Part II: MedClean Team Sees Opportunity to Emerge as Breakout Player in Regulated Medical Waste Market Print E-mail
By M.E.Garza   
Sunday, 06 December 2009 15:55

On Friday, shares of MedClean Technologies (OTC:MCLN) consolidated after two sessions of double digit percentage gains. The stock looks poised to take another run at the $.04 resistance level and beyond after investors digested news that the company is set  to receive up to $7.5 million from a sale of up to 750 shares of its Series "C" preferred stock.



Part I: One Man's Trash Is Another Man's Treasure - MedClean Technologies

Department of Justice Demand for Open Playing Field in Medical Waste Likely to Help MedClean Technologies (OTCBB: MCLN)

Some fear of dilution may have impacted the shares, but MedClean officials made clear that the preferred stock purchase agreement will enable the company’s growth and expansion.

Scott Grisanti, Chairman of the Board MCLN was asked about investors' concerns that the company might dilute common shares and thus dilute the value of the company.

"That’s not something that has been discussed," explained Grisanti. "What I can say is that as we continue to seek working capital for the company that equity is one of the two main ways, as you know, to drive working capital proceeds to a company, outside of sales of course, and that would acquire more access to authorized shares. Outside of that we have not had any discussions.

After careful analysis of the news of that $7.5 million injection into the company on Friday, one financial analyst told BioMedReports this weekend that "the filing and press release looks like the company has positioned itself with what looks like a line of credit. If we are to assume, as previously reported, that the company has been busy trying to fill orders and install new systems as part of their responsibility to new and existing contracts, then it makes sense that they would need working capital. When you're a company at the commercial stage with a product that you need to build and sell into the market, you're going to need money this credit line certainly gives them that."

Investors in the biotech sector are not used to seeing opportunities like this often because so much of what they invest in is highly speculative. Even the most modest new drug candidate may be years away from commercialization and production, yet we often see these biotech companies dilute shares constantly due to research and development costs.

We know based on the interviews and filings that we've seen on this company that they are growing and thus far doing a good job of securing a position that provides a base for further advancement in this very lucrative, yet equally competitive sector where company shares trade at 14-25x earnings.

We also know that this is a fully reporting company that just turned a year over year profit with a growing number of orders pending for a product that is not only saving hospitals and clinics big money in their processing and handling of regulated medical waste, but that buyers who are placing the orders have a great deal of flexibility on paying for the systems.

As we understand it, the company has arranged deals for leasing, purchase financing and even straight rentals of these innovative systems. That makes product purchases/acquisitions appealing to many more healthcare facilities and it allows them to order these systems knowing they have not only flexibility for payment, but that their cost recoupment opportunities with these systems are very good.

"The bigger the facility and the more medical waste they are producing, the faster the system is going to pay for itself," explained David Laky, President and Chief Executive Officer of MedClean. He pointed out to BioMedReports that many of the traditional and costly processing expenses being charged by competitors are eliminated with the new MedClean Systems. He also reported that his company's rental program has been a very favorable to both the hospitals and to MedClean."

As Chairman Scott Grisanti points out, "The market opportunity in the U.S. medical waste market is two billion dollars a year and that’s about three point one billion pounds, and of that, half a billion dollars a year, one point four billion pounds are what’s called the large quantity generator market, which is principally the hospital market, so that gives you a feel for where we stand. After that, the balance are small quantity generators and the company is keenly interested in that segment and looks to expand its offering in the future."

[Watch for our upcoming report on BioMedical Technology Solutions (OTC:BMTL) a company that is very much focused on that sector of "small quantity generators" like private practice doctor and dentist offices.]

Here is a transcript of our interview with company officals:

BiomedReports: One thing that caught our eye about your company was the interest in your group from MedAssets (NASDAQ: MDAS), especially since it’s one of the largest purchasing groups in the country. Can you talk about that contract and what it entails?

Scott Grisanti, Chairman of the Board MCLN: The MedAssets agreement earlier this year was a pretty exciting milestone for us. I think that MedAssets is really setting the bar for what a GPO (group purchasing organization) needs to be and for what a GPO needs to do in the current health care environment in order to deliver value, and I’m talking specifically about the MedAssets differentiated value proposition which counts heavily on domain and business process expertise and technologies to handle things such as revenue cycle management really surrounding the core GPO services. So we see MedAssets as an up and comer in the GPO area and we see their inclusion of our MedClean system available to the members through that contract as yet another example of that forward thinking approach as MedAssets focuses more and more on delivering value to their constituent hospitals that go beyond the basic better price on rubber gloves value proposition that has been their cornerstone of the traditional GPO business.

From the MedClean perspective, of course, being on the MedAssets GPO contracts insures that many participating hospitals can sole source our Medclean system, so that’s a big advantage, especially in the health care market, which as you probably know is often bogged down by a very big decision making processes. So having those pre-negotiated terms of conditions and inclusion on the contract to facilitate transactions more quickly we believe will over time give great value to us.

BioMedReports: Our understanding is the contract is immediate, correct? So anytime they want to start implementing the Medclean system in their MedAssets group purchasing in the hospitals that they can do that immediately, is that correct?

Scott Grisanti, Chairman of the Board MCLN:
That’s right. Any hospital can acquire our Medclean system off of its MedAssets GPO contract and there are provisions in that agreement to handle the fact that unlike the rubber gloves example, solutions like ours do require configuration, that almost without exception is specific to the institution. So all of that is taken into account and prepackaged.

BioMedReports: Regarding your management team. There has been a lot of discussion in-house that you guys have a pretty solid team with some great experience growing companies together. You guys share ties from your days at eResearchTechnology, Inc (Nasdaq:ERES). During your tenure there, the company's market valuation grew from $27 million to a peak of $1.5 billion, receiving recognition from Fortune Magazine as the number two fastest growing company in America. Can you talk about that and how all of it came together?

Scott Grisanti, Chairman of the Board MCLN: Sure, we are very proud of our team and the current management team really coalesced around the capitalization of the company over the summer of 2008. As part of that process, I became aware of the Medclean opportunity. The company, at that point was known under a different name- Aduramed- through a gentleman that was working as a consultant for the company. Until recently he served as our chairman and continues to serve as a board member and consultant. I'm speaking about Joe Esposito. Joe has a terrific reputation for driving value for shareholders, for customers, and for employees at a wide variety of companies. He had been working with Medclean for about a year. At the point that I became involved with Medclean, I had just finished a stint with Primavera Systems, which  is an enterprise application software provider in the project and program management area. That accompany had been in business for about twenty three years and was recapitalized in 2006 and I became engaged with Primavera as the Executive Vice President of Sales, Marketing and Services as part of that recap process. That enabled me to take on some new opportunities and participate in the recap of the company as an investor and agreed for the next leg of the journey to assume the CEO and present role. What we did soon after that was bring on a couple of key people, including David Lakey (Medclean's current CEO), who u are familiar with and Dave can discuss his background as we have gone down the path over the past year. Dave was at the point where he was able to step into the CEO and President role and as part of our overall succession planning. I now have transitioned into the chairman role and am supporting the team in the further execution of our strategy.

I think that one of the many nice things about this team is not just the level of experience and track record and success but also the fact that from day one at Aduramed, we already had sufficient experience working with each other and that piece of the puzzle was already in place. That’s very important when you’re moving into a new industry, and a new market that is undergoing some rapid changes.

David Laky, President and Chief Executive Officer, MCLN: I came from research technology, where Joe and Scott were members of and Joe was CEO and President there. I was responsible for the electronic data capture division of that company. There was somewhere between seven and nine million dollars there that I was responsible for in that line of business within eResearchTechnology. eResearch had focused on two lines of business, product safety and electronic data capture.

When I saw what was going on with Medclean and the opportunity that Joe and Scott were working there and that I could join back with the team, obviously that was exciting to me from several aspects. I was running a line of business that was not the primary line of business of the company while I could gain great experience and worked closely with Scott and Joe at eResearch. Soon after I left eResearch they actually sold that line of business.so it was time to make that transition.  I had joined eResearch in 1999 and worked my way all the way up the ranks including professional services, sales support, sales, and then full p&l responsibility for the line of business and it was time for me to start looking for another opportunity presented itself and I was excited to work back with the team members and step out of the software world. I had been doing software sine ninety one and I wanted to get into a combination of different areas and stay in the health field and this was a good opportunity.

Scott Grisanti, Chairman of the Board MCLN: So what you have here at Medclean is a core management team between us and Joe who understood what it was to drive eResearch from twenty eight million to one hundred nine million in revenue and more importantly deliver shareholder value by increasing market cap.  So if you take a management team that can finish each other’s sentences and has a track record like that and place it in this highly fragmented (something) market for onsite treatment of regulated medical waste and confidential document destruction in a hospital market. It creates a real opportunity for Medclean to emerge as a breakout player in the market.

David Laky, President and Chief Executive Officer, MCLN: When we got to the company, we wanted to insure that there were defined processes, defined procedures, defined customer support mechanisms that were in place to insure that we could work with our current customers, plus develop a process and strategy for moving forward where we added value for our customers, but also delivered in a very professional manner and turn the business into a more professionally run and process driven environment, which could result in expanding and growing the business, because we had the repeatable processes in place and not one off type of sales, so we have been spending time developing structure around the business model to support the business model.

BioMedReports: That’s one of the things that made me want to get you guys on our investor community's radar. Some of us had been a past shareholders in eResearch technology and it really struck me when I started looking at the bios of Medclean that basically a lot of the same management team was now at MedClean. We had also seen an article that was written in Fortune Magazine about the growth and so when I was looking here and seeing that there was a unique opportunity in the lucrative regulated medical waste field it suddenly looked very attractive to investors who often don't know if they should even be investing in penny stock level companies. I wondered if you guys could expand upon that. Also, you reached an agreement with the state of New Jersey, which is really difficult because the state of New Jersey is the pharmaceutical capital of the world in terms of drug companies. So to be able to establish a partnership with the state of New Jersey led us to believe that most others would follow suit. Could you talk about that? Do you see that is really going to enhance your partnerships with other states by bringing in additional added value and credibility?

Scott Grisanti, Chairman of the Board MCLN: First of all, the definition of regulated medical waste does not include pharmaceutical waste. Regulated medical waste is typically biohazardous waste, infectious waste. Pharm waste, especially in a hospital environment, is an area that on a state regional and national basis is beginning to get a lot more focus and certainly an area where I can see companies focusing over the coming years bringing solutions to market.

But today, the vast majority of pharm waste goes down the drain and it is actually legal to do so. But I expect that over time that will tighten up a bit as people are asking question about why there are salmon with male and female characteristics swimming around as a result of that waste leeching in the water supply, but that is out of the scope of what medclean currently offers just to clarify.

New Jersey was a very significant milestone because New Jersey is a very careful state when it comes to approving new technologies, especially in the treatment of biohazardous waste.

David Laky, President and Chief Executive Officer, MCLN: Let me talk a little bit about the professional approach from a management and process perspective that we brought to the table based on our experience with the rewards of discipline that we learned at eResearch. That’s really what carried the day in New Jersey. New Jersey had not approved a provider of onsite solutions for regulated medical waste since 2005 so we sat down with the folks at Health and Senior Services and the folks at the State Department of Environmental Protection and provided a very extensive documentation that made them comfortable with moving forward with an approval.

And New Jersey was ironically the only state where we did not have the ability to implement systems, so that was something that we set about pretty immediately and it involved a lot of  outreach at the legislative area like the State Assembly and a number of people at the State Senate level.

We were able to retain a leading microbiological expert to vouch for our efficacy. Before folks approve you they want to make sure that your solution is efficacious and in this market that means that it kills the bad stuff in a consistent manner and also the appropriate legal counsel and we worked hand in glove, especially with the folks at the Department of Health and Senior Services in order to make them comfortable with our solution. And our right, that speaks loudly beyond the boundaries of the Garden State because New Jersey is notoriously demanding in regard to what it takes to get a solution approved.

So that, of course is something we are very proud of. Plus because it is a challenging environment to get approved in, the benefit of approval is that it becomes a very rich environment. We are working diligently in the New Jersey market to facilitate adoption of our solutions.

BioMedReports:So you've got a bunch of smart guys coming from the computer world. They decide to get into this field because you guys obviously saw a market opportunity here. Can you talk a little bit about that and give the investors a thumbnail sketch of what this potential marketplace is.. Maybe even talk about your competitors and how you guys are different?


Scott Grisanti, Chairman of the Board MCLN: Well, we are different in a couple of ways. First of all, arguably if you can get a comprehensive survey you would find, I would bet you sixty five to seventy five companies in the U.S. purporting to deliver solutions for onsite treatment of regulated medical waste, and in some cases HIPPA compliant destruction of confidential medical documents- which we do also- you would find that the vast majority of those companies, eighty to eight five percent, I don’t want to say are unprofessional, becuae that’s not for me to say, but it's cottage industry oriented, project oriented corporations.

In other words, these are small private companies while Medclean is a public corporation with a very solid management team. We are a growing public company in a world of small private companies, the same people find the project, sell the project, implement the project. The same people sit on the beach for two months and then they get around to thinking about another project. From a customer perspective, that often doesn’t inspire a lot of confidence, because you are turning over a very important high potential exposure area to a technology that a third party company has provided. So that is one way that we differentiate ourselves.

Through the documentation of our efficacy, which is second to none in the industry. So we really took the discipline with regard to validated systems and repeatable processes that we learned at eResearch and applied that same discipline to this space with regard to not just insuring from an engineering perspective that our systems generate the highest level of efficacy in the industry, but insuring that we have the broadest base of data that proves that conclusively. So that’s another way we differentiate ourselves.

Yet another way that we are different is in our acquisition and deployment options. Folks can buy the systems outright. They can obtain the systems through a compliant operating lease through Green Health Care Financial Solutions, which is a Limited Liability Corporation that we have set up in conjunction with another entity to exclusively serve our customers in the delivery of the Medclean solution in an operating expense manner.

We also have a  rental program for folks who are not in a position to commit to long term usage. 

Finally, the physical deployment of the systems.  Many folks would like the equipment implemented within their facility inside their flow walls. However, we found that hospital space is at a premium, so we have taken our system components that we continue to offer for installation inside a facility, and now offer them preconfigured in a specially equipped industry standard shipping container. This preserves the space within the facility and eases implementation. Worst case scenario, implementation of our system is only two to three weeks, but it can sometimes involve what can be costly and complex at times from a planning perspective modifications inside the facility. If the ceiling isn’t high enough, you might have to dig a pit for a piece of equipment etc.  With our on-demand container approach, all of that goes away.

Everything is preconfigured in the container, the container is dropped off. The special utility connections that come with kind of umbilical cord adapters that hook right into the utilities and you’re good to go. So literally, in a half day, you can drop off the system, train the operators and you’re good to go.

Better yet, you don’t have to take up a single square foot of space inside the hospital. As a matter of fact the way that we put together these containers is so unique that it is the subject of a patent that we have filed. In addition to that, the protocol, the software program that drives the sterilization of the treatment cycle that enables us to achieve the consistently high results of efficacy, is also unique that it is also the subject of a patent. So we are different with regard to the extent of the intellectual property aspects that we bring to the table to insure best practice.

So those are just a couple of the ways that we are different from the competition. Underlying all of this is a standard operation procedure based approach to the market and our customers. And that’s one of the things that we were able to bring to the table coming from a highly regulated clinical  development environment that we came from coming into this kind of cottage oriented, highly fragmented industry.

BioMedReports: Can you talk about that industry and what opportunities you see there financially?

Scott Grisanti, Chairman of the Board MCLN: Without a doubt, there is tremendous opportunity in this market for onsite treatment of regulated medical waste, even if you set aside for a moment the HIPPA compliant destruction of confidential documents.

Several billion dollars a year are spent in the offsite hauling of regulated medical waste, so there is tremendous market opportunity. So the companies in the market for onsite treatment of waste are small and fragmented. The good news in this is that it is a largely untapped market. So this is a multibillion dollar market opportunity that renews every year. The hospitals never stop making infectious waste. So, it is a very underpenetrated market and no company has emerged with the capability and scalability to be a significant player and we need to be that significant player.

BioMedReports: What sort of milestones have you set for yourself towards becoming that significant player?

Scott Grisanti, Chairman of the Board MCLN: We don’t like to make projections in this public space especially, but the company, for example in 2008 posted a loss of seven point eight million dollars and if you look at our press release for the third quarter, we are happy to report that we are cash flow positive on the gap basis, so that is a very important milestone that we reached.

We also talked about the New Jesery approval, four years running, no new approvals, we were able to come in and get that done.
We conceived and brought to market the on demand container solution that I discussed.
We identified and protected two intellectual properties that I discussed.
We talked about the development and publication of the most extensive body of data in the industry and we capped it off at the end of last year with the rebranding of the company.
We took Aduramed and transformed it into MedClean which had been the name of the product line for a number of years. 
We're looking to continue for that to be our strategy.

BioMedReports: The year over year was extremely impressive. You guys basically did that in two quarters correct? Because you went from Aduramed to MedClean in the first week in January

Scott Grisanti, Chairman of the Board MCLN: That was our rebranding. The new management of the company began in early September, the recap was in early august. I joined as CEO a month later in early September and Dave joined about five weeks later. So we’re really talking about what’s transpired in the last twelve months. We’re very excited about what we’re accomplishing. We’re excited about the future. We are careful to make clear that in order to continue to execute the strategy; we required a continued source of working capital.

We continue to work in that regard as we have said in our press releases. We are no different than most small companies these days in that respect and we continue to soldier on because we believe that we are in a position to make a difference.

BioMedReports: Could you talk a little bit about the backlogged orders: I noticed from the 10-Q that you guys have a lot of business coming in and some of the orders are backlogged and I’m curious. Is it because you haven’t been paid on those orders that you got or there was so much business going on that you can’t get to it all?

Scott Grisanti, Chairman of the Board MCLN:
Well, we actually took to revenue. A significant amount of our backlog from the third quarter and that represented some systems that were sold earlier this year. And that’s outlined in the filings. In addition, there are a more customers where there are contracts in place, but we are awaiting further instruction on system installations.

BioMedReports: So there shouldn’t be a concern, perhaps from the investors who see that, that you guys can’t keep up with orders:

Scott Grisanti, Chairman of the Board MCLN: Oh, no, no, that should not be a concern at all. If that’s the feeling that that data was leaving you folks with, no. That is not a concern that we have.

BioMedReports: So just to make it clear, you are now able to take orders for these systems from all over the country right?

Scott Grisanti, Chairman of the Board MCLN:
Yes, that’s right. And we have systems today ranging from California to Iowa to Texas to Massachusetts to New York to Maryland to Puerto Rico to Illinois. So we actually, for a small company have a pretty widely distributed customer base.

BioMedReports:
Can you talk, then,  about the manufacturing process at all? What type of bandwidth do you have?

Scott Grisanti, Chairman of the Board MCLN: We have a terrific facility in Connecticut where we can assemble, in parallel up to four of these containerized systems at a time.  So we are certainly not bound by any manufacturing constraints because our manufacturing consists of assembling components that our built to our specifications by various suppliers and all of our various suppliers are very well equipped to address any demands that we might put on them. With regard to our second and third tier suppliers, a number of those components are commodity components. So there are physical constraints of course, but no logical constraints for the business.

BioMedReports: Finally, we want your thoughts on this great partnership that you announced in September with a private company called Vastara. Many of our investors wondered if you could talk about them and perhaps touch upon some of the advantages of the partnership. At first glance, it looks like they are in the same industry you guys are in.

Scott Grisanti, Chairman of the Board MCLN: Vastara is a very interesting company. They are really at the forefront of the Pharmaceutical Waste space, and their solutions do not include onsite destruction of pharma waste, but really focus on proper classification of pharm waste. As it turns out, there are many variations of pharma waste and Vastaras solution insures that pharma waste is sorted properly so that the right waste ends up in the right waste streams and we do mention as does the Vastara team, that the partnerships that we have and the associated solutions as we move forward in the future is very symbiotic. I think that the evolution for the market that Vastara serves is earlier on than the one Medclean does. We are very excited for what the future has to hold for that company and our partnership.

 

Disclosure: Long MCLN




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