Medical Device Dailys

The tightening turns of the economic downturn has pushed SPO Medical (Kfar Saba, Israel/Woodland Hills, California) into a tailspin.

The company's story, grimly described in filings with the Securities and Exchange Commission, provides insights into the desperation beginning to grip start-up medical device companies.

A maker of biosensors for portable monitoring devices based on technologies developed in Israel, SPO reported a 45% drop in sales, with gross revenue of $2.8 million in 2008, down from $5 million in 2007.

The company lost $3.2 million that it attributed to the lost sales, though it also lost $1.6 million in 2007 on strong sales as it continued to burn cash to push the sales curve higher with product line extensions.

In its SEC reporting, SPO said it needs to "raise additional funds on an immediate basis in order to meet our on-going operating requirements," and that it has stopped non-essential product development.

The company reported an aggressive 35% growth in sales in 2007 as it expanded its PulseOx line of monitors that use a unique reflective detector capable of reading blood saturation level from a single side of the skin using a light emitter that picks up the intensity of blood flow from just a few millimeters of light penetration.

"As with many companies in our market sector, the current worldwide economic financial crisis has negatively impacted the potential purchasing decisions of our customers, leading to a decrease in revenues for fiscal 2008," explained President/CEO Michael Braunold.

"If the global economic environment continues to be weak or deteriorates further, there will likely be a negative effect on our revenues and earnings for the remainder of the current fiscal year and continuing into fiscal 2010," SPO reported to the SEC.

The company, with principal executive offices in Israel, is stepping up its bet on the U.S., saying it has taken on an independent sales representative group specialized in the medical market, a move SPO said is designed to intensify the sales in it what it considers its primary market.

"With continued increasing challenges in worldwide markets, we seek to extend our reach in the United States," Braunold said. "We hope our newly appointed sales representatives will vastly extend our distribution capability to medical facilities we could not reach before and strengthen our overall presence and penetration in the territory."

The competitive environment for patient monitoring equipment is fierce, with SPO, which employed 13 people as of March 31, facing the much larger and more well-established Nonin Medical (Plymouth, Minnesota) and Smiths Medical PM (Waukesha, Wisconsin) in its product segment.

The company said this price-sensitive market was further eroded in 2008 by the entry of several Chinese based medical device manufacturers who have extended their share of the homecare market and have become direct competitors.

"Their pricing models have significantly impacted this market and in particular under the current economic conditions," SPO said.

Braunold said, "In parallel to our existing medical market products, we continue to pursue strategic relationships with major players in non-medical markets who seek to license our technology for a number of mass-market consumer wellness applications".

SPO Medical has not returned a profit since its founding in 1997, and in a statement said if expects to incur losses for the immediate future requiring the need to raise additional funds.

The company went public in 2005 but has been quoted on the over-the-counter Bulletin Board since October, 2007 and in its filing with the SEC, SPO reports "there is no established market for our common stock and none may develop or be sustained."

"These conditions raise substantial doubt about our ability to continue as a going concern," the company concludes in its SEC report.

U.S. firm buys Swiss RFID tagging company

Elecsys (Olathe, Kansas), a maker of ultra-rugged mobile computers and wireless remote monitoring systems, said it will acquire MBBS (Cortaillod, Switzerland), a developer of radio frequency identification (RFID) for harsh and extreme environments, including surgical instruments.

MBBS has developed a unique technology to read and write electronic data through metals such as non-magnetic steels and other alloys. The hermetically-sealed RFID tags can withstand 2,500 sterilization cycles, longer than the useful life of most surgical instruments.

French nurses report workflow improvements with tagged instruments taking one third less time to process and meeting French requirements for traceability back through the most recent five procedures (Medical Device Daily, March 6, 2009).

Elecsys sees opportunities to apply the technology to infrastructure assets, heavy equipment, weapons and other devices that must withstand harsh environments.

"The MBBS tags can resist high temperatures, pressures, chemicals and similar conditions where other tags would fail," said Karl Gemperli, Elecsys president and chief executive officer. "We believe that this technology, coupled with the market penetration and strength of our established ultra-rugged computer and remote monitoring brands, has the potential to greatly expand our business."

Dimitri Brodard, CFO with MBBS, said the acquisition "represents an excellent opportunity to increase the visibility of MBBS in world markets where Elecsys is already present, while also creating a synergy to integrate MBBS tags with the ultra-rugged products of Elecsys customers."

The Swiss start-up, which employs 12 people, reported revenues of $550,000 for the year ended Dec. 31, 2008.

The acquisition represents an exit in the form of a stock swap for the investment firm BSN Systems (Irvine, California), whose principal backers are Sandoz FF Holding SA (Pully, Switzerland) and Techniques d'Avant Garde SA, or TAG Group Holdings (Luxembourg).

BSN will receive 175,000 shares of Elecsys common stock as well as performance payments over the next five years.

Elecsys said it expects to close on the purchase by mid-June.

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