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ANNUAL REPORTNANOSONICS LIMITED ABN 11 095 076 896
ContentsCompany overview1Financials at a glance2The trophon EPR3Nanosonics 2013 highlights4trophon EPR: at the innovation forefront of infection control6trophon EPR product suite7Chairman’s letter8Review of operations10Intellectual property15Case studies16Information on the directors, company secretary and senior management18Directors’ report24Corporate governance statement30Remuneration report37Contents of the financial statements46Auditor’s independence declaration47Financial statements48Notes to the financial statements52Directors’ declaration94Independent auditor’s report to the members95Shareholder information97Glossary99Corporate directory and information for investors101
Company overviewNanosonics (ASX: NAN) is an ASX-listed company that develops easy touse, environmentally friendly and quality-assured products for the infectioncontrol market.Nanosonics is committed to preventing healthcare-acquired infections(HAIs), through its first product, trophon EPR, which is commerciallyavailable in North America, Europe, Australia, New Zealand anda number of other markets.trophon EPR is the next generation in ultrasound probe disinfection.Nanosonics identified an unmet need in the market for fast, safe,eco-friendly probe disinfection. HAIs are infections acquired while receivingmedical care, and are the fourth largest cause of fatalities in the UnitedStates each year. The Center for Disease Control and Prevention (CDC)estimates that as many as two million people suffer from HAIs annuallyin the U.S., resulting in around 100,000 deaths.Nanosonics, with its unique and patented platform technology,NanoNebulant , is well positioned to take a leading role in the healthcaredisinfection and sterilisation arena and the Company is investing inexpanding this platform into new product categories.Nanosonics Ltd was founded in 2001 and headquartered inSydney, Australia with offices in the USA (Nanosonics Inc) andEurope (Nanosonics Europe GmbH).You can read more about Nanosonics and its products atwww.nanosonics.com.au.1
Financials at a glanceThe year in numbers 29.3million2012CASHRESERVES 24.1million2013 14.9m 16.4m 13.5m 12.3m 7.5m 8.5m 4.7m 5.8mUP 21%2201220132012SALES20132012GROSS PROFIT201320122013OPERATINGEXPENSESNET LOSSES2013 ’0002012 ’0002011 ’0002010 ’0002009 ’000Operating revenue14,89912,3012,247763309Less cost of 1,498150–161150RevenueGross profit(981)Other incomeGovernment grants receivedExpensesOperating expenses (excluding depreciation and ation and 0)(5,896)(12,973)(8,958)(9,948)Interest incomeInterest expenseOperating loss before ,310)Net income tax benefit(33)Operating loss after h assetsCash and cash equivalent assets on handnanosonics limited annual report 201312,356
The trophon EPR 3INGESSOCHPV DNAUINGESSOC1%100%DISINFECTEDAFTER CHEMICALREPRVIRUSESATEDMINTA12.9%WHEN trophon EPR NOT USED*PROBE HANDLEUNDSCONASORLTWITH trophon EPRAFTER CHEMICALREPRPATHOGENICBACTERIAPROBE HANDLEUNDSCONASORLTATEDMINTAUit is a more effective disinfection method 7.5%it saves time.STAFF SAVE BYSWITCHING TOtrophon EPR†trophon EPRULTRASOUND PROBE77.5MINUTESSAVETOPERFORMMINUTES #HLDHOURS20SAVEDEACHWEEKMANUAL CHEMICALREPROCESSINGMETHODSADINLD LE G SITORUSINESWand as a result is emerging as the new global standard of care.RG trophon EP* Clinical comparison of high level disinfection techniques for reprocessing trans-vaginal ultrasound probes, Dr Andrew Ngu,Senior Obstetrician and Gynaecologist East Melbourne Ultrasound Clinic, Melbourne, Australia presented to the World Federationfor Ultrasound in Medicine and Biology (WFUMB) conference, Sao Paulo, Brazil from May 2 – 5# Radiology Consultants Associated, trophon EPR High-Level Disinfection Platform Boosts Productivity and Reduces Costs atRadiology Consultants Associated, Whitepaper published by GE Healthcare, 2013† Dr Blum, Oschner Medical Centre, Louisiana, delivered at the Radiological Society of North America (RSNA) Congress 2012
4Nanosonics 2013 HighlightsBETTER,FASTERINDEPENDENT RESEARCH PRESENTED ATRSNA SHOWS SIGNIFICANT WORKFLOWIMPROVEMENT AND SATISFACTIONRATING OF trophon EPR OVERTOXIC LIQUID CHEMISTRYPROCESSES.UK,FRANCE &GERMANYSENIOR SALES STAFF APPOINTEDIN THE UK, FRANCE ANDGERMANYWINSEXPORTERAWARDNANOSONICS WINS EMERGINGEXPORTER AWARD AT 2012PREMIER’S NEW SOUTHWALES EXPORT AWARDSSPECIALISTSTECHNICAL SALES SPECIALISTS BEGINWORKING IN NORTH AMERICA TO SUPPORTGE HEALTHCARE SALES AND MARKETINGEFFORTSQ1Q2nanosonics limited annual report 2013
5GROUNDBREAKINGTOP TIER US MEDICAL FACILITY SCRIPPSHEALTH ENDORSES trophon EPR AS“GROUND BREAKING” WHILE ROLLINGOUT DEVICES ACROSS ITS NETWORKOF HOSPITAL CAMPUSES ANDOUTPATIENT CLINICSTOSHIBATOSHIBA SIGNED ASDISTRIBUTOR INTHE UKtrophon SUPERIORITYRESEARCH BY DR ANDREW NGU,PRESIDENT OF THE INTERNATIONALSOCIETY OF ULTRASOUND IN OBSTETRICSAND GYNAECOLOGY, SHOWSSUPERIORITY OF trophon EPR TOCURRENT METHODS 500NANOSONICS DOUBLES NUMBEROF PROBES ASSESSED ANDCERTIFIED FOR USE WITHtrophon EPR TO 500Q3Q4
trophon EPR: at the innovation forefront of infection control7EDATMINUTE DISINFERAPIDCYCLEIONCTFULLY AUTOM ITH ALL MAKESOFEWBLF CONTAINEDSELCONVENIENT/EFFICIENTSAFESTCOIFR A STR U CTU R Enanosonics limited annual report 2013ROMAGING TO PROB-DAONN-TEMSCHECKING SYSILTTEBUNST, INNDSAVEMESOBEPRCOMPATI6O XIC C H E MISTRY
trophon EPR product suite Simple, safe and cost effective, the trophon EPR addresses an unmet need for disinfecting intra-cavity ultrasound probesat the point of care. The trophon EPR is the world’s first fully automated system for disinfecting ultrasound probes, and iscompatible with more than 500 models and a dozen manufacturers.The trophon EPR stores all disinfection cycle data which can be downloaded on request or during a yearly maintenanceservice. trophon EPR is a complete ultrasound probe disinfection system that is fast, easy to use, environmentally-friendlyand quality-assured.Nanosonics has built on the technology of the trophon EPR by offering an expanded product suite based on customerfeedback. The suite aligns trophon EPR and Nanosonics with the needs of our customers – allowing them to moreeffectively provide and monitor high-level disinfection procedures. The trophon EPR product suite expands Nanosonics’offering in the market and provides additional revenue streams from service contracts and consumables supply.trophon PRINTERThe trophon Printer is a fast, easy-to-use traceability solution for quality system documentationrequirements in hospitals and health clinics. The trophon Printer provides complete and accuratedocumentation by printing up to four labels per cycle based on operator, site or procedure preferences.trophon WALL MOUNT AND CARTAttach the trophon EPR to the wall for clinics or hospitals with space constraintsor make the trophon EPR mobile to ensure point of care use.CHEMICAL INDICATORSEach box of chemical indicators contains 300 indicator tabs which verify successful disinfectionwhen the tab turns from red to yellow. Each box includes a colour assessment chart to cross checkthe probe has been successfully cleaned.SONEX HL / NANONEBULANT CARTRIDGESThe trophon EPR runs on cartridges, much like a printer. Changing cartridges is a quick, clean andeasy process. Cartridges ensure there is no need for chemical mixing or neutralisation and each cartridgeis made from recyclable plastic materials. Empty cartridges can be disposed as standard waste or underrecognised disposal procedures.7
8Chairman’s letterpleased to report that our efforts in North America ledto the recent joint announcement with GE Ventures andGE Healthcare, confirming that GEHC would expand itspromotion of trophon EPR and establish a dedicatedtrophon EPR sales organisation to cover the NorthAmerican market in collaboration with the currentGE Healthcare Ultrasound sales team. In addition to thenew sales force, an investment is being made available byGE Ventures to fund a fully integrated expanded marketingprogram to support the acceleration of sales of trophon EPR in North America and establish it as the Standard ofCare for quality assured ultrasound probe disinfection.This investment follows the adoption by a growing numberof luminary customers across the US and Canada asDear Shareholders,healthcare providers become increasingly aware of theOn behalf of the Board I am pleased to present Nanosonics’benefits of trophon EPR. This new, non-dilutive sales and2013 Annual Report. The past year has seen continuedmarketing investment further supports GE’s move in Juneachievements by Nanosonics in terms of increased revenue2012 to make a strategic 7.5m investment in Nanosonicsin trophon EPR’s second full year of international salesvia its healthymagination fund.and the technology’s emergence as the new standardIn April this year, Nanosonics signed a non-exclusivefor ultrasound probe disinfection. During the year thesales agreement with Toshiba in the United Kingdom.Company also forged new and deeper relationships withThe UK is another market where the issue of hospitalkey distribution partners GE Healthcare and Toshibaacquired infection is attracting increasing governmentin the UK – two of the world’s leading healthcareand community scrutiny, which is creating a moretechnology companies.favourable environment for Nanosonics and leading toSolid revenue growth was driven by sales of trophon EPRsafer disinfection practices for patients. Where healthcareunits into the Company’s major North American market.regulators have imposed new guidelines for ultrasoundLeading US healthcare facilities are adopting trophon probe disinfection, trophon EPR is the only product inEPR to obtain the increasingly recognised efficiency gains,market that is compliant.but also as part of a broader push to raise the bar onThis year we almost doubled the number of ultrasoundinfection control standards. It is pleasing to see several ofprobes which have been tested and certified as compatiblethese customers becoming advocates for trophon EPR aswith trophon EPR providing further testament to trophon Nanosonics moves towards taking on a market leading role,EPR’s growing endorsement from major ultrasoundand as healthcare systems globally follow suit in the fightmanufacturers. Feedback from manufacturers alsoagainst hospital acquired infections.indicated compatibility with trophon EPR is increasingly aDuring the year we made a significant investment in afactor affecting ultrasound machine purchasing decisionsdirect sales force in North America and Europe, which hadby healthcare facilities, underscoring the emergence ofa tangible impact on our results in terms of increasing salesNanosonics’ lead product as the new gold standard forand engagement with key opinion leaders and potentialultrasound probe reprocessing. Another signal of thecustomers. As we enter the new financial year, we wereCompany’s increasingly global outlook was Nanosonics’ nanosonics limited annual report 2013
9win in the Emerging Exporter Award category at the 2012I would like to thank my fellow Board members for theirPremier’s New South Wales Export Awards.continued efforts in supporting our success and on behalfNanosonics continues to show growth in its home market,of the Board and shareholders, take the opportunity toAustralia, and as our base matures we are seeing the highacknowledge the efforts and commitment of the entiremargin consumables form a greater part of our revenueNanosonics team as led by Managing Director and CEOmix. This annuity revenue stream provides further evidenceDr Ron Weinberger.of the value of Nanosonics’ business model.Nanosonics’ objective for the coming year remains clear:As we recently announced, Nanosonics’ non-executiveleverage further growth in our key markets and deliverdirector Michael Kavanagh will take on the position of CEOcontinued successes for our shareholders by leveragingand President from 21 October, 2013. Dr Ron Weinbergerour human capital, intellectual property, distributionwill take on a newly created role of President Technologypartnerships and market momentum. These are excitingDevelopment / Commercialisation. Both positions will servetimes with the Company’s lead product well positionedon the Board of Directors of Nanosonics.to establish Nanosonics as a global leader in advancedMichael brings to the role more than 20 years of internationalmicrobial control technologies.commercial experience in the healthcare market, havingheld local, regional and global roles in Medical Deviceand Pharmaceutical industries – including as Senior VicePresident of Global Marketing for Cochlear Ltd. Michaeljoined Nanosonics as a non-executive director in July 2012.These appointments will lead Nanosonics through its nextMr Maurie Stangphase of growth and reflect the strategic importance of ourChairmanexpansion initiatives. Ron will partner closely with MichaelSydneyand the Board in leveraging his extensive experience and18 September 2013knowledge of our technology and the global infectioncontrol marketplace. The Board and I would like toacknowledge Ron for the major contribution he has madeto Nanosonics to date, and look forward to his continuingcontribution to our growth and success.The significant achievements by Nanosonics during the yearhave contributed to growing momentum for the Companyand rising value for our shareholders. Nanosonics has astrong balance sheet, and is ideally positioned to establisha leadership position in a global market potentially worthin excess of 1 billion in annual sales.The achievements of the past year are real validation of ourstrong business model and that the growth strategies arebeing put in place.The Company also remains committed to generating astrong and exciting R&D pipeline to underpin the growthof the business in the years to come.
10Review of operationsFinancial Year 2013 has been one of continued growthSales growth in key marketsand maturation for Nanosonics, highlighted by a number ofWe have seen strong growth in sales of trophon EPR unitsachievements, including:and consumables into the North American market which Increased sales driven mainly by sales to our keyhas been the main driver of our overall revenue growth.North American market; Sales growth in the US strongly supported byNanosonics’ US sales team; Hiring of a highly experienced team to drive sales in thekey European markets; Forging new and deeper relationships with our majordistribution partners; A significant increase in the number of ultrasoundWithin North America a number of luminary sites, includingScripps Clinic, Mayo Clinic, Massachusetts General Hospitaland John Hopkins, have been early adopters of trophon EPR, purchasing multiple units. This acceptance fromleading healthcare providers, which regard trophon EPRas essential to demonstrating commitment to the higheststandards of patient safety, is helping to accelerate marketpenetration in the US. Scripps Clinics, a highly respectedfacility in the key US market, has also provided a strongprobes that are certified for use with our technology,endorsement of our technology (see case study on Page 16).and broadened our patent portfolio;As we see these leading facilities introduce trophon EPR, Progress towards regulatory approval in new marketsincluding Japan, South Korea and Mexico; Continued and growing awareness of our technology,as part of their efforts to remain on the cutting edge ofinfection control, we will continue to see growth in theawareness and adoption of our technology.with healthcare facilities and regulators who areEurope is an area of focus for the Company over the comingincreasingly alert to the issue of healthcare acquiredyear. The signing of Toshiba as a distributor in the UK isinfection (HAIs); andalready driving additional activity and the appointment of Growing evidence of risks associated with TGA/FDAapproved liquid disinfection procedures.During the year, Nanosonics made further progress towardsNanosonics sales staff in Europe over the past year hasseen further engagement with customers and distributionpartners in the key European markets.the goal of establishing trophon EPR as the new globalstandard for ultrasound probe disinfection. Considerableconcern regarding ultrasound disinfection has beenidentified in Europe where deaths have occurred due topoor reprocessing practice. This concern is now beingconsidered by the European Parliament where a bill will be“OUR NEW PARTNERSHIP WITHpresented to make high level disinfection mandatory.TOSHIBA ENSURES NANOSONICS’The Company has maintained a strong balance sheetTECHNOLOGY NOW ENJOYS THEand remains well positioned to progress the internationalroll-out, support and development of our technology. Thesefactors have combined to support rising adoption and salesof trophon EPR units and consumables into healthcarefacilities, and a growing appreciation of Nanosonics’business case and near-term prospects among investors.nanosonics limited annual report 2013BACKING FROM TWO OF THEWORLD’S LEADING ULTRASOUNDMANUFACTURERS.”
11Sales and marketing investment by GE Healthcaremanufacturers also provide important third-party validationIn August this year, we announced that our exclusivefor our technology, and leveraging the strength of theirNorth American partner, GE Healthcare, will build on itsbrand and sales force assists in driving market penetrationearlier commitment to help establish trophon EPR as thefor trophon EPR. accepted technology for ultrasound probe reprocessing inNorth America. This arrangement signals a new level ofcommitment by GE and includes the establishment of adedicated GE Healthcare trophon EPR sales organisationto cover the North American market in collaboration withthe current GE Healthcare Ultrasound sales team. GEVentures will also make a non-dilutive investment to fund afully integrated marketing program to accelerate the NorthAmerican growth strategy. This investment is a strongendorsement of our technology and follows the adoption oftrophon EPR by a number of luminary customers acrossthe USA and Canada. We look forward to seeing continuedincreases in trophon EPR sales into this key market as aresult of these changes that are now being introduced.More probes compatible with trophon EPROur efforts to boost market penetration also extended toan increase in the range of probes approved for use withtrophon EPR. This has enabled more healthcare facilitiesto adopt trophon EPR without the concern of whether theirprobe is certified for use with the device. As announcedin April, the number of trophon EPR-approved probesalmost doubled (up 92%) within six months, and trophon EPR is now certified for use with over 500 probes from11 ultrasound system manufacturers. This comprises219 probes from ultrasound probe manufacturers Esaote,Hitachi-Aloka, Ultrasonix, Mindray and Zonare, and is inaddition to the already extensive list of approved probesfrom GE, Philips, Siemens, Sonosite, Toshiba, BK Medical,New distribution partner in the UK and growing salesand Prosonic. While the Company set out to address aIn April 2013, the Company announced it had signedpotential barrier to trophon EPR adoption by healthcareToshiba Medical Systems as a non-exclusive distributor offacilities, it is also important to note the role of ultrasoundtrophon EPR in the United Kingdom. Nanosonics remainsdevice manufacturers in this push. Nanosonics has receivedable to sell trophon EPR into the UK directly. However, thean increasing number of in
SONEX HL / NANONEBULANT CARTRIDGES The trophon EPR runs on cartridges, much like a printer. Changing cartridges is a quick, clean and easy process. Cartridges ensure there is no need for chemical mixing or neutralisation and
