About Nephros
Nephros, Inc. (Nephros), a commercial-stage company, develops and sells high performance water solutions to the medical and commercial markets. In medical markets, the company sells water filtration products. The company's medical water filters, mostly classified as ultrafilters, are used primarily by hospitals for the prevention of infection from waterborne pathogens, such as legionella and pseudomonas, and in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate. Because the company's ultrafilters capture contaminants as small as 0.005 microns in size, they minimize exposure to a wide variety of bacteria, viruses, fungi, parasites, and endotoxins. In commercial markets, the company manufactures and sells water filters that improve the taste and odor of water and reduce biofilm, bacteria, and scale build-up in downstream equipment. The company's products are marketed primarily to the food service, hospitality, convenience store, and health care markets. These commercial products are also marketed into medical markets, as supplemental filtration to the company's medical filters. Segments The company operates through two reportable segments: Water Filtration and Renal Products. The Water Filtration segment primarily develops and sells high performance water purification filters. The Renal Products segment is focused on the development of medical device products for patients with renal disease, including a second generation hemodiafiltration system for the treatment of patients with ESRD. Products Water Filtration Products The company develops and sells water filtration products used in both medical and commercial applications. The company's water filtration products employ multiple filtration technologies, as described below. In medical markets, the company's primary filtration mechanism is to pass liquids through the pores of polysulfone hollow fiber. The company's filters' pores are significantly smaller than those of competing products, resulting in highly effective elimination of waterborne pathogens, including legionella bacteria (the cause of Legionnaires disease) and viruses, which are not eliminated by most other microbiological filters on the market. Additionally, the fiber structure and pore density in the company's hollow fiber enables significantly higher flow rates than in other polysulfone hollow fiber. The company's primary sales strategy in medical markets is to sell through value-added resellers ('VARs'). Leveraging VARs has enabled the company to expand rapidly the company's access to target customers with limited sales staff expansion. In addition, while the company is focused on medical markets, the VARs that support these customers also support a wide variety of commercial and industrial customers. The company's VAR relationships have and will continue to facilitate growth in filter sales outside of the medical industry. In commercial markets, the company develops and sells its filters, for which carbon-based absorption is the primary filtration mechanism. These products allow the company to improve water's odor and taste, to reduce scale and heavy metals, and to reduce other water contaminants for customers who are primarily in the food service, convenience store, and hospitality industries. These commercial products are also sold into medical markets, as supplemental filtration to the company's medical filters. In commercial markets, the company's model combines both direct and indirect sales. The company's sales staff have sold products directly to a number of convenience stores, hotels, casinos, and restaurants. The company is also pursuing large corporate contracts through partnerships. Target Markets The company's ultrafiltration products target the following markets: Hospitals and Other Healthcare Facilities: Filtration of water for washing and drinking as an aid in infection control. The filters produce water that is suitable for wound cleansing, cleaning of equipment used in medical procedures, and washing of surgeons' hands. Dialysis Centers and Home/Portable Dialysis Machines: Filtration of water or bicarbonate concentrate used in hemodialysis. Commercial Facilities: Filtration and purification of water for consumption, including for use in ice machines and soft drink dispensers. Military and Outdoor Recreation: Individual water purification devices used by soldiers and backpackers to produce drinking water in the field, as well as filters customized to remote water processing systems. Hospitals and Other Healthcare Facilities: Nephros filters are a leading tool used to provide proactive protection to patients in high-risk areas (e.g., ice machines, surgical rooms, NICUs) and reactive protection to patients in broader areas during periods of water pathogen outbreaks. The company's products are used in hundreds of medical facilities to aid in infection control, both proactively and reactively. In January 2022, the Center for Clinical Standards and Quality at the Centers for Medicare and Medicaid Services ('CMS') expanded its requirements - originally implemented in 2017 - for facilities to develop policies and procedures that inhibit the growth and spread of legionella and other opportunistic pathogens in building water systems. In this 2022 update, CMS requires teams to be assigned to the development of formal water management plans ('WMPs'), as well as detailed documentation regarding the development of the WMPs and their execution. CMS surveyors regularly review policies, procedures, and reports documenting water management implementation results to verify that facilities are compliant with these requirements. These CMS regulations may have a positive impact on the sale of the company's HAI-inhibiting ultrafilters. The company has FDA 510(k) clearance on the following portfolio of medical device products for use in the hospital setting to aid in infection control: The DSU-H and SSU-H are in-line, 0.005-micron ultrafilters that provide dual- and single-stage protection, respectively, from waterborne pathogens. They are primarily used to filter potable water feeding ice machines, sinks, and medical equipment, such as endoscope washers and surgical room humidifiers. The DSU-H has an up to 6-month product life in a typical hospital setting, while the SSU-H has an up to 3-month product life. The S100 is a point-of-use, 0.01-micron microfilter that provides protection from waterborne pathogens. The S100 is primarily used to filter potable water feeding sinks and showers. The S100 has an up to 3-month product life when used in a hospital setting. The HydraGuard and HydraGuard - Flush are 0.005-micron cartridge ultrafilters that provide single-stage protection from waterborne pathogens. The HydraGuard ultrafilters are primarily used to filter potable water feeding ice machines and medical equipment, such as endoscope washers and surgical room humidifiers. The HydraGuard has an up to 6-month product life and the HydraGuard - Flush has an up to 12-month product life when used in a hospital setting. Dialysis Centers - Water/Bicarbonate: In the dialysis water market, Nephros ultrafiltration products are among the highest performing products on the market. The DSU-D, SSU-D and the SSUmini have become the standard endotoxin filter in many portable reverse osmosis systems. The EndoPur, the company's large-format ultrafilter targeted at dialysis clinic water systems, provides the smallest pore size available. The company has FDA 510(k) clearance on the following portfolio of medical device products for use in the dialysis setting to aid in bacteria, virus, and endotoxin retention: The DSU-D, SSU-D and SSUmini are in-line, 0.005-micron ultrafilters that provide protection from bacteria, viruses, and endotoxins. All of these products have an up to 12-month product life in the dialysis setting and are used to filter water following treatment with a reverse osmosis ('RO') system, and to filter bicarbonate concentrate. These ultrafilters are primarily used in the water lines and bicarbonate concentrate lines leading into dialysis machines, and as a polish filter for portable RO machines. The EndoPur is a 0.005-micron cartridge ultrafilter that provides single-stage protection from bacteria, viruses, and endotoxins. The EndoPur has an up to 12-month product life in the dialysis setting and is used to filter water following treatment with an RO system. More specifically, the EndoPur is used primarily to filter water in large RO systems designed to provide ultrapure water to an entire dialysis clinic. The EndoPur is a cartridge-based, 'plug and play' market entry that requires no plumbing at installation or replacement. The EndoPur is available in 10', 20', and 30' configuration. Commercial and Industrial Facilities. The company's commercial NanoGuard product line accomplishes ultrafiltration via small pore size (0.005 micron) technology, filtering bacteria and viruses from water. In addition, the company's commercial filtration offerings include technologies that are primarily focused on improving odor and taste and on reducing scale and heavy metals from filtered water. The company's commercial market focus is on the hotel, restaurant, and convenience store markets. In March 2022, the company closed a contract to provide water filtration systems to an organization of approximately 3,000 Quick Service Restaurants ('QSR'). The company continues to pursue other national accounts, which may result in step-change increases in commercial market revenue. The company expects that building owners will come to understand ASHRAE-188, which outlines risk factors for buildings and their occupants, and provides water safety management guidelines. As demand for water testing and microbiological filtration grows, the company will be ready to deploy its expertise and solutions based on years of experience servicing the medical market. The company has an opportunity to offer unique expertise and products to the commercial market, and that the company's future revenue from the commercial market could even surpass the company's infection control revenue. The company markets the following portfolio of proprietary products for use in the commercial, industrial, and food service settings: The NanoGuard set of products are in-line, 0.005-micron ultrafilter that provides dual-stage retention of any organic or inorganic particle larger than 15,000 Daltons. NanoGuard products are designed to fit a variety of existing plumbing configurations, including 10' and 20' standard housings, and Nephros and Everpure manifolds. Included in the NanoGuard product line are both conventional and flushable filters. The Nephros line of commercial filters provide a variety of technology solutions that improve water quality in food service, convenience store, hospitality, and industrial applications. Nephros filters improve water taste and odor, and reduce sediment, dirt, rust particles and other solids, chlorine and heavy minerals, lime scale build-up, and both particulate lead and soluble lead. Nephros commercial products combine effectively with NanoGuard ultrafiltration technologies to offer full-featured solutions to the commercial water market, including to existing users of Everpure filter manifolds. Pathogen Detection Systems In 2019, the company expanded its portfolio of water solutions with the introduction of pathogen detection system ('PDS') products and services, including the company's PluraPath pathogen detection system, which the company developed to provide real-time data regarding the existence of a broad array of waterborne pathogens to the infection control teams responsible executing a building or other facility's water management plans. In the third quarter of 2021, the company acquired the business of GenArraytion, Inc. ('GenArraytion'), including GenArraytion's many proprietary assays, multiplexing technology, and selection methods for detecting waterborne pathogens and other microorganisms using Polymerase Chain Reaction technology. GenArraytion's assets was integrated into the company's PDS segment. In November 2022, the company sold substantially all of the company's assets used in its PDS business to BWSI, LLC pursuant to the terms of an Agreement for Purchase and Sale of Assets with BWSI (the 'PDS Purchase Agreement'). Hemodiafiltration (HDF) Systems and Specialty Renal Products, Inc. The company was originally founded to develop and commercialize a hemodiafiltration ('HDF') medical device. HDF is an alternative dialysis modality that combines the benefits of HD and HF into a single therapy by clearing toxins using both diffusion and convection. The company's original HDF device ('HDF1') was cleared by the U.S. Food and Drug Administration ('FDA') for the treatment of patients with chronic renal failure in 2012, but did not gain market acceptance due to, among other reasons, the feeling that it was too difficult to use. Accordingly, since 2018, the company has undertaken to redesign and dramatically simplify the company's HDF device. The company's updates have made the system significantly easier to use. In 2018, the company spun-off the development of the second-generation HDF device ('HDF2') into a newly-formed subsidiary, Specialty Renal Products, Inc. ('SRP'). The company maintains a 62.5% ownership stake in SRP. In May 2022, the FDA cleared HDF2 for patient use, which enables nephrologists to provide HDF treatment to patients with end stage renal disease. As of December 31, 2022, the company's and SRP's HDF1 and HDF2 systems were the only HDF systems cleared by the FDA. Manufacturing and Suppliers On April 23, 2012, the company entered into a License and Supply Agreement (the 'License and Supply Agreement') with Medica S.p.A. ('Medica'), an Italy-based medical product manufacturing company, for the marketing and sale of certain filtration products based upon Medica's proprietary Medisulfone ultrafiltration technology in conjunction with the company's filtration products, and for an exclusive supply arrangement for the filtration products. Under the License and Supply Agreement, as amended, Medica granted to the company an exclusive license, with right of sublicense, to market, promote, distribute, offer for sale and sell the filtration products worldwide, with certain limitations on territory, during the term of the License and Supply Agreement. In addition, the company granted to Medica an exclusive license under the company's intellectual property to make the filtration products during the term of the License and Supply Agreement. The filtration covered under the License and Supply Agreement include both certain products based on Medica's proprietary Versatile microfiber technology and certain filtration products based on Medica's proprietary Medisulfone ultrafiltration technology. The term of the License and Supply Agreement with Medica expires on December 31, 2025, unless earlier terminated by either party in accordance with the terms of the License and Supply Agreement. As part of the License and Supply Agreement, the company granted to Medica a 10-year option to purchase 300,000 shares of the company's common stock. Such options expired in April 2022. Sales and Marketing The company's New Jersey headquarters oversees global sales and marketing activity of the company's ultrafilter products. The company works with multiple distributors for the company's ultrafilter products in the hospital and dialysis water markets. For the food service and hospitality markets, the company has contracted with Donastar LLC as the company's master distributor. For other prospective markets for the company's ultrafilter products, the company is pursuing alliance opportunities for joint product development and/or distribution. The company's ultrafilter manufacturer in Europe shares certain intellectual property rights with the company for one of its dual stage ultrafilter designs. Intellectual Property Patents The company's U.S. patents for the 'Method and Apparatus for Efficient Hemodiafiltration' and for the 'Dual-Stage Filtration Cartridge' have claims that cover the OLpur MDHDF filter series and the method of hemodiafiltration employed in the operation of the products. As of December 31, 2022, the company had four U.S. patents, one Canadian patent, one Chinese patent, one French patent, one German patent, one Italian patent, one United Kingdom patent, and one European patent. In addition, the company has one pending patent application in the United States. The company's pending U.S. patent application relates to filter technologies, including liquid purification filter systems that are particularly suited for use in harsh environments. Trademarks As of December 31, 2022, in the United States, the company secured registrations of the trademarks AETHER, ENDOPUR, HYDRAGUARD, and NANOGUARD. In the U.S., the company filed trademark application for NEPHROS and BECAUSE WATER MATTERS. In the U.K., the company secured registrations for the trademark H2H, NANOGUARD, NEPHROS HYDRAGUARD, OLPUR, and PATHOGUARD. Governmental Regulation The research and development, manufacturing, promotion, marketing, and distribution of the company's ESRD therapy products in the United States, Europe and other regions of the world are subject to regulation by numerous governmental authorities, including the FDA, the European Union and analogous agencies. The United States The FDA regulates the manufacture and distribution of medical devices in the United States pursuant to the Food, Drug, and Cosmetics (FDC) Act. All of the company's ESRD therapy products are regulated in the United States as medical devices by the FDA under the FDC Act. All of the company's products have been cleared by the FDA as Class II devices, such as: DSU Dual Stage UltraFilter: In June 2009, the company received FDA 510(k) clearance of the DSU to be used to filter biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures. SSU-D/DSU-D Dual Stage UltraFilter: In July 2011, the company received FDA 510(k) clearance of the SSU/DSU to be used to filter water or bicarbonate concentrate used in hemodialysis procedures. OLpur H2H Module and OLpur MD 220 Hemodiafilter: In April 2012, the company received FDA 510(k) clearance of the OLpur H2H Module and OLpur MD 220 Hemodiafilter for use with a UF controlled hemodialysis machine that provides ultrapure dialysate in accordance with current ANSI/AAMI/ISO standards, for the treatment of patients with chronic renal failure in the United States. DSU-H/SSU-H: In October 2014, the company received FDA 510(k) clearance of the DSU-H and SSU-H ultrafilters to be used to filter EPA quality drinking water. The filters retain bacteria, viruses, and endotoxin. By providing ultrapure water for patient washing and drinking, the filters aid in infection control. S100 Point of Use Filter: In April 2016, the company received FDA 510(k) clearance of the S100 point-of-use filter to be used to filter EPA quality drinking water. The filters retain bacteria. By retaining bacteria in water for washing and drinking, the filter may aid in infection control. HydraGuard: In December 2016, the company received FDA 510(k) clearance of the HydraGuard 10' ultrafilter intended to be used to filter EPA quality drinking water. The filter retains bacteria, viruses and endotoxin. By providing ultrapure water for patient washing and drinking, the filter aids in infection control. EndoPur: In March 2017, the company received FDA 510(k) clearance of the EndoPur ultrafilter intended to be used to filter water used in hemodialysis devices. It assists in providing hemodialysis quality water. The device is not a complete water treatment system but serves to remove biological contaminants. Therefore, it must be used in conjunction with other water treatment equipment (Reverse Osmosis, Deionization, etc.). The company and its contract manufacturers are required to manufacture the company's products in compliance with current Good Manufacturing Practice (GMP) requirements set forth in the QSR. European Union The company is in the process to seek approval for CE certification under EU Medical Device Regulation (Council Regulations 2017/745). The company's manufacturing facilities are subject to audits and have been certified to be ISO 13485:2016, which allows the company to sell its products in the United States and Canada. In November 2020, the company received MDSAP certification, to continue sales and compliance in the United States and Health Canada. The company is in the process of expanding its MDSAP certification to include Brazil. Competition With respect to the water filtration market, the company competes with companies that are well-entrenched in the water filtration domain. These companies include Pall Corporation (wholly owned by Danaher Corporation), which manufactures point-of-use microfiltration products, as well as 3M and Pentair, who manufacture the Cuno and Everpure brands of water filtration and purification products, respectively. History Nephros, Inc. was founded in 1997. The company was incorporated under the laws of the state of Delaware in 1997.
