Vision-Sciences: The Wall Street Analyst Forum Presentation Transcript

Vision-Sciences Inc. (VSCI)

The Wall Street Analyst Forum

November 28, 2007 8:30 am ET

Executives

Ron Hadani - President, CEO

Yoav Cohen - CFO

Gerry Scott - President, The Wall Street Analyst Forum

Lew Pell – Chairman

Presentation

Gerry Scott

Good morning, ladies and gentlemen. In our attempt to adhere to the public schedule I would like to go ahead and introduce the first company in this morning’s healthcare program.

As many of you know, there is actually three different ways that investors attend the conference. There is the physical way, where institutional investors, buy and sell side, physically attending here in New York.

The second way is that the conference is, each individual meeting is webcasted live. It’s also retrievable for 30 days following these live events. It’s both the audio part of the program as well as the Power Point part of the program. The webcast is linked to the major portal that institutional investors use, including the [findwall.com], streetevents.com, wallstreetcalender.com, bestcalls.com, and probably there are one or two others. So, we have around about seven places where institutional investors go to find out collectively where conferences are being held, who’s presenting them and how to attend the webcast duration of those conferences.

And the third thing that we do, which we think is particularly cutting edge, because only the investment bankers are doing it. We like to distinguish ourselves by doing things that other folks aren’t, that are meaningful is that the conference is transcripted in such a way and it is done by an Israeli firm only through Israel with the internet, that has it web searchable on Yahoo Finance six hours after live events. So word for word, this presentation transcript is web searchable on Yahoo! Finance, Google Finance, AOL Finance.

So that there are many investors that may appreciate 20 minutes webcast, but for me and many people 20 minutes is a long period of time. So you can go through a transcript and probably get everything needed in seven or eight minutes, so the firm that’s doing that for us is Seekingalpha.com and they have it 6 hours after the event on the major search engines. It’s a great way for us to extend the conference to any investors who happens to look at the particular company on a place like Yahoo! Finance and gets the entire presentation just a few hours after the event and probably go through it in seven eight minutes and everything they do.

So, the first company I would like to introduce this morning, is Vision-Sciences. It's a NASDAQ listed company that develops, manufactures and markets the unique line of superior endoscopic products, utilizing the proprietary disposable EndoSheath technology, which we appears we have with us today.

Vision-Sciences is in the process of changing the playing field, having their management team and it’s about to launch a new series of exciting technologies, which they will discuss with us here today. So, without any further introduction on my part, I would like to introduce Ron Hadani, President and Chief Executive Officer, and Yoav Cohen, Chief Financial Officer.

Ron Hadani

Hi, good morning everyone. Now that there is an Israeli company behind us I feel very comfortable. Someone is asking, can you tell us where is the accent from? I live in Northern New Jersey and I am trying to get rid of my Southern accent.

I just want to quickly go through some procedures such as the Safe Harbor Statements. Our presentation today may include some forward-looking statements intended to quality for the Safe Harbor from liability established by the Private Security Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such Vision-Sciences or its management, believes, expect, allows, anticipate or other words or phrases of similar importance. Similarly statements in this presentation that describe our business strategy, outlook objectives, plans, intentions, or goals also our forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. Other risk factors are detailed in our most recent Annual Report, Forms 10-Q and other filing with the SEC.

Okay. The Company, we believe that we are a very highly innovative medical technology company and that provides a distinctive enabling platform with applications in high growth markets, this is where we are focused. Vision-Sciences Technology can be used for immediate and often unsedated EndoSheath, Endoscopy to perform therapeutic and diagnostic procedures, including from a very short cancer screening.

The company is uniquely positioned to facilitate and take advantage of higher reimbursement office based procedures, this is a trend that we are focusing on and grading procedures from the institution to the private office. Presently and it's being in process to change, we are operating in two different locations. This is historical reasons. In Orangeburg, New York, we are designing and manufacturing our endoscopes and this is our corporate offices. And in Natick Massachusetts we are designing and manufacturing the sheaths. We are consolidating we've started the process to consolidate everything to Orangeburg. We anticipate that this will be complete in about 10 months.

The new management. I've been with the company for four years. Yoav Cohen joined us about a year ago, he's the CFO. Mark Landman came to us from Boston Scientific; he is with the company for about 15 years. David Hanuka is brought to us from Israel about a year ago. He is a very knowledgeable person, who was behind the development of some of the ACMI technologies recently acquired by Gyrus, that's recently acquired by Olympus. He is our VP of R&D. And Carlos Babini, who is the 27 years veteran from US Surgical, introduced to the world minimal invasive surgery. And I met him actually at US Surgical, during my time.

Our mission is to transform and expand the practice of endoscopy by providing superior imaging technologies and integrated delivery platforms to enhance patients' outcome or significantly improving physicians' economies. This is something that the company failed in the past and we'll go through it.

The stem of our technology is the EndoSheath and endoscopy, the EndoSheath itself is a diagnostic and therapeutics sterile imaging and delivery platform, it’s comprised from two different components: one is the reusable endoscope, and then disposable sterile sheath. Very strong advantage that we have, and I will repeat it through out the presentation and this is what I refer to open architecture.

Our sheath comes with many flavors and many configurations, different number and sizes of the working channels, inflatable chambers and so on and so forth.

So, the result is the sterile insertion tube for every patient, no instrument contacts with the patients; any part of the scope doesn’t touch the patient. The disposable, always clean operating channel, reduces cross contamination infection risk, rapid turnaround time, less than 5 minutes scope processing, and immediate procedure if possible, following procedure is right behind the present line.

No toxic chemicals exposure. Projected sales distribution [into] patient, just to give you a background, I don’t know how many people have background endoscopy but with the exception of common ENT scopes, all the scopes carry channels, various sizes and numbers.

Most of the people here are not 50 yet, but people above 50 need to go to colonoscopy. Every patient that goes through the colonoscopy assumes that the scope is sterile, no, it’s not sterile, it's disinfectant. And if you cut it along the scope, you can find all kind of stuff from your previous patients.

So, people are not aware of it, but this is the reality and the company, this is a historical snapshot, the company was really banking on this effect for years, there has been a tremendous amount of efforts to prove to the world that there is a problem of not clean endoscopy procedures. There was a slogan that the company came out years ago, "colonoscopy is a dirty business”, which was really poor marketing steps.

Unidentified Company Representative

Especially to the doctors.

Ron Hadani

The doctors. We look at it completely from a different angle. We look at it from the benefit of the patients and the benefit of the physicians. I mentioned before the fact that rapid turnaround time, this is a tremendous advantage compared to the competition. Most of the endoscopy procedures are 5 to 10 minutes and then the scope is being moved to be processed for 45 to 60 minutes. If you want to really run through patients, you need multiple scopes. But still there is a whole infrastructure to manage it, with our scope and EndoSheath's solution now, which every 5 minutes, you can see a patient.

To summarize, the EndoSheath's system is enabling technology for use with our superior endoscopes in a highly sterile diagnostic and surgical procedure leading to new minimal invasive procedures, but the fact that our scope is the only flexible cystoscope, enables us and open the opportunities for procedures that requires sterility. As I said, I refer to it as open architecture, flexible insertion tube consideration. For example cystoscopy, all the cystoscopes carry working channels 2.1 millimeters. Why, because the tools that are being used are about 1.8 millimeter and in order to accommodate them, this is the standard.

Our scopes, and you will see it in a second, don't have any channels. If you are doing a procedure that requires a tool, you load this sheath with a 2.1 millimeter channel. However, about 80% of the cystoscopy procedures are diagnostic only and they require just a small channel for irrigation, so we have a sheath, the diagnostic sheaths that carries only 1.5 millimeter channel.

So, as a result, we end up with a smallest insertion tube and again the whole sterility is a great advantage and this is what I call the open architecture. It facilitates new diagnostic and therapeutic procedures in outpatient and office settings. People who don't have the infrastructure and the means to process their scope, you don't have to have it with our solution.

Minimize reprocessing time, rapid scope turnaround time significantly increasing physicians productivity and revenue potential. You can imagine that with a conventional scope you can see a patient; you can use the scope and see one patient per hour, with ours you can end up with four, five patients per hour. So if you have procedure with a reimbursement of $300, instead of $300 an hour you can now end up with $15 an hour.

Reduces self exposure to the cleaning agents, I don't have to explain much. Patient's safety is highly sterile; reduce risk of cross-contamination. Obviously, it's very comforting to know that this insertion tube that is being inserted into your body, never touched the previous patients and the patient before you was HIV positive or Hepatitis and so and so forth, it’s very unpleasant. And so we better not ask.

The big issue is reduce service and repair cost. The most common repair and service cost are the channel endoscope, because of whatever reasons. One is the fact that they are being handled and carried and manipulate during the processing. Many of the damages occur during insertions of the tools, usage of laser and so on and so forth. With our solutions and the repairs, it’s very expensive. The repair sometimes reaches almost the cost of a new scope. With our solution, it’s just a matter of the sheaths and so you dispose of it and load another one.

So if it’s so great why don’t others have sheaths on the market? We believe that to put a sheaths on an endoscope today is basically impossible , you can imagine that as is everyone pushing the imaging quality and their performance of the visualization, to put a sheath on top of it or in front of it, it's very challenging. We have a tremendous IT around it and we believe that it's basically impossible to apply a sheath in front of an optic.

So if it so, what's new? Basically everything is new in the company. New management, new technology, new team and new vision, completely new business approach.

While the company in the past, as I said, focused on the cross contamination in the last two, four years, my focus was to bring the company in the -- to spearheaded technology and the capability as far as the visualization. So, this is kind of the foundation of the endoscopy and image guided procedure.

We, about a month ago, introduced and unveiled the first time, the very best endoscopy technology and it started at the American Academy of Otorhinolaryngology, in September, followed by the regional American Urology meeting. A very revolutionized concept to the small diameters scope. The host, again if some of you are familiar with endoscopy, the endoscopy room has a rack, a tower with a light source, with pumps, with a monitor and so on and so forth.

Our solution is geared both for the hospital and for the private offices, fully integrated compacts, highly affordable, it’s basically the worlds smallest diameter insertion tube, very powerful integrated in the handle LED based light source. This is another kind of a weak link in the whole endoscopy where the light source has very limited lifespan, with our LED, its lifetime guarantee, its about 50,000 hours Mpbs. Very economic design, if you basically hold a scope you feel that you are in at 16, holding the stick.

Superior articulation, exceeding all the articulations that exist today in the market. So if the physician wants to articulate and survey around or retroflex and look back, we exceed all aspects of the competition. Very clear difference as far as the image quality. Our image appears on the screen as a full screen image, unlike all the competition including the top player Olympus, which has a small square within the monitor that the image is limited inside.

And then the combination of the sheath and scope system resulting in unparallel efficiently that I mentioned and obviously for the physician generally it enhance the revenue potential.

Some of the snapshots what we have inside, I'll go quickly through it. Now, another component is the sheath itself, the sheath also went through a complete redesign, it recently successfully completed viral microorganism “barrier testing'' as per the FDA requirements. The EndoSheath is effective barrier to microorganism down to 27 nanometers.

You can see below some of the dangerous known microorganisms, the AIDS, Hepatitis, or Herpes are much, much larger. So, it's considered quite safe. Another thing is that the EndoSheath has an important milestone; it featured in the award wining study that was led by the world renowned instruction controller figure Carla Alvarado, from the University of Wisconsin. She won the first award in the Apex Annual Meeting in May, '07. She evaluated the clinical efficacy of the EndoSheath barrier and she found that you know the EndoSheaths after the procedure remained intact, and there was no bacteria that could be cultured from the endoscope. We are anticipating to continue aggressively with these studies, to prove that our solution is superior to the conventional existing endoscopies.

Let me kind of pause before we are taking off here. So, where is the company today? What is the current business landscape? We are currently operating in these two markets, in the Urology and the ENT.

In the Urology, we offer a Flexible Fiber Cystoscope and we are in the process of building our own independent reps. In the ENT, we are offering Flexible Fiber Otolaryngology and TNE, Trans-Nasal Esophagoscopy. Two scopes, these scopes are distributed by Medtronics. Medtronics by far is number one. Number one in the ENT market and we have very close relationships with them.

Recently, if you have checked our website, we closed the license agreement or we sold them the right to manufacture the ENT sheaths or the sheaths family, only solely for the ENT market, meaning that the rest of the medical devices or medical world stays with Vision-Sciences. I think that I heard that people weren’t very clear about it. We carved out the ENT markets for them. The ENT sheaths component presented about $3 million in our revenues we sold it for $34 million.

We are in the final state of transferring to them the production line. Value proposition economics, we will see in it. I will go through it, but affordable video technology, rapid scope turnaround ability to do more procedures, less scope inventory, obviously if you want to do more procedures with a conventional scope you need more scopes. Longer scope lines enhance scheduling flexibility, increase staff productivity.

As far as infection control, there are protective barriers for every patient, unlike anyone else, barrier-tested to FDA compliance, we spoke about channel with every procedure and introduce it's exposure to caustic chemical.

Just want to add about this exposure that you know it's not just for the staff, it's also for the patients. Recently, about a year ago, the J&J product, Cidex OPA, was counter indicated for the usage with patients with bladder cancer. And we believe that it causes irritations and other feelings to the patient.

I will invite Yoav to go through the financials and our returns.

Yoav Cohen

Good morning. I am going to just concentrate on some highlights. The first item is the growth of the revenues in the first three months, from the first six months of the year, we grew from $4.3 million last year of $5.5 million this year and in the last quarter we grew from $2.2 million to $3.1 million. Basically, our challenge is to replace the loss of revenue from the sheaths, the empty sheaths that we sold to Medtronic. Our last shipment to Medtronic happened in November, so as of December we are going to have sales of sheath only to the other areas of medical and we are going to start shipping the new video early next year.

Our gross profit grew pretty substantially and that's really a result of better efficiency, higher productivity in the scope we are manufacturing and cost reduction, of course that are still ongoing.

SG&A grew and that reflects our building and infrastructure to support the rapid growth that we are anticipating. The major areas expenses are building a new self-organization within the company and then they are in effect recording additional outside sales representatives and managing the current sales force.

R&D again, grew substantially and that reflects the investment in the video technology and investment in additional products that Ron is going to discuss later.

Interest income, actually we had nothing last year, this year from the sale we already received about $30 million from, actually $27 million from the sale to Medtronic out of the 34 and that reflects the interest income from the investment that being done in Triple AAA, short-term instrument and you will see also the other income of, last year, yes, (inaudible) 586 that's reflects a milestone payment for Medtronic with $4 million in milestone payments going to occur this year, throughout the transition to Medtronic and a $2 million payment which will occur in our next fiscal year.

And we are operating in two segments, we used to operate under three segments, which were medical, industrial and corporate, as of April 1^st, which is the beginning of our 2008 fiscal year. We’ve moved into two segments, we’ve done some changes after the sale from Medtronic. The industrial segment is a segment that you can see makes some money and the medical segment looses money, but that's really because the future of the company is in the medical segment and we're investing all our -- most of our resources into the medical segment.

As of this quarter, we're going to introduce the third segment which is going to BEST DMS that's the recent acquisition that we’ve done, where we bought a service company that is servicing the nursing homes and assisted living facilities and they send their (inaudible) to check patients in-house for swallowing disorders.

I made some abbreviated balance sheets, again the main items here, as you can see at the end of March '07, the $29 million reflects the payments from, mostly the payments from Medtronic and then in June and September, the cash is actually the added between actual cash and short-term investment. Roughly, we have about $24 million right now as of the end of the September quarter. We try to keep inventory in check so even as our sales grew, as you saw before, we are trying to maintain inventory at a good balance.

The investments, we have an investment of $1 million that we made at the end of March in Minos and again, Ron is going to elaborate a little bit and that is reflected in the equity investment. And the current assets and the other assets you see $524 million that reflects the acquisition of BEST that was actually done as of October 1^st of the funds went out in September.

As far as liabilities, we are a debt free company. We have no debts at all and basically our, we are spending about $2 million a quarter and that, you can see as the burn rate as we move along. That's it, thank you.

Ron Hadani

I will just try to accelerate to adhere to the time limit. We have a lot to share with you and anyway we define this year business development plan. On the left hand side you can see the immediate churn 0 to 1 year. We have cystoscopy and ENT I mentioned right now we have the fiber technology. We are going to introduce at the beginning of the year the video technology, the video roll out. The markets that we'll be interested in are the Urology, ENT and as a result of the acquisition of BEST in the geriatric. Then in a year to two years, we are going to kind of explode the technology that we just completed and become very active in the GI, in the Trans-Nasal Esophagoscopy, in colonoscopy devices, in the whole geared area.

We are in the process of developing devices for the [GON] stereoscopy, in the field of notes, airway management and now bronchoscopy and intubation. And we are looking into technologies that exceed where we reach today with two residual to look into stereoscopic technology.

Long term, we are kind of planning to end the company away from the classical endoscopy companies, so we are not looking to be a direct competitor to companies like [Fuji] and Pentax. The endoscopic company that rather to utilize our imaging capability and build a whole complete procedure solution that is image guided in the field of notes, single point access and so on and so forth.

Going back to today, fiberscopic imaging is still the current standard. Again, with the exception of GI doctors, all the endoscopes that are known today on the markets are basically or most of the endoscopes are to be more accurate are fibers. This means the physician goes with his 'eye to the eye-piece'. There is a fiber that delivers the image to his eye/on her eye and this is how it is visualized. You can see that this is the fiber bundle and the image appears there.

Current available video technology is very expensive and very limited. And as I said, the 'eye to the eye-piece' is still preserves. You can see here this is a video imaging of competitor, this is Olympus, and you can see that the image is limited, just to give you an idea that I am talking about prices. I will carve out the whole GI but if I'll stay with the ENT or urology market, the competition such as Olympus offers a video endoscopy technology for about $40,000; for the private practitioners they just cannot afford it. They will stick with their fiberscope that cost them $5,000 to $7,000 and they will get basically the same reimbursement.

I will take it further and you will understand what we are planning to do. Right now, Vision-Sciences, we do brand awareness and we do customer loyalty, I talked to many people, they are aware of us.

What we are providing is the way of best to give you assistance, it's very clear, when we put it side-by-side. In all the opportunities as I mentioned before, the AUA, it was very clear both to the physician and to the competition. The focus is that it will be affordable, high quality imaging and the smallest insertion tube and the idea is to because a major player in those markets. What we are doing right now to achieve it, we are building our world-class sales organization, again, the ENT is carved out and we are working with Medtronic. We believe that the ENT is kind of a specialized smaller -- okay, I'll put on the after burner and we will cruise with.

Urology and the others, we are developing our own in-house sales force targeting 50 to 60 indirect sales people, next year up to a 100 in 2009. What we are planning to do is basically to start a paradigm shift in the non-GI markets and to convert all these markets from the ancient fiberscope to videoscope, with tremendous effort to provide them an affordable technology. We are going to aggressively market and aggressively price it. We have the razor and blade solution, unlike all the others; we are not just capital equipment.

As far as the Urology, we are going to establish, we are seeing that there is a tremendous other patients to establish the EndoSheaths as a standard-of-care, affiliated market other patient pricing is about 15% to 20% of reimbursement. And we will focus on accelerating the imminent video market adaptation. Basically, the idea is that people will carry and you will see in a second, video, the price still sufficiently below the competitors, close to the fiber.

We saw the market potential, my apologies but, if you'll have any questions, I'll go through them. I want to just share with you some more important things. As I mentioned, this is where we are seeing ourselves, Yoav, mentioned we are putting tremendous effort into R&D in order to achieve those and release those products in the next 12 months to 18 months.

These are the new markets and applications that we are going to play in the GI, visualization and looking and playing the whole area of GERD, diagnostic of GERD, then to go to the Gynecology, developing a career for the transcervical tubaligation , the whole airway management bronchoscopy, endoscopic ultrasound for (inaudible) intubation feeding tubes and the nose and minimal invasive surgery.

The gastro and the whole TNE, I think that instead of me going through the TNE, I think that is there a doctor on board here?

Yoav Cohen

Yes.

Ron Hadani

So and is there any volunteer? Okay, there is always one dummy in the room. So let me.

Yoav Cohen

It’s fixed (inaudible).

Ron Hadani

Yeah, it’s really fixed. This is -- the guy that talks in the back, he is the co-founder of the company, his name is Lew Pell, he is the Chairman of the company and he is a good friend and a very good [because of his sense]. He can explain. If you join us on our view, there is a professor at Columbian University otolaryngologists and [Nick Chucklus] beheading me is the VP of Domestic Sales and we are going to show you what we are going to offer in Trans-Nasal Esophagoscope compared to what is commonly done now where, if he has GERD or any other symptoms of indigestion the standards, the procedure is EGB. The patient is sedated, large caliber endoscope is being inserted trans-orally and to evaluate the lower esophagus sphincter in the stomach.

We developed a very tiny endoscope that is being introduced trans-nasally so there is no gagging reflex to overcome. With the sheath capability you don’t need the whole sitting, sterility and so on and so forth. Why don’t you quickly comment, I think we need to.

Unidentified Company Representative

Good morning, I am an ear, nose and throat surgeon at Columbia. I work very closely with GI doctors, pulmonary doctors, as well as the ENT physicians. And I myself did is (inaudible) it killed my practice, because it took an hour to reprocess. So I went to the fiber optics technology, the image was not as good, but the sheath, I was able to the turnover the procedure and that too within minutes and within hour 3 to 4, which was much more helpful. So, I am very excited now that we have [physical] chip technology with the sheath so that combination is something very, very exciting both for my patients and to my practice.

Unidentified Company Representative

We spoken to the people that are not familiar this is the fiberscope, this is the IT, doctor, this is portable life source. The doctor goes and actually looks and, he looks inside, (inaudible).

Unidentified Company Representative

Okay. So, I am going to get started.

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