Creating 100% Pathogen Free Environments

Chairman’s Message – May 2012

Greetings all

The interest in AsepticSure shown by decision-makers in the hospital and health care industry as well as on the veterinary side of the equation, has now reached a new phase – one that leaves us with no doubts as to the exponential increase in sales that lies in the months ahead. (*we have already been approached by hospitals in the US and Canada, inquiring as to ‘how many units they will need in order to fulfill their HAI reduction requirements, based on the size of their hospital’).

It is on this positive note that I would now like to bring you up to date with everything that is happening – or at least, everything I am at liberty to divulge…

Sales & Distribution Management Role Filled by ‘Top Gun’ Consultant

For some time now, management has recognized that a much-needed area of corporate development awaiting a solution ‘has been around the need for national and international expertise in sales and distribution channel development.’

I’m not talking ‘sales management’ in the traditional sense, but a multi-faceted, experience-inspired, leadership-driven approach to the full gamut of challenges Medizone faces in its long-term global expansion plans going forward.

It is with pride and confidence that I can now announce that we have turned this area of perceived weakness into an exceptional strength.

It is my pleasure to introduce shareholders to one of this country’s most successful management and forensic consultants in marketing and sales – Mr. Glen Balzer of www.neweraconsulting.com.

As a management and forensic consultant in domestic and international marketing and sales, Glen advises parties involved with contracts between manufacturers' representatives, suppliers, global customers and industrial distributors.

For 30 years, he has been involved with creating, upgrading, and managing marketing and sales organizations throughout America, Europe and Asia.

Glen is going to be working directly along-side me and will be based in our Sausalito office. He will be working in a senior leadership role, advising on Company direction and leading the development of our:

  • sales and distribution network – nationally and globally
  • supply chain network – with emphasis on strengthening it in order to help shorten lead times for product content
  • supply-side team – with a focus on product support for the end-user

Glen brings great leadership strength and vision to us with his outstanding track record in negotiating fair and mutually rewarding distribution agreements with companies and corporations ‘many times larger’ than Medizone!

He has also played an integral part in the strategic development and project management of distribution teams resulting from such agreements. Plus, he has leveraged off his own experience to provide top-level advice and guidance in areas of acute interest relative to expanding commercialism.

I encourage you to visit Glen’s website and take the time to review some of the many articles he has written on the subject of sales management and distribution – they are well worth the read and are ALL applicable to Medizone’s broader vision for the future.

Speaking not only for myself, but the entire board of directors, we are especially pleased that Glen has agreed to accept this key position within the Medizone team.  Welcome aboard Glen!

AsepticSure Passes All Performance Tests

Successful on all levels – that’s the performance status of the initial full production unit of AsepticSure delivered by SMTC. The unit easily passed the required independent verification testing for electrical compliance, and in our laboratory has now demonstrated verification of:

  • anticipated ramp times
  • H2O2 - O3 mixing parameters
  • RH ramp and various other critical functions

The above-listed verifications were achieved by comparing computer mapping graphs with a year of data logged results from both our development prototypes and the production prototype. Dr Shannon has now given the green light for SMTC to complete the build of the remaining four units to complete the initial order.

SMTC’s Manufacturing Process Continues To Improve

The initial production run took a lot longer than any of us could have anticipated, for two reasons:

  1. The lead-in time for the procurement of multiple core components turned out to be at least 6 – 7 weeks beyond normal procurement time-lines. The reason for this was that many of them had to be custom-designed and then manufactured from scratch. This process resulted in the need for additional tooling as well. (NB: Medizone is currently working with SMTC in order to shorten key component lead-times as production orders increase).
  2. As is public knowledge, SMTC recently underwent major corporate restructuring. This was not (and nor could it have been) anticipated by Medizone prior to the event. The staff changes that ensued contributed to further delays.

IMPORTANT NOTE: SMTC has just experienced its most profitable quarter on record (in stark contrast to the previous one). Overall debt has been reduced by ‘several millions of dollars’ and the company is in good shape to embrace the future. Download their latest news release here.

ADA’s Input Invaluable

The initial production unit’s build was heavily supported by our development partner ADA at the SMTC facility.  This was to be expected, as the detail of manufacturing transfer must be considered critical for a proper build of this somewhat complex system.

The build of the next four units (which has now been ordered) is expected to demonstrate that manufacturing transfer has been successfully accomplished by SMTC.

Following confirmation as demonstrated in the build quality and performance of the next four units, Medizone has informed SMTC that we are prepared to immediately place an order for an additional ten AsepticSure modular systems – all to be built to the Canadian specification.  These ten units are all pre-sold to Canmedical (see below).

Canmedical ‘Ignites’ Canadian Market Interest

We continue to be impressed by the execution of the business plan by our Canadian distributor, Canmedical.  Following an extremely encouraging customer survey, Canmedical has established both a sales model and a service model for the distribution of AsepticSure in Canada.

In support of their service model, during our product’s soft launch period they intend on adding one truck per month with two AsepticSure units and service personnel per vehicle. Two of the first five AsepticSure systems will go onto the first truck.

The first truck has already been purchased and Canmedical is now committed to an additional four trucks (i.e. 10 Asepticsure units) with high expectations of adding considerably more following the ‘soft launch’ phase.

It has become clear that with regulatory approval already established in Canada, a large portion of the ‘soft launch’ will take place in coordination with Canmedical’s rapidly developing market penetration.

Government Incentive Scheme – Great News For Canmedical

The Canadian Government recently announced that it is offering performance-based funding incentives to hospitals (and their top-level executives) to encourage them to improve 'quality of care' on all levels.

While the first of these, known as QUIP (Quality Improvement Plan), won’t have any direct benefit for the distribution of AsepticSure in that country, the next step – HBAM (Health-based activity model) certainly will.

HBAM is patient oriented and will add as much as 2% to a hospital’s funding or lower the hospital’s funding by 1%. HBAM will go in force next year, giving Canmedical ample lead-time to prepare a leverage strategy around the reduction of HAI’s.

Over 5 years this program will be an even more important driver for Canmedical’s services. For example, this initiative will likely include measures for re-entry days used by patients who contract HAI and extended stay days due to HAI because it is patient focused and patient experience is measured in terms of hospital days.

North American Distribution Strategy

While we initially embarked on a course of looking to secure distributor agreements with a number of suitably-qualified medical device distributors in the South America and Asian markets, a strategic decision to ‘hold-fire’ was subsequently made.

In keeping with our ‘soft launch’ philosophy of getting 15 to 20 systems into the hands of end-users for performance evaluation prior to significantly ramping up production, it is clear that the best way to efficiently accomplish this task is to keep the program as close to home as possible.

In this regard, we now intend to restrict ‘soft launch’ to the North American market.  Therefore, our next marketing target is to establish a distribution system for the US market – ideally with one or more ‘larger, well established companies’ that have human resources and client bases firmly established nationally.

We have strong reason to believe that AsepticSure has the very real probability of becoming a highly sought-after product for ‘one or more’ very large distributors in the US. While an individual company’s market focus may be confined to just one industry sector, it is the depth and breadth of their client base within that sector that will help to determine whether or not a relationship will be viable.

This is a developing scenario and regardless of the time it takes to unfold, we will report back to you when the time is right to do so.

FDA Classification Ruling

Our regulatory team recently responded to questions from the FDA regulators about the AsepticSure system. The FDA (as was the case with Health Canada) will determine (after an evaluation of the technology), whether it should be classified as a "Class 1 Medical Device" or not. Either way, it will be a regulatory ruling (as opposed to an approval or decline, neither of which apply to medical devices like AsepticSure, anyway) and in no way will it impede our ability to market AsepticSure to its intended market.

Although at this time of writing we have not received a formal regulatory ruling from the FDA, we will immediately report to you when a ruling is issued.

On The Science Side

There is a very exciting development emerging on the scientific front at Innovation Park. While I cannot say more at this time, keep an eye out for a press release within the next few weeks. All going well, we could be announcing a ‘very significant’ breakthrough in disease control – and one that will almost certainly expand the scope of what the science is capable of – and significantly broaden our HAI reduction capabilities.

Hospital Trials

Although it is premature for me to get into specifics at this time, I can tell you that we have up to three hospital trials planned for 2012 – with the first of these likely to be conducted in a Canadian veterinary hospital. A second trial will follow in an Ontario-based public hospital, while a third is anticipated to take place on US soil. Details pertaining to the commencement of these trials will be forthcoming closer to the events.

Bed Bugs Trial Update

In August of last year, we announced with the best of intentions that AsepticSure kills bed bugs, their eggs and their larvae – and it does. Our relationship with Purdue University and the trial work they conducted on our behalf (up to that point in time) certainly bore this out.

However, after what can only be described as a series of ‘extremely frustrating’ delays on Purdue’s part, including the departure of their lead researcher, we still find ourselves waiting for the last of the trial work to be completed.

At this point in time, with Purdue closed for summer vacation, Dr. Shannon is working diligently to gather the final data that Medizone requires.

While it remains to be seen whether or not AsepticSure has a commercially viable role to play in the eradication of bed bugs (for a number of reasons, not the least being ‘the time it takes to effect a 100% across-the-board kill rate vs. the strength of the formula we can safely apply’), this research work has been invaluable and may yet open the door to an unquestionably huge market.

Bio-terrorism Countermeasures Update

You’ll recall that last November, the Level 4 Security Lab in Winnipeg, Canada, began working with AsepticSure to see if it was indeed ‘capable’ of killing a range of some of the deadliest pathogens known to human-kind.

For entirely different reasons than those behind the delays perpetrated by Purdue, the Winnipeg trials were also subject to frustrating delays. However, it does appear that things are close to being ‘on the move’ again.

IMPORTANT: Regardless of what eventuates at Winnipeg, we are also working on a parallel alternative option for AsepticSure re the bio-terrorism countermeasures market. Developments in this area will be reported later in the year.

Best Wishes

Ed

Comments are closed.

Contact:

Medizone International, Inc. (MZEI.OB)

4000 Bridgeway, Suite 401,
Sausalito, CA 94965

Telephone: 415-331-0303

Email
: operations@medizoneint.com

Investor Relations:

John Pentony

Investor Relations,
Medizone International, Inc.

Telephone: (415) 331-0202

E: j.pentony@medizoneint.com

Media Contact:

Gary Hanauer

Media Relations,
Medizone International, Inc.

Telephone: (510) 686-1238

E: GarHan@aol.com