July 9, 2007

Leading Australia-based medical diagnostics company, Compumedics Limited (ASX: CMP), is pleased to provide the following written transcript of the interview of David Burton, CEO, by Board Room Radio on 28 June 2007. This transcript follows the ASX announcement of the interview on 28 June 2007, which provided a link to the audio interview.

Melbourne Australia, Monday, July 9, 2007

Leading Australia-based medical diagnostics company, Compumedics Limited (ASX: CMP), is pleased to provide the following written transcript of the interview of David Burton, CEO, by Board Room Radio on 28 June 2007. This transcript follows the ASX announcement of the interview on 28 June 2007, which provided a link to the audio interview.

Click here to listen to the audio interview.

Question 1:
David, today you announced a major breakthrough for the company with an advanced treatment for sleep apnoea. What is the rationale for creating a new focus for the company beyond diagnostics technologies for sleep disorders where you have a strong market position into the more competitive treatment market?

The development of advanced products for treating sleep apnoea, is a natural step-out from our traditional diagnostics business and leverages the company’s knowledge and experience in the field to develop advanced, next-generation solutions for the management and treatment of an increasing prevalent problem.
This is a major milestone for Compumedics, as the development of new and innovative products in the sleep-treatment market have been a part of our long-term vision for the company. While some experts view sleep treatment primarily as addressing deficient respiratory function, our development of the SomniLink® SPAP® is based on the premise that both quality-of-life and sleep-quality are integral to the optimal treatment for sleep-disordered breathing conditions, including sleep apnoea.

Question 2:
We understand that Compumedics is a global leader in the $250 million sleep – disorder diagnostics technologies market. This move takes the company into the $2.1 billion global sleep–treatment market. What impact is this likely to have on Compumedics if it can take a significant share of this market?

Being the only independent sleep-diagnostics company and having such a large install base of sleep beds in many of the most prestigious clinical and sleep-research organisations in the world, the SomniLink® SPAP® may become a logical choice for practitioners to recommend to patients, subject to any regulatory constraints. We expect that Compumedics’ market presence in the sleep-treatment market will grow organically from its well-known and dominant presence in the sleep-diagnostic realm.
Further, the design approach to the SomniLink® SPAP® system took into account sleep efficiency and patient comfort as well as being a simple treatment for OSA. And the system has the ability to link into a patient’s diagnostic data for controlling the system. This has resulted in a treatment system that is arguably superior to those currently available in the market. With the linkages into the sleep-diagnostics laboratories and clinics and a product that can be individually controlled according to both sleep- and respiratory-related diagnostics for an individual patient, all at a competitive price, it is unlikely that there will be head-to-head competition and undercutting on price by competitors, because the products are well differentiated.

Question 3:
Can you tell us about the SomniLink SPAP system and how it differs from traditional CPAP systems?

The SomniLink® SPAP® is an integrated positive airway-pressure system for the treatment of sleep apnoea. The system is a major advance over the traditional CPAP (Continuous Positive Airway Pressure) systems by providing automatically variable air pressure to a patient through a nose mask. The system is unique as it responds to both very subtle changes in the upper airway resistance, and also very subtle changes resulting from delivered airway pressure and arousal status (RERA and TERA). Accordingly, the systems can be customised for individual treatment, taking into account online feedback of sleep parameters to minimise arousals during sleep treatment. Arousals can make the difference between effective sleep and the consequences of disturbed sleep.

Question 4:
You announced your intention to enter into a distribution agreement with Medigas Italia. Can you tell us about this agreement and how your relationship with Medigas developed?

Medigas Italia representatives have said, in moving forward, with Compumedics on this initiative, that our new SPAP® technology is quite unique and a break-through for sleep treatment and that the SPAP® has quite important innovations and concepts not available in the products of all other manufacturers of sleep-treatment products.
The SomniLink® SPAP® system is in pre-production and Medigas Italia will assist Compumedics through the regulatory phase and with pre-marketing activities in Italy and eastern European countries. Medigas Italia has placed a forward order for SomniLink® SPAP® units in the first year of a three-year agreement.
This of course only represents 1-2% of the world market and we are keenly aware of this factor and the subsequent opportunity for a further global deal or deals.

Question 5:
Can you tell us about Medigas and whether they have marketing and distribution capabilities beyond Italy?

Medigas, in the Praxair Group, is one of our highest performing distributors. The current global sleep-treatment market is a multi-billion dollar, high-growth sector. The relationship with Medigas Italia to prepare the SomniLink® SPAP® for distribution and introduce it into European markets represents another step in the execution of Compumedics’ strategic plan to complement its core sleep-diagnostics business with innovative sleep-treatment systems. We are particularly pleased to work with Medigas Italia and Praxair, Inc. to move into the sleep-treatment market.

Question 6:
Given established players in the market and the early stage of your commercialisation program, are you targeting any specific opportunity or market segment to build a presence?

Only a small proportion of obstructive sleep apnoea sufferers have been diagnosed to date. OSA may affect up to 10% of the population. The estimate of market size may be very conservative and growing. Compumedics already has its diagnostic equipment installed in over 4000 beds around the world, representing hundreds of millions of dollars alone of CPAP sales per year to other companies, in a significant proportion of the world’s sleep laboratories. These sleep practitioners who run the laboratories with these beds that are used to diagnose OSA will enable a ready market for the new SomniLink® SPAP® gas-delivery systems. Even a small proportion of new gas-delivery systems sold each year will result in Compumedics gaining a market presence very quickly. Initial trials have indicated that the technology in the SomniLink® SPAP® provides the potential for a superior treatment experience for the ultimate decider – the patient.

Question 7:
The treatment market has a higher risk profile than diagnostics. How will you manage this risk?

We are looking at OEM partnerships and we have some discussions under way with global high calibre leaders in relevant medical treatment fields. Compumedics has created a significant intellectual property portfolio around its products. For example, all of the novel components of the SomniLink® SPAP® are covered by patent applications for major markets around the world and both SomniLink® and SPAP® are registered trade marks in major markets. Some of the patent applications have been granted in some countries, indicating that the applications were for patentable inventions and a strong IP fence continues to be created around the product. The decision was taken in 2005 to engage in-house intellectual property expertise, which has paid off in the short term. The Company has put in place systems for minimising the risk and therefore is prepared in regards to the risk associated with IP litigation.

Question 8:
What expectations do you have for these products over the next few years.
Do you see the time when treatment technologies surpasses diagnostics as the core of the group’s operations?

The treatment market is nearly 10 times our diagnostic market and we have premium value and innovative products so the outlook is promising and has the potential to surpass diagnosis.

Question 9:
Have the development costs for these products being expensed or capitalised?


Question 10:
How much have you been spending on R&D in recent years? How important to the company is this program?

Investment in R&D is very important and has been around 20% of revenue. We have developed strong market leadership and branding reputation across our core diagnostic business sectors, and also new medical innovation breakthroughs, such as this new SPAP development.
Compumedics has grown to become a global medical-diagnostic company with world leadership in three of the most exciting high-growth sectors and some 12,000 systems installed. Compumedics businesses now include their core and pioneering sleep-diagnostics (Sleep Division), neuro-diagnostics (Neuroscan and Neuroscience Divisions), and non-invasive blood-flow diagnostics (DWL Division). All of these fields were pioneered or discovered in the 1980s, validated in the 1990s and are only now undergoing rapid commercialisation into the rapidly expanding $1 billion plus global market, within our primary diagnostics market alone. The new treatment business represents incremental breakout value opportunities.

Question 11:
You have also recently announced some other key distribution agreements for the company’s traditional business in Europe and the Middle East. Could you comment on the likely impact of these agreements for Compumedics?

These new contracts across Europe and the Middle East represents and order of 10 Million in mostly new business over the next 3 years.

David, thank you