Mark Tauscher, President and CEO of PLC Medical Systems Inc., discusses the company's product RenalGuard, an important tool for ridding the body of toxins. PLC targets the half billion dollar market of Contrast Induced Nephropathy (CIN) a side effect of catheterizations and radiology procedures effects. Below he gives a candid account of the company's position and expectations for their US clinical trial. The company will present at OneMedForum SF 2012. Click to hear audio and see transcript below. Malini Chatterjee: Good morning everybody, this is Dr. Malini Chatterjee for OneMedRadio. Today, we are talking to PLC Medical. We have the CEO of PLC Medical, Mark, with us and we have Mary who is the head of investor relations with us. Good morning everybody and let's get started. So, Mark, if you will just spend a few minutes explaining to me what PLC does, what are your key products, and why are those products important and then we'll go from there. Mark Tauscher: Well, thank you. PLC is truly a small cap, I prefer to say nano cap company, that is totally focused on a platform technology that we have called RenalGuard. The concept that this company is formed around is that, by producing and maintaining high urine flows, you can rid the body of toxins and there are many different kinds of medical situations where this is important. Our first market that we've entered into is contrast-induced nephropathy and this is a market where size is about half a billion dollars. We think there's great potential for our technology and our product. We are right at the cusp of commercializing that product here in the US by starting our US clinical trial and the product is currently for sale in Europe and the rest of the world and so we're starting to grow our revenues. So we're all about this product of RenalGuard, getting it into the commercial marketplace, and getting investors to understand our story because quite frankly we think we've got a tremendous opportunity here not only from a product point of view, but from potential investor appreciation for the value of our company. MC: Fair enough, okay. Can you just talk to me about contrast-induced nephropathy? You know, I was looking at your website and I was looking at the KDOQI guidelines last night and so on and so forth. What I was thinking about is that since CIN or contrast-induced nephropathy is a sad byproduct, but true by product of interventions of catheterizations, of radiology and so on and so forth, what are the various buckets of patients that can be affected by CIN? MT: Well great question. So let me talk just a little bit about CIN and then we'll get into the at-risk patient population. As you mentioned, CIN is a very unfortunate side effect of all the interventional cardiology and radiology procedures that are happening around the world today. In this country alone, in the interventional cardiology and radiology market, there's about 4 million annual procedures done where contrast is used. Contrast is the compound that is injected into the body that allows the interventional cardiologist, the radiologist to create the image that they use to guide their procedures. So if they're putting a stent in a coronary artery, they need to be able to see that coronary artery and to do that they use x-ray and a contrast agent that helps delineate the artery and helps them place the stent. Now, this substance that is used is nephrotoxic, very unfortunate side effect of this is contrast-induced nephropathy. Now it happens in the people who are at risk and these are people who have compromised renal function to begin with, very easy to identify these patients. Every hospital in America and around the world today has a protocol by which they evaluate a patient's kidney function. They do a simple measurement of a blood marker to determine the patient's kidneys capabilities and if that marker is at a certain level, that patient is known to be at risk. These are the patients that need to be protected. These are the patients that RenalGuard is focused on. Of those 4 million cases done in the United States alone, about 20% of the patients that present themselves for these cases are at risk from this side effect called contrast-induced nephropathy. That's our market and that's what we're going after. MC: Are all the interventionists, the cardiologists, the radiologists, the nephrologists, whoever is using the contrast agent—are they on board that CIN is serious and that if they use a product like yours, they can help alleviate some of the problems of CIN? Is everyone on board with this already or do you have to actually train the interventionist for this as your product gains popularity? MT: Well, I think it's a great question, it measures the receptivity of the market. I think because every hospital today has a protocol, every hospital is aware of the problems that contrast-induced nephropathy causes and all current hospitals that I've ever been in have a protocol by which they attempt to alleviate this problem. So they've got a written protocol within their cath lab to try to attend to these patients. So I think they're very aware of it and that's the reason that they have protocols to try to treat these patients ahead of time. Unfortunately, although they have a protocol, there's nothing that quite frankly works well to prevent contrast-induced nephropathy and we certainly are very excited about RenalGuard and the science that we have that's hit the market lately about the kind of efficacy we have in the prevention of contrast-induced nephropathy compared to what is currently considered the standard of care. So I think everybody's aware of it. They all have a protocol to stop it, they just don’t have a good solution. We believe RenalGuard is that good solution. MC: This question doesn't only pertain to the US, this also pertains to your current market in Europe, when you approach a hospital, how do make that value proposition? Because different departments of the hospital the different wards have to make their own determination whether they are going to use the standard hydration technique or whether they are going to go with RenalGuard. So when you approach a brand new hospital, how do you lay the groundwork? MT: Yes. Again, another great question. Most hospitals and almost all hospitals in the United States and most hospitals around the world treat the patient. When they come in for that case, they're admitted that morning. Very few people bring them in the night before. MT: They're looking for a solution that they can employ during the patient's experience within the cath lab. So our customer is the cardiologist or the radiologist who has to deal with that patient who has a protocol to deal with that patient today. So what we do is meet with that doctor, find out what their current protocol is and explain to them that we believe we have a better solution and go through how the product works. The product is actually something a physician would prescribe almost like a drug. The physician doesn’t have to use the product. It doesn’t impact how they do the case. It doesn’t slow them down. The patient is set up on RenalGuard in the holding area. They're started on what we call RenalGuard Therapy in the holding area. It's mobile. It moves with them to the cath lab. They're kept on RenalGuard the entire time. They're in the lab, they've moved to the holding area, which in most hospitals is associated with the cath lab, and the device is kept on them until they're discharged out. So it's really a therapy that works during the experience in the catheterization case. So our customer is the cardiologist or radiologist that would be prescribing the product. MC: Thus far, how has it been in the high touch point hospitals in Europe? Does the entire cardiology unit take it on or do you have to make a sale interventionist by interventionist? MT: Well luckily, most institutions throughout the world have a head of cardiology, have a head of the cath lab, and they have a committee that decides their protocol for at-risk patients. So typically, we're able to get a hospital to convert to use RenalGuard to make the administrative decision to do so. There are certainly doctors who will get their own way and can use the product on their own if their colleagues do not concur, but typically it's a hospital decision to implement a protocol to prevent contrast-induced nephropathy. MC: So if say Columbia Medical Center, just hypothetically decided to do it, the nephrology unit, the radiology unit and the cath lab, the cardiac cath lab would turn over simultaneously? MT: Yes. Our sales point is typically the cath lab and that's where we start. The nephrologist typically would get involved in the US hospital because we're dealing with a kidney protection device and then they would be part of the team that would establish the protocol. The radiology department is a separate department so that would be a separate call point. MC: I got you. So right now, all over in your target geographies and just when you're giving me this answer segregate that between US and Europe. In your target geographies, how many hospitals have you targeted in US and Europe, I know these are early days, so what percentage of those have you already made, called you and how many of those have you already sold products to? Typically, when a hospital buys it, what do they buy? So if they have ten beds or five beds, I don’t know what it is, but would they buy five consults, is that how it would go? MT: Yeah. I think there's two questions there so let me address each of them. The first one is what's our market penetration been like. Now PLC as you know and you mentioned this, we're very early in this process. So we targeted Italy as one of our first markets to work hard in to penetrate. We found a very good distributor there and we found some researchers, cardiologists who were on their own willing to produce some science to help drive the efficacy numbers of this product. So we've been very successful in Italy. MC: Yes, I saw the clinical trial yesterday. MT: Yes. So I'll talk a little bit about the clinical trial in a second and thank you for mentioning that. So we've been very successful in Italy because we've had a good distributor who understands how to sell the product and so he's penetrated a good portion of the Italian market. The business model, which is the second question you asked, the business model, is that typically it's presented as a razor-razorblade business model. There's a proprietary disposable that is used with the product. Now the product here in the US is under patent protection. We've certainly applied for patents in Europe, still going through the process. We've received full patents in Japan and Canada and so we're moving along nicely with our patent protection portfolio. But in the Italian market and the rest of the European theater where we're selling, it's a razor-razorblade business model where the proprietary single use disposable is needed for every case that's done. MT: So the distributor would typically place the device in the hospital and do a per use charge. So every time the institution would use the device and that device gets used on one patient and typically for a six or so hour period. So the device is tied up for that period of time and so if they have more than one patient, they need multiple devices and the distributor works that out with the institution. Each use is a per use cost and that varies, but we typically target around $500 per use for the device and with that obviously, a proprietary disposable is used for each case. MC: Got it. So what is the revenue recognition? Is the revenue recognition for PLC per patient per use or is it per consult so then per, you know, like razorblades are sold. MT: Sure. Since we're selling to distributors, our revenue recognition is on the devices and the disposable sold to the distributor and therefore if the distributor places the device then the distributor has to worry about the per use revenue recognition. But we recognize revenue on consultship and disposableship. MC: How long has it been since your initial launch in Europe? MT: We started in Italy in late '08. I think the most important thing is how long has it been since we've had data to support the efficacy of the product. As everybody knows the days of physicians using the product based upon what salespeople tell them is over. You pretty much have to have some solid science out there so we're very proud of the fact that this summer in circulation a major piece of science on RenalGuard was published. That's called the Remedial II trial that demonstrated tremendous efficacy for the product. Because of this kind of data, we're starting to see a much greater interest around the world and in Europe. so we've had a good distributor in Italy for a while. I would like to make notice of the fact that we recently announced that we signed up a major partnership for Germany and France. MC: Yes. MT: Two markets that we had not been selling in because we were looking for the right partner. So we've just announced that we have signed up with the division of Bracco, a US company called ACIST. Bracco is one of the largest providers of this contrast agent. ACIST sells to the cardiologist and radiologist a device to inject the contrast agent and they have now just become our distributor in France and Germany so we're very excited about what that opportunity means to RenalGuard and its future. MC: Got it. Okay. I saw your second quarter earnings. Now my question is are you guys giving revenue guidance for this year? MT: No, we're not and so you just have to look at how we report our quarters. But we've just started our distribution in Germany and France and so that will take a little while to come up. But I would encourage everyone to keep an eye on us and look for our quarterly announcements when we do announce things. MC: You say that you have a very good distributor in Italy, a very high touch point distributor. So it's been about a year, well nine months, ten months since your launch in Italy? What percentage of the possible target area that the target touch points that this distributor analyzed in the beginning of the ramp up has he been able to close versus the denominator that he recognized before the launch? MT: Yeah, I know. I understand your question. I think the easiest way to look at our Italian penetration is that we've got probably at the end of the first good solid year with data out in that marketplace, we probably have certainly about less than 5% of the market so lots of room to grow. We've got about 30 or 40 positions in institutions using the product and so we've seen a nice adoption rate of the product in Italy. I expect that we will continue to see growth there. You know, the European markets with the current economic situation over there are not as robust as they used to be. But I think our Italian experience certainly shows that we've been able to penetrate the market nicely and I think we'll continue to do so. MC: How much does the device sell for and how much does the disposable sell for through you? MT: Great question. We target at the end user level and we do not report what our transfer price is to our distribution. But we target at the end user level as I mentioned about $500 per use and so the distributor typically provides the device to the hospital. We don’t report individually what our cost is or our sale price is to the distributor for the device or the disposable. MC: I vaguely remember your second quarter earnings to be around $400,000 so is that about 800 patients then? MT: Again, that's the end user price and so we're obviously selling it for a little less to the distributors. So our transfer price to the distributors is less than the end user sales price. MC: Okay. The other question that I wanted to talk to you about is your patent portfolio. You just got the patent issued in the US and in Japan, but last night as I was working on our call for today, I was trying to look up the types of patents you had an I was doing a search on US PTO. But I just wanted to talk to you more about what is the patent portfolio around? MT: In the US, they have two kinds of patents in the US. One is a technology patent and one is a method patent. So method patents are a very nice patent to get because of their broad application. We have a series of method patents around high flow urination for the prevention of contrast-induced nephropathy. So we're very proud of that portfolio, which in our opinion pretty much locks the market up for the use of high urine flows and balanced hydration for the purposes of preventing contrast-induced nephropathy. So we feel very strong about our patent position in the US. Now we certainly have applied for other patents around the world and as I think you mentioned earlier we have a full patent in Japan, a nice market. We're still looking for the right distributor for that market. We have a full patent in Canada and certainly have applied in all the major European countries for patents around the RenalGuard device, and we expect to see some action on those sometime in the future, almost impossible to predict when patents to come out of the process. MC: What is the duration of your patent? MT: US patents are 17 years. We've received the majority of them within the last year or so. So, we have full protection available to us. MC: You have a patent portfolio in Japan and, obviously you've got to picket fence your technology in multiple geographies. But is there any interest in launching in Japan? MT: Well certainly. We have a number of physicians who are interested in looking at RenalGuard who are very willing and well published in the area of contrast-induced nephropathy. For us, it's mainly a bandwidth question. So with our recent signing of France and Germany, all of our focus of the resources we have on supporting distributors is there. So as I said, I think we'll just continue to try to find the right distributor and look for the right distributor or partnership opportunity in Japan. That could be a very nice market for us obviously. MC: A quick question on the US. So you are ramping up your clinical sites and your FDA dossier for a clinical trial, a phase 3 clinical trial if you will in the US for RenalGuard, right? Can you talk to me a little bit about the design of that study? MT: Yeah. Great question. As I said, in the US as you've said, we're now in the middle of getting our US clinical trial staged. The design of that study is a 406-patient study up to 30 sites and so there'll be one randomized multicenter FDA study done on this technology. We have two nice studies that have been presented outside of the US. We've talked about one of them Remedial II. So these studies help, you know, support what we will be doing here in the US. We are in the midst of getting that study started and there's a number of steps to that obviously in terms of getting -- MC: What are the two arms in the study? MT: The two arms are RenalGuard in one arm and in the other arm, the current standard of care, which are two innocuous drugs that have been used for a long time that, quite frankly, people think don’t work, but because they're looking for some solution, are still in use in some hospitals across the US. MC: How are you going to state the entry patients? How are you going to state the entry patients? Will all these patients at baseline have GFRs that are 0.5 mg/dcl over their normal levels or how would you stage the entry? MT: We will be enrolling only at-risk people and so as you've mentioned there is a GFR cutoff where will be looking only at people who are at risk. So these will be the people who demonstrate a high incident rate of contrast-induced nephropathy and that's the target market and that's who we eventually want the product to be able to be used in so that will be the entry criteria. MC: Are all these patients that are having cardiac catheterizations or can they be cancer patients having radiological work or anything else? MT: We will be enrolling cardiology and radiology patients. Radiology would be peripheral vascular work and cardiology would be any work associated with the heart. At this point in time, the trial is just focused on those incidence of use of contrast in vascular spaces. So no cancer patients yet. MC: What is the primary endpoint of this study? MT: CIN is defined as a rise in this blood marker that people look at and the blood marker goes up when the kidneys have been damaged by the contrast. So CIN is a rise over baseline of 25% or an absolute of 0.5 over the baseline measurement. So that's our endpoint. That's the most commonly used endpoint definition of CIN. MC: So you will have two ways to break up the study. Basically, are you saying there are two endpoints that is all patients who had a 25% rise and then another endpoint, co-primary endpoint of patient who had 0.5 mg/dcl or higher are they two co-primes? MT: Yeah, let me clarify it. So the primary definition of CIN is the rise of 25% and/or a rise of 0.5 over baseline. MT: So that's the primary endpoint. The secondary endpoint will be a composite clinical endpoint. The rise in this serum creatinine level indicates the function decline of the kidneys, but there's also associated with CIN other incidences, temporary dialysis that people have to be put on because their kidneys are so badly injured, re-hospital admission, other major cardiac events. So we will be looking at a composite clinical outcomes events also during the patient's experience. MC: You had an IDE meeting with the FDA and you met halfway the FDA and PLC. What does the FDA insist on? Do they need an outcomes measure because CIN is a great validated surrogate, but it's not an outcomes measure or does the FDA need outcome? MT: No, I don’t believe the FDA needs outcome. We're certainly looking at it as a secondary measure, but the study is powered for clinical, for statistical significance based upon the CIN measure of 25% or an absolute of 0.5 over baseline so it is powered for statistical significance based upon the primary measure of increase in serum creatinine. MC: Can you just state the statistical assumption of the clinical study? I'm assuming this is a superiority trial, but can you just state it as such? MT: The assumptions were designed around the expectations that the control group and the RenalGuard group would be separated by 10 absolute points in the design. So we certainly have seen in the Remedial II study that recently was published that kind of separation between RenalGuard and the control group. So the sciences that exists in the marketplace today certainly helps support the design of the trial that we have. So our confidence level is pretty high. We certainly think that we were well served by these previous studies that now are coming out in publication. So this has helped, you know, boost our confidence level that we will have a successful outcome of our FDA study. MC: Based on the Remedial II study, can you talk a little bit about what does it take timeline's wise to get a trial like this completed and reported in the US? Because that is a blowout catalyst for your company. MT: Well, absolutely and trying to estimate when a trial actually gets done is one of the great mysteries of the world I think. But you model it out and we believe if you had 15 sites up and running and you had an enrollment rate of two patients, just two patients per month so a nice conservative estimate of two patients per month of 15 sites, that's 30 sites a month. So a trial of 400 patients gets finished in less than two years. The key is getting as many sites up and running as fast as you can so they hit their stride at two patients per month at 15 sites that's 30 patients a month. If you go to all 30 then that would be 60 patients a month and you'd even get it finished quicker. You know, the ability to go to more sites just sort of depends on how things start in the beginning and how much handholding. Now I think it's important to note for your audience that we did a pilot study of RenalGuard here in the US a while ago, an FDA/IDE pilot study, a safety study and we found certainly in the US that RenalGuard is a simple device to use, doesn’t take a lot of handholding. All of our experience in Europe and the rest of the world where the product is now starting to be used, we see it's a very simple device. Patients certainly tolerate it well. As I mentioned, the physician does not interface with the device. He prescribes it as he would any other preventive therapy. It's managed by the nurse in the cath lab not a problem for that person to do so. So we don’t think it's a difficult study to support here in the US. MC: It shouldn't be because I have seen many nephrology studies get done pretty seamlessly here. One of my last closing questions to you is if you were on the other side, if you were an investor looking at PLC, you know, what is your message to your investors basically? Why should someone be interested in PLC? MT: Thank you for giving me this opportunity to let people understand PLC. PLC fortunately has a great product, strongly protected by patents, backed by very good science published in quality journals. We are currently selling in the rest of the world so our revenue ramp should be a demonstration of product acceptance and we're poised here to start our US trial for US approval. So we have all the elements of what an investor should want in an early stage medical company. Our story is just not known in the market and as it gets more known, people will see the opportunity that PLC represents as an investment. So I think the opportunity for investors is to get in early, watch our performance and our attainment of milestones that will demonstrate the product and our ability to really create value. So we're well positioned with all the fundamental elements needed to create value for a small med tech device company. MC: Very good and, Mark, what is your background? What did you do before you came to PLC? How does your background help you understand the business, the game of selling RenalGuard? MT: I do believe that, you know, the people in the company are truly the tools that help make any product plan a success. We're fortunate in PLC to have some great folks with tremendous experience. I'll talk about myself last. But the person running our clinical trials program, there's a press release on our website that talks about her background. She has strong experience in multiple applications of PMA clinical trials so she's well versed in the process of these trials, the design, the running in this area, in this application so we feel good about that. Our engineering talent has been working in the area of CIN well for the last eight or nine years and so we've got real good experience on our product and on the application. I myself I've been in the medical device field for way over thirty years and so I have had the opportunity to work for every what I consider major player in the field of cardiac devices. I started selling in the cath lab in the '70s and so I know the customer base. I've worked in product and product design in the cardiology field for my entire career. I was lucky enough to get my early experience in the Hewlett-Packard's medical business so I feel like I've got some good training and have been responsible for the RenalGuard product for its entire time here at PLC. Although a small company, our team has been pretty consistent, core team has been pretty consistent and I think we've got a good handle on the product, the marketplace, the problem we're trying to solve, and how to get it done. MC: Thank you so much, Mark. That was Mark Tauscher from PLC Medical talking to us this morning.Thank you for spending time with me today and I hope that we can continue to work together and get you in front of the right people.