Letter from CEO
Dear Stockholders:
For Aspect Medical Systems, 2008 will be remembered as a year of challenges. Despite the economic turbulence, Aspect continued to grow and maintain a commitment to advancing the quality and safety of patient care. Our confidence in the value of brain monitoring has not diminished and I am proud to say that BIS technology has been used to help clinicians optimize patient care for more than 31 million patients across the globe. Our market leadership position remains strong, with more than
56,000 BIS systems installed worldwide. Furthermore, BIS technology was used to help guide anesthetic management in approximately 19% of the general anesthetics administered in the United States last year. Nonetheless, revenue growth slowed in 2008 more than we anticipated. Compared to 2007 results:
Product Revenue Grew 8%
U.S. Sensor Revenue Grew 8%
International Sensor Revenue Grew 26%
There are a number of factors that contributed to the deceleration in growth rates compared to the prior year. In 2008 we determined that growing our business with the late adopters would require more contact with our customers and a greater emphasis on clinical education. In recognition of this, we made the decision to expand our U.S. sales force.Although this effort caused some disruption during the second half of the year as territories were realigned and attention was placed on hiring and training, this decision allowed us to better address market challenges encountered throughout the year. One of these challenges was the publication of a controversial study questioning the efficacy of our technology as a means of reducing the incidence of intraoperative awareness.Although the study findings confirmed previous research demonstrating the role of BIS monitoring in helping clinicians achieve a low incidence of awareness in high-risk patient populations, the interpretation of some study results and resulting publicity was disruptive and required a considerable effort for our field organization to educate our customers.This was followed later in the year by the worldwide recession, which presented an entirely new set of challenges for medical technology companies due to the impact on hospital spending.
Given these challenges, we believe that our expanded sales organization has provided a strategic advantage in better positioning the business. In difficult times, it is more important than ever to stay close to customers, and we believe we have successfully done this. Our sales force expansion has also given us the opportunity to refocus our customers on the proven value of BIS technology in helping clinicians improve care, and to expand the depth and breadth of our clinical education programs. Our results demonstrate the value of this approach.Although growth slowed during the course of the year, product use continued to expand and we successfully grew the worldwide installed base of BIS sockets by 19%.
On another positive note, the financial crisis provided an opportunity for us to significantly strengthen our balance sheet.At the start of last year, Aspect had a cash balance of $109 million and $125 million in long-term debt.As a result of a debt buyback program, we began 2009 with a cash balance of $83 million and $65 million in debt, a net improvement of $34 million.
We believe that Aspect’s commitment to ground-breaking clinical research and ethical, evidence-based marketing and product development serves as the foundation for both our past success and our future opportunities. Thousands of anesthesia providers have incorporated BIS monitoring into clinical practice in an effort to provide the best possible care for their patients. We look ahead to 2009 with a renewed focus and remain confident that we are pursuing the right programs to guide efforts to capture a larger share of the untapped business opportunity in the operating room. Nonetheless, the challenging economic conditions demand that we scrutinize every element of our cost structure. Accordingly, regardless of the rate at which revenue grows in response to our investments in the sales force, outcomes research, new product development or business development, we remain fully committed to deliver strong earnings performance, and we plan to realign our spending programs as necessary as we strive to meet this commitment. Our results in the first quarter of 2009 demonstrate the impact of this approach on our bottom line.
PRODUCTS
Our product development strategy in 2009 is to introduce new products to the market that complement changes in the practice of anesthesia, and are designed to give both existing and new customers additional reasons to use Aspect’s technology. We introduced our bilateral monitoring system that allows clinicians to track differences in brain function between the right and left sides of the head.We are also continuing efforts to develop CVI, a novel indicator of analgesic adequacy that examines intra-operative variability in BIS values and facial EMG. Our goal is to develop a product that will help anesthesia professionals track intra-operative analgesic requirements and reduce post operative pain.At the end of 2008, we completed a multi-center trial designed to demonstrate an association between CVI and somatic events in response to painful stimuli during surgery.The results
of this study, which met the primary endpoint, will be presented at scientific conferences in the spring and will be submitted for publication soon. We also plan to conduct further CVI studies throughout 2009 and expect to launch the product outside the U.S. later in the year.
We are also actively considering the addition of new, high value-added products from outside the company that complement our core technology, and that have the potential for generating incremental revenue for each procedure when BIS may be used. Although there can be no assurance that any such addition will be successfully completed, as we evaluate these opportunities, we will seek to ensure that any potential new products integrate well with BIS technology and our sales force, can be brought to market quickly and enable clinicians to improve patient management and deliver better outcomes.
CLINICAL RESEARCH
A major theme within the anesthesia community is a growing appreciation of emerging research showing links between various anesthetic management approaches and important long term patient outcomes.The critical role that anesthesia professionals play in enabling complex surgeries to be performed safely is well recognized. Less well described are the associations between specific anesthetic conditions and potential adverse complications and outcomes following surgery. For example, two recent publications have confirmed findings from previous studies that demonstrate an association between deep anesthesia or sedation, as measured with BIS, and mortality.
Collectively, these studies indicate that some populations, such as patients with pre-existing cancer or patients requiring mechanical ventilation in the intensive care unit, may particularly benefit from more careful neuromonitoring with BIS. More importantly, these findings help highlight the importance of individualized care based on patient response, rather than use of the same standard technique for all patients.
If further research continues to validate the link between deep anesthesia and higher morbidity or mortality, we believe that the clinical benefits and role of BIS in facilitating precision in anesthesia care will become even more compelling. In an effort to better define this linkage, we are initiating collaborative research programs with several leading hospital networks and one of the largest academic medical centers in the country. This program includes an ongoing analysis of comprehensive long term patient records for over 160,000 patients to assess the impact of anesthetic management techniques, including BIS, on important patient outcomes.We have also developed a risk stratification model using Medicare claims that encompass 28 million surgical patient records. This information allows us to evaluate the impact of clinical interventions, including BIS use, and to rapidly complete comparative effectiveness studies while controlling for differences in patient profiles. This type of research is valuable to healthcare policy makers who seek to assess the impact of clinical interventions in routine health care, compare the effectiveness of alternative clinical choices, and ensure that the best choices are reflected in the way hospitals and physicians are reimbursed.
Ultimately, we believe that the best way to encourage clinicians to adopt our technology, and for policy makers to support its use, is to continue to deliver clear scientific evidence that demonstrates that BIS monitoring enables them to provide better patient care and to improve outcomes – and we believe that our collaborative research initiative has the potential for accelerating this process.
In the Neuroscience area, although we remain encouraged by the response of psychiatric thought leaders about the potential for biomarkers in the treatment of depression and dementia, the economic environment has led us to significantly scale back our research in depression and Alzheimer’s disease in an effort to remain consistent with our commitment to generate earnings growth.
In summary, the continuing significant downturn in the economy has led us to make difficult business decisions, but at the same time, created unique opportunities for the company to better define a path forward. We have shifted our focus to our bottom line and are committed to aligning our spending with revenue growth with a goal of re-establishing, sustaining, and accelerating profitability. At the same time, we plan to continue our efforts to make the right strategic investments to position us for faster growth when the economy begins to recover as we work toward our goal of enhancing shareholder value.We have a number of exciting research and product development initiatives underway and we remain confident about our business while being realistic given the impact of the worldwide economy on healthcare spending. I believe that our philosophy of focus, resilience and discipline will serve us well in guiding our vision to make a difference for millions of patients receiving anesthesia or sedation. I continue to be energized by the opportunities ahead and thank you for your continued support.
Nassib G. Chamoun
President, CEO and Founder
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