Full Press Release Details
Friends and Shareholders,
the turn of the new year, we are writing to provide a comprehensive update about Nephros and our plans for the future.
the two years since our last shareholder letter, we have grown revenues over 200%, redesigned our Hemodiafiltration (HDF) Assist
Device, purchased Aether Water Systems to pursue large opportunities in the commercial filtration market, up-listed our stock
to the Nasdaq Capital Market, and recently launched a new pathogen detection system to further support our infection control customers.
closely with our strategic partners, we have executed on the strategy and tactics we first described in 2015, focusing on the
needs of our customers in infection control and dialysis. We have also methodically expanded our product portfolio to better meet
those needs, built an operational infrastructure to support our rapid growth, and passed the $10 million annual revenue mark in
Control: Over the past few years, our strategic partners and customers have made great strides creating and optimizing the
water safety management programs that protect patients from the risks of water-borne pathogens. Those programs generally incorporate
routine water testing, secondary disinfection efforts, and point-of-use filtration in high-risk areas. Nephros point-of-use filters
are a leading tool used to provide proactive protection to patients in high-risk areas (e.g., ice machines, surgical rooms, NICU's,
etc.) and reactive protection to patients in broader areas during periods of water pathogen outbreaks. Our products are currently
used in hundreds of medical facilities to proactively and reactively aid in infection control, with new customers deploying our
have now expanded our portfolio of solutions with the recent introduction of our PluraPath pathogen detection system,
which represents a significant growth opportunity for Nephros.
providing filters during pathogen outbreaks, we observed a gap in both the timing and depth of data needed by infection control
teams. They did not have the data needed to help them make real-time treatment decisions. We also recognized an almost singular
focus on Legionella; yet we observed that many other bacterial and viral pathogens cause patient issues.
developed the PluraPathTM pathogen detection system to bridge this data and timing gap. We integrated our
ultrafilter technology with emerging, quantitative polymerase chain reaction (qPCR) technology and real-time analytics. We
chose a portable, open-source qPCR platform that allows us to parallel-processes up to 15 different bacteria and virus
assays. We worked with industry experts to select and develop DNA- and RNA-based assays that could meet our goals of
providing quantitative precision within one hour. We also developed a mobile application to extract and process the data
real-time. Furthermore, we designed the system so that anyone can perform qPCR testing, not just someone with training in
microbiological laboratory techniques.
the course of 2020, we plan to work with our strategic partners and industry experts to develop white papers and case studies
to highlight methodologies that integrate real-time qPCR data into water safety management processes. We intend to submit select
studies to peer-reviewed journals to contribute to the global dialogue on water-borne pathogen testing.
view the PluraPathTM system as a potential game-changer, both for infection control professionals and for Nephros'
business. With this system, it will be possible to map and track the changes to levels of multiple bacterial and viral pathogens
in a building's water system on a real-time basis, at cost levels equivalent to assays that currently take 24-72 hours or
more and typically provide data on only a single pathogen. Using PluraPathTM, we expect that infection control teams
will be able to quickly assess approximate levels of a broad array of pathogens in their water systems, and optimally focus their
secondary disinfection efforts and point-of-use filtration; services and products offered by our strategic partners.
PluraPathTM system does not replace culture-based assays, which are the current regulatory requirements for confirmation
in testing for water-borne pathogens. Rather, we believe PluraPath will become a valuable tool in the arsenal of defense,
permitting faster decision making about a larger target population of pathogens.
objective is to provide our customers and strategic partners with a user-friendly system that delivers dependable, actionable
data to infection control teams in less than an hour. If we can succeed in this, we believe the PluraPathTM system
could be used to help support infection control teams in every facility that currently deploys Nephros filtration products to
aid in infection control. If made easy and economical, then we believe tracking the levels of multiple pathogens in a building
could become standard protocol.
Water: In the dialysis water market, Nephros ultrafiltration products are among the highest performing products on the market
today. The DSU-D, SSU-D and the SSUmini have become the standard endotoxin filter in many portable reverse osmosis systems. The
EndoPur , our large-format ultrafilter targeted at dialysis clinic water systems, provides the smallest pore size available.
Following a long pilot project at a major dialysis provider, we are now seeing growth in the use of this product. In addition,
we aim to expand EndoPur's usage into heat-disinfected water systems, which will further open the market
have also been investigating pathogen detection efforts in the dialysis space. The LAL (limulus amebocyte lysate) test is a dialysis
industry standard assay that identifies the presence of potential endotoxins, agnostic to the source species. The source of endotoxins
are gram-negative bacteria. LAL testing routinely takes 48-72 hours to provide results from the time of shipping the sample to
a central laboratory. When dialysis clinics have urgent contamination or severely elevated endotoxin issues, they may have to
shut down for extended periods of time creating enormous logistical issues for patients and increasing the cost of care.
provide a real-time solution for this testing paradigm, we plan to launch the DialyPath pathogen detection and endotoxin
estimation system in the second quarter this year. The DialyPath system will mirror our PluraPath but include a
gram-negative DNA marker test and test for 6 different gram-negative bacteria. The DialyPath system is designed to provide
data on two test samples in one run in less than one hour. The system will provide an estimate of the overall endotoxin in the
sample, as well as estimated levels of six specific endotoxin-generating bacteria known to be frequent invaders of dialysis clinic
real-time data will enable dialysis clinics to more quickly diagnose and solve urgent endotoxin issues that have the potential
to close clinics and disrupt patient treatments. We believe the DialyPath has the potential to be a game changer for the
technicians tasked with solving the critical issues that disrupt patient treatments. We plan to work with major dialysis service
providers to optimize its use into their current workflows.
Markets: Our commercial market focus is in the hotel, restaurant, and convenience store markets. For many years, these customers
essentially had two filter options to improve taste, reduce odor, and reduce scale build-up in water for soda, coffee, tea and
ice: Cuno (3M) and Everpure (Pentair). We believe the capabilities of our products will create
opportunities to disrupt this oligopoly.
purchased the Aether brand at the end of 2018 to expedite our access to commercial markets and to expand our filtration
expertise and capabilities. In the first year post-acquisition, we upgraded the Aether facilities to increase
production and logistics capacity, integrated Aether products into the Nephros infection control product portfolio,
and initiated sales efforts with a number of large commercial customers. We have recently added to our commercial sales team and,
going forward, hope to close on one or more large contracts that may result in step-change increases in commercial market revenue.
time, we believe that the same water safety management programs currently underway at medical facilities will migrate to commercial
markets. As the epidemiology of waterborne pathogens expands, links to contamination sources will become more efficient and the
data more readily available. In cases in which those sources are linked to restaurants, hotels, office buildings and residential
complexes, the corporate owners of those facilities will likely face increasing liability exposure. We expect that building owners
will come to understand ASHRAE-188, which outlines risk factors for buildings and their occupants, and provides water safety management
guidelines. For example, (a) a 10-story condominium with (b) a centralized water system and (c) that houses residents over 65
years of age, would have three factors of increased risk (a, b, and c). If someone becomes ill from a pathogen linked to that
building's water system, and the building management failed to take appropriate precautionary measures, then building management
will face a very real risk of potential liability for damages. We believe, in time, most commercial buildings will need to follow
the basic requirements of ASHRAE-188: create a water management plan, perform routine testing, and establish a plan to treat the
building in the event of a positive test.
demand for water testing and microbiological filtration grows, we will be ready to deploy our expertise and solutions based on
years of experience servicing the medical market. We believe that we have an opportunity to offer unique expertise and products
to the commercial market, and that our future revenue from the commercial market could even surpass our infection control revenue.
Building Biome Project
Gomilla et. al.1 showed that bacterial contaminants in dialysis water systems originate from over 200 different bacterial
families. The technology now exists to reproduce that kind of water system biome mapping in real-time, on-site. Using an enhanced
form of the portable PluraPath system and a bioinformatics database, we have been able to detect as many as 10 different
bacteria families in a single sample. The potential for this kind of building biome mapping is enormous. We will have the ability
to process as many as 96 samples in a single run, recognizing over 20,000 different bacteria reference sequences, in less than
a day on site. We are currently working on the processes and procedures to provide this as a service, and eventually as a product
that we can support with partners who have the in-house technical capabilities to manage this system. Additionally, we are working
on drafting a white paper to provide guidance on how to operationalize this building biome mapping tool.
expect to be able to launch the SequaPath system and building biome mapping service before the end of 2020. While this
service could be of value to the management of any water system in any building in any part of the world, we will first focus
on the hospital customers of our strategic partners. Once proven in the hospital space, then we believe that the SequaPath
system has the potential to shift the building water testing paradigm across multiple markets and geographies.
the past two years, we have dramatically simplified and redesigned our HDF device. We believe our updates have made the system
significantly easier to use. By shifting from a reusable substitution ultrafilter to a disposable substitution ultrafilter, we