind to present I think probably for fracing situations with cleansing the water?

Kevin Richardson

It’s Kevin. We are hopeful that we have something established with that by the end of the year.

Operator

Thank you. This does conclude our question and answer session. I would like to turn the floor back to management for closing remarks.

Kevin Richardson

Great. In closing, we have been very fortunate to have a very loyal and supporting shareholder base and recently added our largest institutional shareholder RA Capital. RA Capital is a very respected life-sciences firm that has shown a lot of confidence in our company to perform and we're thrilled to have them as a shareholder. We cannot thank the long-term shareholders enough for their investments, patience and support to help the company achieve what it has and have helped put the company in a position to achieve even better things going forward.

The company is committed to doing the things necessary to build a world-class medical device company with disruptive and in some cases revolutionary technology. The ultimate goal of a public company should be to maximize shareholder value. The company is committed to expanding its current shareholder base. The company will attend four micro-cap conferences, all the dates and locations can be found on our website www.sanuwave.com in the next 30 days. We plan to continue to meet and speak with institutions, retail brokers, research analysts. We know and understand the importance of increasing the audience of the financial professionals, industry experts and individuals as to what SANUWAVE is working to achieve. If you have interest in speaking or meeting with the management or if you need any additional information to conduct your due diligence on the company, please call our advisors DC Consulting and RedChip and they will help you with that.

Again thank you very much. We look forward to speaking with you in the future.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: SANUWAVE's (SNWV) Q1 2014 Results - Earnings Call Transcript
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