SANUWAVE Health, Inc. (OTCQB:SNWV) Q2 2014 Earnings Conference Call August 7, 2014 11:00 AM ET
Barry Jenkins - Chief Financial Officer, Chief Operating Officer
Kevin Richardson - Chairman of the Board, Co-Chief Executive Officer
Dan Jorgensen - Chief Medical Officer
Pete Stegagno - VP, Operations and Regulatory Affairs
Brian Marckx - Zacks Investment
Spencer Lee - RedChip
Jason Kolbert - Maxim
Greetings. And welcome to SANUWAVE Health Incorporated Second Quarter Financial Results and business updates. 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 our host, Barry Jenkins, CFO for SANUWAVE Health. Thank you Mr. Jenkins you may now begin.
All right. Thank you, Rob. Good morning, everyone. We appreciate your interest in SANUWAVE and in today’s call. Yesterday afternoon, SANUWAVE announced our Q2 2014 financial results and filed our Form 10-Q with the SEC. If you have not received the news release or would like to be added to the company 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 Securities and Exchange Commission, 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, August 7, 2014. SANUWAVE undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
That said, I’d like to turn the call over to our Chairman of the Board, Kevin Richardson.
Thanks, Barry. Good morning everyone and thank you for joining us. I have spent a good amount of the second quarter in recent weeks meeting with investors and speaking at investor conferences about SANUWAVE. Our primarily focused remains obtaining FDA approval for treating diabetic foot ulcers, which is a $3 billion market opportunity in the United States for the dermaPACE.
As we have previously announced, we reached a major milestone of achieving the minimum enrollment of 90 patients in the dermaPACE clinical trial in April, and looking forward to updating shareholders of the feedback from our data monitoring committee in September.
Dan Jorgensen, our Chief Medical Officer, will discuss the clinical trial in more depth later in our presentation.
In addition, our technology platform includes 38 issued in pending patents and finding additional strategic partners to help us to monetize in advanced new uses for our technology covered by SANUWAVE patents into other verticals and applications such as stem cells. It is very important for us to achieve our ultimate goal which is the maximize shareholders value.
In July, we signed a strategic agreement with Premier Shockwave to manage our OssaTron devices, which we have had in [storage]. The OssaTron is our orthopedic legacy device, which evolved from extracorporeal shock wave lithotripsy ESWL technology that uses shockwave to break a kidney stone into small pieces.
The OssaTron has been proved safe and effective in stimulating the healing of chronic conditions of the foot plantar fasciitis in the elbow and it is approved by the FDA to treat these conditions. We believe this agreement will Premier Shockwave will generate revenue to SANUWAVE in 2014 and beyond.
Now I will turn it over to Barry, who will provide the review of the second quarter 2014 financial results.
Thank you, Kevin. Revenue for the quarter ended June 30 2014 was $238,000 which was an increase of $777,000 or 48% from the prior year. Revenue for the six months ended June 30 2014 was $383,000, which was an increase of $21,000 or 6% from the prior year.
Our revenue results primarily from sales in Europe, Asia and Asia Pacific of our OrthoPACE and DermaPACE devices and related applicators. The increase in revenue for 2014 is due to the higher sales of OrthoPACE devices in Asia-Pacific as compared to the prior year as well as higher sales if refurbished applicators in Europe.
Research and development expenses increased by $389,000 or 62% to $1 million for the quarter ended June 30, 2014 as compared to $625,000 for 2013. These expenses increase by $809,000 or 84% to $1.8 million for six months ended June 30, 2014 compared to $969,000 for 2013. This increase is due to cost of our dermaPACE clinical study, which we started the patient enrollment phase in late June of 2013.
General and administrative expenses for the quarter ended June 30, 2014 were $694000 compared to $1,157,000 in 2013, which was a decrease of $463,000 or 40%. These expenses for the six months ended June 30,, 2014 and 2013 were approximately $2 million. The decrease for the second quarter of 2014 was primarily due to reduced stock-based compensation expense from the forfeiture of non-vested stock option by terminated employ.
The net loss for the quarter ended June 30, 2014 was $1.7 million or $0.03 per shares, which compared with the net loss of $818,000 or $0.04 per share in 2013. Net loss for the six months ended June 30, 2014 was $4.3 million or $0.10 per share compared to a net loss of $6.2 million or $0.29 per share in 2013.
Now the changes in this net loss for the two periods was primarily a result of the one-time non-cash gain loss that we had in other income in 2013 for the embedded conversion feature and the related accrued interest expense, the senior secured notes that we were taken out in 2013 that were ultimately converted into equity in the third quarter of last year.
Looking at cash flows, as of June 30, 2014, we had cash of $6.2 million, which compared with $182,000 at December 31, 2013, so we had an increase of $6 million in case in the first half of 2014. Cash used by operating activities was $4.1million in 2014 as compared to $2 million in 2013.
Now the increase in 2014 was primarily due to the increase in research and development expenses of $809,000, which is due to the dermaPACE clinical trial and more expensive enrollment phase as well as a reduction of accounts payable and accrued expenses in 2014 of $1.1million.
Net cash provided by financing activities in the first half of 2014 was $10.1million, which consisted of the net proceed from the 2014 private placement of $8.6 million. The proceeds from the 18% convertible promissory notes of $815,000 and those of course we converted to equity in March of 2014. Finally, from the proceeds from the sales of capital stock from those subscription agreements with the related party of $900,000.
Last year in 2013, net cash provided by financing activities was $1.6 million and that consisted of the net proceeds from some senior secured notes, which as I said earlier, were converted in equity in July of 2013.
We continue to project our cash burn rate from operations will be approximately $550,000 to $650,000 per month in 2014 during the enrollment period and follow-up phase of the dermaPACE clinical trial. Then it will be approximately $450,000 to $550,000 per month thereafter.
Now let me turn the call back over to Kevin, for a business review.
Thanks, Barry. I will have each of our senior members of the management team discussed their respective areas, so now we will have Dan Jorgensen, our Chief Medical Officer walk you through the status of the dermaPACE clinical trial.
Thank you, Kevin. On April 30th, 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 patient has now completed the 12-week assessment visit as planned. This is an important milestone and the initial efficacy analysis is based on the first 90 patients completing the 12-week assessment visits.
During the last earnings call, we said that the results for the initial efficacy analysis will be reported by our data monitoring committee, also known as the DMC in the third quarter.
The change of SANUWAVE and CPC, our CRO are working diligently to make sure the data for these analyses are clean, completed and thoroughly reviewed. I am happy to report that everything is right on schedule.
The DMC is on track to meet this quarter and we will be reporting to shareholders the outcome of the meeting in early September. As a reminder, the goal of the trial is to demonstrate that healing rate of dermaPACE is statistically superior to that of sham at 12 weeks post initial device application.
After reviewing the data from the initial analysis, the DMC may recommend that we, A, stop the study for futility or, B, increase enrollment to 130 and repeat the efficacy analysis or C pause enrollment.
The recommendation of pause enrollment is a signal that the primarily point has been achieved at least in the first 90 patients and that the confirmatory analysis will be conducted on the full dataset, which includes data on the additional patients who have enrolled through the month of August.
This confirmatory analysis if require would occur in the fourth quarter of this year. 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. This plan was agreed upon by the FDA and it’s consistent with the FDA’s guidance for the use of Bayesian statistics in medical device clinical trials.
In summary, we are very pleased by the enrollment of high quality patients into the trial beyond a minimum of 90 needed for the efficacy analysis. We are also very pleased that the data cleaning activities has been completed on time and within budget. As a result, the DMC meeting is right on schedule. We will share the recommendations of the DMC in September. Assuming positive data, we believe dermaPACE will address the significant medical needs among diabetic patients. Thanks. Kevin?
Thanks, Dan. We are very excited to have reached the 90-patients minimum enrollment and 12-week efficacy evaluation period is complete. We look forward to the feedback from the data monitoring committee on those patients in September and updating shareholders at that time.
Pete Stegagno, our VP of Operations and Regulatory Affairs, will summarize the progress we have made internationally.
With Iulian on vacation this week, I will also have Pete providing update to you on a recently issued patent we received for potential non-medical uses of our technology. Also to review some of the very interesting preclinical work that is being performed.
Let me turn it over to Pete.
Thank you, Kevin. 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 in the Far East. Additionally, we continue to pursue possible opportunities in the Arab Gulf Coast states.
SANUWAVE just last month signed a strategic agreement with Premier Shockwave Incorporated to manage the company's OssaTron Devices. The three-year agreement with Premier Shockwave will provide SANUWAVE with an opportunity to monetize these assets. Premier Shockwave is the nation's largest mobile OssaTron service provider, servicing over 300 hospitals and surgery centers in 29 states.
Premier Shockwave has been able to leverage the remaining healthcare payers for the use of Shockwave therapy for the indications of plantar fasciitis also known as heel pain and later epicondylitis also know as elbow pain or tennis elbow.
In addition, Premier Shockwave has fostered good working relationships with key physicians within the U.S Veterans Administration in providing Shockwave therapy. By supplying Premier Shockwave with as many as OssaTron devices, they will be able to expand their capacities of providing services for the treatment of plantar fasciitis and lateral epicondylitis and in doing so expand SANUWAVE's opportunity for increased revenue.
In regards the Arab Gulf Coast states, Wirthlin, a Dentons Innovation Group partnership continues to have discussions with potential partners for SANUWAVE in this geographical region. SANUWAVE is continuing our analysis of the various opportunities.
Our existing distributors have been working so foster close working relations with key opinion leaders in their respective regions. This strategy is the key method in furthering the necessary foundation of support which can then be leveraged for targeted marketing of SANUWAVE's products. We will continue to provide updates on these efforts as we progress.
Regarding Iulian's research and development activities, on May 20th of this year, we received the U.S patents number 8728809 for the use of pressure waves for stem cells simulation, proliferation, differentiation and post-implantation viability. This patent opens the completely new field for the application for our priority technology to enhance stem cells action during tissue reconstruction. The patents claims relate to the use of Shockwave for stimulation, proliferation of donor stem cells. We are working on next steps to explore partners to help us develop this patented technology.
We mentioned previously that we were working in the dental field with Baylor College of Dentistry, which is part of the Texas A&M Health Science Centre. This initial pre-clinical study to explore the healing of osteonecrosis of the jaw or BRONJ is now underway.
We think that our Shockwave technology may benefit this condition due to its oestrogenic potential, angiogenic capacity and antibacterial activity.
In September, we will start our collaboration with University of Georgia on blood sterilization. The study is designed to use animal blood to determine the optimal parameters for shockwaves that could produce blood sterilization via elimination of possible pathogens present and donated blood. This represents the first step in using Shockwave for a large unmet medical need for addressing the world's wide shortage of safe human blood available for hospitals. Blood sterilization produced by Shockwaves is covered by a patents issued to us in January of 2013.
Finally, on the non-medical front, we will start lab testing of the water cleaning small-scale models in the fourth quarter.
Back to you, Kevin.
Thanks Pete. These has been an exciting year for SANUWAVE so far, with getting the funding in place and the patient enrollment necessary for our very important dermaPACE clinical trial, two very important achievements trust.
I will stop here and we are happy to answer any questions that you may have. I will now open the call up for questions. Operator?
Thank you. we will now be conducting question and answer session. (Operator Instructions)
Our first question comes from the line of Brian Marckx with Zacks Investment. Please go ahead with your question.
Brian Marckx - Zacks Investment
Good morning, guys. Nice quarter. Dan, can you reveal how many patients are currently enrolled and how many patients have completed the efficacy treatment?
Thanks for the question, Brian. We actually do not give out specific enrollment numbers except for hitting milestone, which we did when we hit 90. We have continued to enroll since that point obviously. Depending on the DMC's recommendation, we will pause or will enroll to the next milestone which is 130.
Brian Marckx - Zacks Investment
Okay. Any more specifics relative to the September date, early September, mid, late?
I think, we can comfortably say the first half of September.
Brian Marckx - Zacks Investment
Okay. Great. The Premier Shockwave agreement, can you provide details on more details, I guess, relative to what the revenue model is for SANUWAVE with the SANUWAVE sell the OssaTron device to Premier or is it a lease? I guess, if you can just kind of help me understand what the revenue model is?
Yes. Brian, this is Barry. What we have done is, Premier Shockwave is going to manage the OssaTron assets, so they are still SANUWAVE's asset and will be receiving a royalty fee based on the use of those assets.
For this year, really by the time that Premier devices gets the devices which they have just gotten recently and able deploy them then start collecting on it, we won't see much in revenue and more of it will start coming in next year.
We don't really expect this to be a sizable revenue influx for SANUWAVE, but good thing is it being a royalty agreement there is no cost to us since Premier will be doing all the work and managing it paying for maintenance everything related to the devices.
The other things is, of course is it gives us the opportunity to get back in front of the same people who will ultimately be going to with the dermaPACE who will now be using OssaTron, so just 4,000 physicians that were trained with the OssaTron device back in early 2000s to mid-2000s. Those are same individuals who Premier Shockwave works with that will be using the OssaTron going forward.
Brian Marckx - Zacks Investment
Okay. Great. One last, and this is for you as well, Barry. R&D expense, what should kind of expect for R&D expense for the remainder of the year assuming the DMC comes out in September. That’s says that you can stop enrollment?
Brian Marckx - Zacks Investment
They aren't. You can expect that the R&D expense for Q3 will pretty much match what we just did in Q2, in that range. Then if the answer is that we can we will stop enrollment then you'll probably see that come down by approximately $100,000 or so per month starting in Q4.
Brian Marckx - Zacks Investment
Okay. Perfect, All right. Thanks a lot guys and congratulation on all the progress.
Thank you. (Operator Instructions) The next question is from the line of Spencer Lee with RedChip. Please go ahead with your questions.
Spencer Lee - RedChip
How is it going guys? I just had a couple of questions here. Assuming that you meet your primary endpoint by September, is there a general timeline on the confirmatory analysis?
I will let Dan take that question.
Right, so basically we will need to wait till all the enrollees in August go through their 12-week visit and then of course we will do the cleaning of the data and so forth like we like we did with the original 90, so that was the fourth quarter that we had those results.
Spencer Lee - RedChip
Okay, great, and pending positive results. Could you please explain some of your commercialization strategies?
Sure. Spencer, at this point time we have two different initiatives that we have underway internationally. I'll start there. The dermaPACE has a C.E. mark in Europe. We really haven't focused on Europe at all as we have been in the past focused on conserving cash to make sure we can get through the diabetic foot ulcers study.
We have engaged an advisor to help find a partner to work on a complete distribution deal in Europe. There's a lot of opportunity over there. I am hoping we have something in the fourth quarter. Maybe it's the first quarter for Europe, from a commercialization standpoint. There is a lot of companies that have existing sales forces that are hungry for new product. Ours would fit in really well.
As you mentioned earlier, Wirthlin-Dentons is working with us in the Middle East. That's something where I am hopeful we are making enough progress that something commercially lower recognizing revenue before year end. On the international front those are the two ways we are leveraging partners to help us.
Domestically, we know that there is a big opportunity for us with the product. We really bring something to market that's unique and differentiated, it's a non-invasive product. It's convenient. You don’t have to go through surgery, don't have to wear boot.
Importantly, the doctors are going to make good money the way were focused on reimbursement. He is not going to spend an hour in the surgery setting at the surgery center. It will take five minutes for him to perform the procedure for the treatment, so the physician is going to be happy. The patient is happy, because it's going to heal them, but it's also convenient and non-invasive and safe.
Then lastly, there's a nice price umbrella right now that exists in the advanced wound care space with the negative pressure wound therapy being a relatively expensive, the skin grafting that's out there again little more expensive. We are planning on coming in at the reimbursement below that, so we can get acceptance from the payer community, the physicians will make good money and not spend much time on it, so the physicians will do well.
Then the patients are happy, because it's again they don’t have to go through a surgery grafting to close up their wounds, so I think our approach right now is focused on leveraging the three keys of how do we make the payer happy, the patient happy and the physician happy.
If it means partnering with either a rental sales force or another distribution partner, we are opened to that, but we also know that we have to be prepared to go full force with a commercialization after we get FDA approval.
Spencer Lee - RedChip
Great. Thank you. Just a couple of questions about the Premier Shockwave strategic partnership, I was wondering if you guys had any other strategic partners in mind like Premier Shockwave for other verticals of the business?
Yes, so we have set up SANUWAVE as a holding company and each vertical can kind of stand on its own. Part of the rationale behind that was that, the partner who can help us in wound care may be different than the partner we are looking at for cardiac. It may be different than the partner for water treatment or blood sterilization.
because the technology has unique applications across a lot of verticals, you are going to see us kind of settle up, so that each vertical can stand on its own. We have discussions ongoing right now with some in the water area and in the stem cell area and nothing to report early on in the discussions. I mean, the stem cell patent was only issued recently and the water treatment side of the equation as Pete alluded to will have our small-scale model ready in a September-October timeframe. Until that's ready, it's really just high-level discussions until we can bring that model to different locations and different partners and have discussion about how to bring that to market.
It's not our plan to be - we are going to leverage other peoples' infrastructure leverage other peoples' sales forces and distribution capabilities in the non-medical side of the equation.
Spencer Lee - RedChip
Would you say, out of the water area treatment area and the stem cell area, are those the two that are the next in line that you guys are going to plan on monetizing?
From a non-medical standpoint, there is kind of the medical side which will be probably a lot of follow-on to the wound. Again, assuming success in the DFU, there will be follow-on studies that we perform in the wound space.
On the non-medical side of the equation, we really look at where is the biggest opportunity for our device and in the water treatment areas it's a huge market right now that's not being met and we have a lot of partners coming to us asking for our assistance in meeting that, again, unmet need, so those will be the areas that we focus on first.
Is the opportunity large? Is there something that differentiates us relative to other technologies in a cost-effective manner? For example, treating of frac water, the disposal of that is extremely expensive and the ways to treat it is extremely expensive, so that's an area where you would probably see us focused early on and may see some initial partnerships announced there.
Spencer Lee - RedChip
Awesome. Thank you guys so much for all the answers and congrats on a great quarter.
Great. Thank you very much, Spencer.
(Operator Instructions) The next question is from the line of Jason Kolbert with Maxim. Please go ahead with your question.
Jason Kolbert - Maxim
Hi, guys. Thanks for the update and certainly a lot of exciting news is ahead. Can you take a few minutes with me and help me understand historically, when the FDA was calling for a high hurdle of 100% granulation in wounds and where you are with the FDA in terms of the endpoints that are agreed on today and kind of what's the possibility if in fact be hurdle is that 100% granulation that we can get there this time?
Dan, maybe have you - address that?
Sure. I can begin and maybe Pete can shed a little light too historically, but basically this is same accepted endpoint of 100% closure. Just to remind everyone 100% closure is different from 100% efficacy. In other words, not every patient has to be considered closed. What it means is that those who are considered closed has what we call 100% granulation or (Inaudible). That endpoint hasn't changed.
What has changed is the probability of reaching that end point. For example, we are using twice as many applications of dermaPACE device during this trial than we did in the last trial. In addition we have made other adjustments to the trial versus the last trial that we think really help us and really increase the probability of success.
I don't know if Pete wants to add anything to that.
They did a good job, Dan. Historically, the endpoint was arrived at via a 2006 guidance that FDA has for conducting clinical trials for a wounds for conditions of the skin. The endpoints were based on the available information that we had from prior anecdotal information as well as small case studies in clinical trials, so it's something that is a common endpoint for these types of studies. That's been discussed at large with the FDA and we have been on board with the endpoints.
As Dan mentioned, the endpoints being complete closure is for the incidence of complete closure compared to the sham, so we don't expect and don't plan on every patient meeting that endpoints. It's purely looking at the difference between the two arms.
Jason Kolbert - Maxim
Well, let me ask the question differently then. Is there any thought to doing kind of a subgroup analysis of patients that meet 98% - patients that meet 99%, because had the FDA accepted let's say 98% in the prior trial, you probably would have been approved. I think it's very unfortunate that the hurdle was said at a 100% granulation, because my understanding is that is almost impossible, so there must be some discussion with the FDA about really understanding the totality of the data and not just those patients that hit the 100% mark. Am I wrong?
No. You are correct. We do have as secondary endpoints the incidence of reduction in wound area. You are absolutely correct, I mean, there is from a medical perspective and from a wound management perspective, the first goal of any treating professional is to get the wound under control and manage the wound, so that the patients can be stable, doesn't have any type of potential harm from other types of the results of the wound itself such as amputations, infection and such. That is as much an area of focus when we do go into analysis and discussions with the FDA as will be the incidence of complete closure.
Jason Kolbert - Maxim
Okay. Guys. Thanks very much for the update. I have my fingers crossed here.
(Operator Instructions) The next question is from the line of James (Inaudible) Newport Coast Securities. Please go ahead with your question.
Hey, guys. Can you hear me?
Yes. Thanks, James.
Congratulations on a good quarter. This is my conference call. I have got a couple of questions. Most of my questions has been answered. I am sorry if this is kind of a repeat over covered in previous calls.
My first question is focused on the revenue stream in the 48% growth. You have talked about the markets in, Europe, Asia, and the Middle East. Can you drill down a little bit for me as I build the model, where is the growth coming from and how does the growth outlook look in those markets?
My assumption would be, you are in the first inning of the baseball game in a lot of these markets. Could you talk a little bit more about the 48% revenue growth rate in this quarter?
Sure. James, so the primary growth rate that we saw in this quarter was really from the orthoPACE devices that were in Asia Pacific. That's really from the approval that we going for selling the orthoPACE this year in South Korea.
As you will see from our revenue, it is somewhat lumpy, because these individual distributor groups have sales that come in at various different times of the year. Also, the development that you are seeing in the other markets, Australia is a good example as it does take them some time to get the clinical work underway and once that clinical work is gone, you we expect to see revenue picking up from that.
If you look backwards as well as looking forward, revenue from the sale of the devices has been somewhat lumpy and we expect that to continue at least through to the rest of this year.
Okay. Great. If I move to my second questions, really those Premier Shockwave agreement, just to highlight its distribution agreement. It's for the OssaTron. It's going to be a royalty relationship, so it's a 100% margin and probably we won't impact on this agreement until 2015. Is all of that correct?
You are correct. I would say, in a way that's a distribution agreement. It's really more of a management agreement and that they are going take control of those assets, although we will still own those and then they will be placing them out in the field for use and then we will receive a royalty for the use of them.
Okay. On the distribution side, I don't know if you would have anything signed or not, but this could lead into maybe a quick distribution agreement for the OssaTron as well? It's possible for the dental - excuse me.
At this point in time it could, but I think one of the goals here with the Premier Shockwave is they are really well-respected within the Shockwave community. The CEO there has done a great job kind of taking the leadership role among the Shockwave community and with the additional assets that we are allowing him to manage, what it will do is, get the OssaTron device in front of the right audience and educate them that there are devices that are safe that can treat and heal in this case specific plantar fasciitis issues, but I think it's more the education in getting that brand out there something so that when we do launch the dermaPACE product, there will be an already embedded customer base that is comfortable with using the device.
It's almost like preceding a launch of a little bit just educating everyone that it is approved, it is safe and the dermaPACE device is going to be a be a lot easier to use than the OssaTron also it's a much different device, much smaller new, again easy-to-use, so I think that's part of what we are trying to do.
I think it's a significant agreement and I appreciate the question in time. Remind me again and the other investors of the differences and the similarities between the dermaPACE the OssaTron. I mean, the OssaTron is FDA-approved, currently being used by doctors, currently treating patients for plantar fasciitis and tennis elbow has a good safety profile, low complication rate. If all I got is true then even if you could, Kevin, just reminded that some of the differences maybe between the technology for the OssaTron and the technology for the dermaPACE, but the FDA should be very, very [familiar] your technology. Is that fair?
Yes. That's fair to say. I am actually going to turn it over to Pete, because Pete knows devices a lot better than I do, but you are spot on with what you said. Pete?
As far as differences in technology, there really isn't any difference between the technology that both smart test technology. It's a release of the electric energy between two opposing electrodes, which creates pressure wave in a closed area and then delivers an acoustic pulse.
The main differences are in size and in the type of delivery, method of delivery. The OssaTron was originally built. It was designed and first introduced in 1991, so I mean that thing is a dinosaur. It's a robust dinosaur, but it is a dinosaur. It's the size of a large copier. It has a stationary arm and the head is placed against the patient's body and it doesn't move.
The dermaPACE and your orthoPACE for that matter are about the size of a large desktop computer with the hand-held applicator and that applicator is run over the body by hand by the person doing the application. Basically, we were able to squeeze out nearly comparable energy levels and definitely comparable energy levels at the low ends and near comparable energy levels at the high-end for the two devices, so the OssaTron while having sat in the warehouses pose a good opportunity for this agreement with Premier Shockwave, but moving forward the dermaPACE and the orthoPACE being much more manageable, are able to get into many different types of environments that the OssaTron can't get into.
Can you maybe spend a second on the FDA and those that know the OssaTron and are potentially looking at the dermaPACE device?
Sure. The FDA review team that approved the OssaTron for both indications has three or four members from that review team from the early 2000s on the review team for dermaPACE. They are very well aware of the technology. They have seen the technology grow from lithotripsy to orthotripsy and now this application for wound care. They are very much aware and have commented on the safety profile and right now the hurdle is the efficacy, but we are fortunate in having some very experienced professionals on the FDA review team who fully understand shockwaves, how it's applied and the technology behind it.
Okay. Great. My last question, I think I will go back to Barry. When I look at R&D, where it is today and when I see let's assume you get FDA approval and I don't want to get into guidance or hard numbers and I know you would, there are other things in the R&D pipeline you would like to do, but is there a percentage reduction in R&D expenses that we can look for once this clinical trial is done and you get approval in 2015?
Well, obviously, what we will be looking at, James, at that time, you are right. We will be a different scenario, we will be looking at expanding indications in other areas, but if you're just thinking about what would we be doing if we didn't have a clinical study going on, you could cut the R&D cost almost in half, but at that time, I think looking at it the other way is we do have so many opportunities for our technology and yes we will be looking for partners who will fund those opportunities, but will also want to be putting an investment in those two.
I don't see it really being higher than where it today, but I also don't see where we are going to cut it back to not doing any type of development when we have the opportunities we have in both medical and nonmedical uses.
Thank you. I was just trying to determine the sensitivity around if this clinical trial goes successful, what's the sensitivity around the R&D expense is going forward, knowing you would redeploy that, but you said cutting the half, so you answered my question.
That's a really long-winded way of saying that, yes.
No. I appreciate it and you have got to fund R&D, so that's fatigue for the company. Again, great quarter, thank you for taking my questions and I'll jump back in queue. Thanks, guys.
All right, thanks James.
(Operator Instructions) The next question is from the line of (Inaudible). Please go ahead with your question.
Hey, guys. Congratulations again on a great quarter. Good news coming out, and Kevin I wanted to ask you if you could compare your KCI experience to SANUWAVE and how do you see waves' prospects? How do they compare or like what are the biggest areas potential impact for shareholder value?
Sure. When I was at Blum Capital Partner, Senior Partner there, we took Kinetic Concepts private. This is prior to them having the negative pressure wound therapy device. It was in R&D that didn't have approval and so there are a lot of similarities there was no commercialized negative pressure wound therapy, device on the market at that time and it was kind of the vision of the of the leadership there and CEO who kind of stayed with it and there were times when it was very difficult where you are losing money and losing faith and sticking with it since turned into a device that's dominating the advanced wound care market today. That $3 billion market, it's the leading market share company and our investment went from $40 million to $600 million, ultimately Kinetic Concepts, which was taken private by Apax Partners, I think it was about two years ago for $6 billion or $7 billion.
There is a big market opportunity in advanced wound care. My experience with KCI was that it took a long time and we have been doing this for a long time here, but we can see the light at the end of the tunnel is SANUWAVE.
I think the difference here is that we see the opportunity in the vertical of the advanced wound care market, which is large and we have a device that's unique enough and differentiated enough that, again, it can focus on how does it help payer, how does it help the patient, how does it help the doctor and if you can do those three things in a better way, we will gain market share within the advanced wound care market.
The bigger difference is that we have non-medical applications for our technology here and there are other medical applications, so the market opportunity for SANUWAVE on the medical side is beyond advanced wound care. It's probably a $10 billion market opportunity of where our technologies can operate.
On the non-medical side, it's probably a similar size. That isn't to say we are going to do that or achieve that and there is a lot of work to be done to get there, but the opportunity in front of us this is extremely large.
Thanks, Kevin. That sounds like some huge opportunity and I was curious in your opinion or any of the other guys on the call, one of the most attractive ways to monetize the tech, the IP and patent?
It depends on the market. In the medical side, I think, the one thing we have learned is that working with the FDA and going through the trials takes a lot of effort and the rewards are there, because you can then bring something differentiated to market where you can and commercializing it relatively quickly if you have something that's unique and offers a value proposition to the system, meaning payer, physician and patient.
On the non-medical side, I think, the go-to-market is going to be a little quicker. If you can have a product ready that can address a need water being one of those markets that I could see it growing very rapidly. Our game plan is not necessarily to have a deep sales force, where we are competing against the other water treatment companies. It's really to find partnerships, where we can own the IP on the manufacturing, R&D and then leverage distribution and whether collect a royalty or collect a profit share. Managing a large sales force and trying to compete isn't necessarily our idea of where you get the greatest return for shareholder capital, so we are going to focus on the partnership approach.
I agree with that. I am glad to hear you are heading in that direction. Along that then may not be able to share names. If you can, that would be great, but maybe the order of magnitude, the strategic partnerships or licensing prospects for the balance of this year and into 2015.
I am hoping, and again hoping. We are in early conversations with some folks. I would hope that we have some things announced by year end. I think you will really see 2015 being where the focus is. As you know, we have been as a company until the capital raised in March of this year, we have been somewhat capital-constrained, so we have been laser-focused on the diabetic foot ulcers trial and I think if we have some success with that, then you can see us try to expand on the business development side?
Until then the board, I think, is trying to take a prudent approach to our capital in making sure that we have enough to get through a full FDA trial. That's really where the focus is, so that it's a kind of double-edge sword, it would be great to go after some of these opportunities, but to do that effectively is taking some capital away from the mission at hand, which is the diabetic foot ulcers study.
That makes sense. I appreciate your candid responses and again congratulations on a great quarter. Thank you.
Thank you. At this time, I will turn the floor back to management for closing comments.
Great. Thank you. To close, I would just finish with, we are fortunate to have a very loyal and supportive shareholder base and recently added our largest institutional shareholder in RA Capital. We cannot thank the long-term shareholders enough for their investments, patience and support to help the company achieve what has and they have helped put the company in a position to achieve even better things going forward.
The ultimate goal of a public or private company should be to maximize shareholder value. We plan to continue to meet and speak with institutions, retail brokers, research analysts, increase the awareness in the investment community of SANUWAVE. We are committed to doing these things necessary to build a world-class medical device company, with disruptive and some cases revolutionary technologies.
If you have any follow-up questions, feel free to reach out to the team and we can have a conversation. Thanks again and have a good summer. Thanks.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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