RE:Clarification of News ReleaseAgree, Elgin.
My definite impression is this new deal was entirely TSO3’s idea, not Getinge’s, and on TSO3's terms. Getinge has lost ?70-80,000 per unit for each one of the hundred they will return to TSO3 to upgrade and then put back into the market at a much higher margin for TOS. Again, I believe Getinge did not ink the deal until right during the middle of the investor day morning, that is why the original pr before the start of Investor Day did not include details regarding Getinge deal changes and why a second pr and halt was needed. This was material news and management was obliged to halt and release it when they received Getinge's approval. My definite impression is, with Getinge, the right hand does not know what the left is doing. They have ?24 sale people in the US field, yet I was shocked to learn they only actually have covered 1/3 of the US hospital market, and none? of the GI market. Rumble was just fed up, I am guessing, as a reasonable person would be, with their incompetence and total lack of leadership and direction since Myers was fired just after they inked the original deal with TOS. Myers loved the VP4, was from the US, and called this their ‘star product’ that was going to revolutionize and take over this market. It is still not apparent that there is a new head of the new Getinge company in infection control, nor is there a US head, as the last one? was just fired in the Fall. I feel Rumble just couldn’t stand their sales people sitting on their ‘thumbs’, going through the motions, and not selling product, expecting it would sell itself. So, now, with TSO3 taking over 2/3 of the US market and assisting Getinge with their 1/3, they will rebuild end-user relationships and sell more effectively and swiftly, with greater motivation and profit to TSO3. They will also have their own service people and will finally do some advertizing beyond the trade shows. TSO3 is little, but has an excellent end user reputation and must continue to develop and maintain this. Getinge’s US reputation has always been questionable (in addition to their Consent Decree problems at the FDA that cost the CEO before Myers his job). Just my opinion. Getinge did assist initially, but there was not enough in it for them unless they owned TSO3, and they have been too internally disorganized to make this rather obvious move.
Getinge may get it together and work with TSO3 to profit from this new standard of care technology, but, if they don't, TSO3 will continue to grow and will have the opportunity to make a deal with another strategic partner, like JNJ who hates losing market share as they are at present.
I agree that TSO3 has an opportunity to get these 100 units from Getinge into the market at a better profit margin and with aggressive deals with new and repeat hospitals and clinics that will show the market and users how well the VP4 works and how more cost effective it is (30-70% cost reductions were quoted by the hospitals presenting at Investor Day). And, as you note, the point of unit sales is to get the consumables income running up, as that is where the continuing cash flow will eventually come from for TSO3,
This is definitely a reset; but, a good one over the longer term and this selling was way overdone.
As you say, cash flow will be high enough with these sales directly to TSO3 that a financing won’t be needed. And, I think a new facility cost won’t now be incurred until early 2019, either. Startup sales for the new staff will be slow, especially given the lead time needed for such big unit costs from a new hospital point of view, (I have heard rumours of new sales of 6+ units already in past few days) but sales and installs will be accelerating rapidly following FDA approval this quarter. TSO3 just needs to be absolutely certain FDA is clear about what they want regarding 'labelling' for duodenscope endorsement with this latest submission, as they have given what was asked previously only to have FDA come back asking for more clarification with every submission. As I have said previously, It would be great if FDA would make their final approval any day or definitely before the AAMI meeting March 20, so that the Working Group has a very clear option on the table when they discuss their wording for the new sterilization standards.