Zi Medical Plc. Innovation in Healthcare

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5 I Edlson Investment Research outlook I Zi Medical I 6 December 2006.

Products and pipeline: Medical devices.


AD ambulatory syringe pump (AD).

Following the completion of the original design in 0205 and CE marking in 0305, Zi announced in July this year that the AD had passed its final regulatory hurdle and could be sold for use across Europe. The AD will be marketed under an agreement with Alaris Products UK, a subsidiary of US quoted Cardinal Health Inc. (NYSE: CAH), a S25 billion market cap company globally serving the health-care industry with a broad portfolio of products and services. At the end of July 2006, the AD was offlc,ally launched at Alaris Product s annual sales meeting and Zi received its first order for 150 AD units from Alaris September 2006. zi signed a letter of intent with Alarls Products to extend the commercial launch of the AD in-c a further 10 countries: Ireland. Norway. Sweden, Australia New Zealand, South Africa, Dubai, Saudi Arab a. Kuwait and Oman. Zi is also preparing to submit for 510k regulatory approval in the US.

Zi has already begun scheduled deliveries against the first order of 150 units. As a result of positive feedback from a number of leading healthcare Trusts in the UK Alaris has placed a further order for additional AD units. Sales orders received to date exceed the minimum quantities agreed for the first six months of the distribution contract.

Management believes that the market opportunity for the AD is in excess of 21 billion per annum. The market for ambulatory syringe pumps is being driven by health and safety issues at hospitals at a time when there is distinct requirement to replace old and less technically advanced models. The Purchasing and Supply Agency of the NHS has stated that syringe pumps currently in situ within NHS trusts fail to address some of the fundamental safety requirements delineated by IEC 60601-2-24 (source.WlHSP,4SA report C1,50;61, We understand that a number of Hospital Trusts have started clinical evaluation of the AD and that there are currently eight NHS Trusts in the UK that are inviting tenders for ambulatory syringe pumps. A typical Trust may require a complement between 200 and 600 ambulatory pumps. The main competition is believed to be the McKinley T34 syringe pump, which includes current required safety features but has suffered from a few teething problems. Zi Management believes that the AD Is technically superior to the T34 and incorporates extra usability and safety features, which should give the AD a significant market advantage.

The AD is currently being manufactured at St Asaph in North Wales. To meet the anticipated future demand. Zi is preparing a joint manufacturing plan, which combines resources at a new manufacturing cell at Alaris' facility in Basingstoke. ZI should also benefit from the wide component network of Alaris to reduce production costs and increase margins.

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