Specialized Health Products International Inc. (fka SHPI)

[MikeDDKing]

SHPI: CEO Optimistic About Continued Growth Prospects

By Fain Hughes, [e-mail]

Specialized Health Product International (SHPI) has been the recipent of two recent awards. It was ranked Number 228 on Deloitte's 2007 Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications and life sciences companies in North America. It was also ranked Number 30 on MountainWest Capital Network's 2007 Utah 100 List of Fastest Growing Companies. The Utah 100 list is based on revenue growth over the last five years.

Specialized Health Products' President and CEO, Jeff Soinski, credits the Company's rapid pace of new safety needle product introductions and the success of its manufactured product lines with the company's 714% revenue growth over the past five years.

The Company designs, develops, manufactures, and markets proprietary disposable medical devices for clinician and patient safety. Their innovative safety devices are designed to maximize the efficiency and quality of healthcare, while minimizing the risk of accidental needlesticks, which are a leading occupational cause of the spread of blood-borne diseases such as HIV/AIDS and the hepatitis B and C viruses. The Company manufactures and market certain products, including three of the leading brands in the safety Huber needle market, under its own label. It licenses or supplies other products on an OEM basis to leading manufacturers and marketers in the global disposable medical products industry, including Tyco Healthcare, a subsidiary of Covidien Ltd., Bard Access Systems, and BD Medical. Product royalty income is generated from proprietary products subject to license agreements with larger corporate partners, including Tyco Healthcare, BD Medical, and TAP Pharmaceutical Products Inc. In each case, these products are manufactured and sold by licensing partners, and SHPI receives on-going royalty payments on product sales.

Mr. Soinski told Knobias on Wednesday, "To date, other areas of the world have been slower to adopt the safety medical needle mandates now adopted and enforced in the U.S. However, the danger of needlestick infection knows no national boundaries. Demand for safety products in certain medical needle categories is growing as certain countries in Europe and the rest of the world pass legislation of their own, including Germany, France, Italy, Australia, and Canada, and as unions become more active in requiring stronger measures to protect healthcare workers from accidental needlestick injuries. We anticipate that our products will be among the very first safety Huber needles available broadly in Europe, giving us a potentially strong first-mover advantage. More broadly, we expect international sales to be an important growth driver in 2008."

"Huber needles are specifically designed to access surgically implanted, subcutaneous vascular ports in patients requiring vascular access frequently, for infusions of drugs or fluids or for blood sampling, over periods extending from six months to one year. A major cause of accidental needlestick injuries to healthcare workers from Huber needles is due to the "rebound effect" which occurs during needle withdrawal from the implanted port."

"Regarding competition, the leading suppliers of syringe needles and syringes with needles are BD and Kendall, both partners of SHPI. B. Braun Medical is a leader in Europe and Asia, while Terumo Medical Corporation is a leader in Japan and the Pacific Rim. Competitive suppliers of safety Huber needle products with an integral safety feature or mechanism include Smiths Medical, Bard Access Systems, AngioDynamics and B. Braun."

Mr. Soinski explained, "The advantages of our products are shown by our market success, especially in the Huber market niche. We believe our LiftLoc(R) and MiniLoc(R) Safety Infusion Sets and SafeStep(R) Huber Needle Set provide significant advantages versus competitive safety Huber needle products on the market, including safety, reliability and ease-of-use. Between our branded products and our OEM products, Specialized Health commands approximately 58% unit share of the Huber safety needle market and 39% of the overall market for this important specialty safety medical category."

"Approximately six billion needles are used in the U.S. healthcare industry each year, and U.S. healthcare workers suffer an estimated 800,000 needlestick and sharps injuries annually. Each year, an estimated 1,000 U.S. healthcare workers contract serious, potentially life-threatening infections from accidental needlestick and sharps injuries. Besides HIV/AIDS and Hepatitis B and C, diseases that can be acquired from such accidents include diphtheria, gonorrhea, typhus, herpes simplex virus, malaria, syphilis and tuberculosis. The Centers for Disease Control and Prevention estimate that approximately 80% of accidental needle sticks are preventable with the use of safety needle devices."

"The products that we produce make a significant impact on the global healthcare market. The U.S. market for disposable medical needles alone is estimated to be $1.5 billion and growing, with the addressable market for safety medical needle products estimated to be approximately $1.2 billion annually based on an 80% conversion rate to safety products. We have developed multiple safety needle products based upon a broad intellectual property portfolio that applies to virtually all medical needles used today. We manufacture and market three of the leading brands in the safety Huber needle market."

He added, "Our philosophy of business maximizes our potential. Our business model is to enter into licensing, OEM supply, or distribution agreements for our products, rather than engage in direct sales of products to end-users on our own. The OEM supply of products to corporate customers and the sale of our own branded products through distributors are our preferred business relationships for targeted specialty products that can be manufactured efficiently on semi-automated manufacturing lines without a large capital investment. Targeted specialty products typically represent lower-volume, higher-margin opportunities in niche markets. We pursue out-licensing arrangements for high-volume, typically lower-margin; product opportunities that would require a tremendous capital investment to develop high-speed automated manufacturing equipment or would require competition with dominant multinational companies."

Mr. Soinski concluded, "We are now structured for growth. Our board of directors and management is ready to build on the transition of our business model in recent years from an R&D company with limited development funding and license fee revenue to a predominantly market-driven manufacturer and marketer of proprietary safety medical products. Management is focused today on profitability and expanding our positive cash flow. For our company, cash is king. We are focused on growing cash reserves that we can generate internally, through operations, and then reinvest into strategic growth alternatives without taking on debt."

"We are optimistic about our continued growth prospects, as we put new growth initiatives in place for 2008. We also see potential opportunities to expand beyond safety needles into adjacent areas of technology related to healthcare worker and patient safety. Nearest at hand are opportunities in the disciplines of vascular access, oncology, interventional radiology and surgery. Elements of our growth strategy include capturing significant market share in targeted product segments, broadening existing product lines, developing new products, and seeking additional market opportunities through merger and acquisition activities."

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