CD&D
and HOLLAND JOHNSON
CD&D

SAN FRANCISCO – The cardiovascular sector wasn't the only segment of the med-tech industry discussed during a pair of mid-January meetings here, but it did garner a lot of attention.

The annual OneMedPlace Finance Forum at the Sir Francis Drake Hotel drew some from among the usual overflow crowd of investor attendees at the JP Morgan Healthcare Conference at the Westin St. Francis in the next block of Powell Street, with many attendees switching name badges as they walked back and forth between the two meetings.

An afternoon panel on cardiology at the OneMedPlace gathering started off with a discussion about stents, what moderator Casey McGlynn, chairman of the Life Sciences Group at Wilson Sonsini Goodrich & Rosati (Palo Alto, California), called "the biggest elephant in the room when we talk about cardiology." Though most panelists agreed there are still opportunities in drug-eluting stents, they suggested solid players in the future will be in emerging and unmet markets rather than workhorses.

"If I were to get involved in one of these workhorse stents, it certainly wouldn't be a drug-eluting stent right now," said Peter Fitzgerald, MD, PhD, a partner at Latterell Venture Partners (San Francisco), citing the long length of time to market, the difficult regulatory process and the atrocious public perception. "I just am too old to try to work on another drug-eluting stent," he said, unless it addresses an unmet area like the neuro space, small vessels, bifurcations or periphery.

Fitzgerald, a well-known interventional cardiologist and an associate professor of medicine at Stanford University (Stanford, California), said that despite the wishes of the investment community and cardiologists, he does not see fully biodegradable stents as the next platform for drug-eluting stents.

Teo Forcht Dagi, MD, a partner at HML Venture Partners, added a few items to the list of potential areas of interest: biliary stents and renal artery stents. "We're looking for adoption, ease of use, outcomes and differentiation," he said.

Fitzgerald spoke positively about balloon-eluting technology, calling drug-eluting balloons exactly what some of the pharma companies are looking for. Pharmas have hated interventional cardiology because they don't want to embrace implants, he said, but balloons bring "site-specific therapy without off-target toxicity."

The market has changed tremendously, noted Charles Maroney, president/CEO of CardioMind (Sunnyvale, California). Two years ago, he said, drug-eluting stents were all anyone could talk about. Analysts were looking at 10% annual growth, with some annual market forecasts as high as $8 billion. "But where the heck are all these stents going to be placed?" he asked.

Then safety issues pulled back penetration rates in the U.S. and worldwide, changing perceptions and making it harder to get FDA approval and CE mark. To be successful today, Maroney said, a company must get to the point where it can say it has a product that is differentiated both mechanically and clinically.

Members of the panel also offered advice to companies about exits.

Fred Middleton, a managing director with Sanderling Ventures (San Mateo, California), said that to sell to a large device manufacturer, it's important to have a good set of clinical data. "If you can develop a viable clinical program and technology that's patent protected for $50 million, you can make those metrics work on an investment," he said.

Dagi highlighted several characteristics of technologies that will be bought rapidly: first-in-class, first treatments for previously untreatable areas, and products that a large company's sales force can address.

As far as pricing, "the general rule has always been that the size of the market caps the amount that will be paid for a technology," Dagi said. For stent technology, the market is segmented amongst different stents and different technologies, "so you have to ask what portion of that constitutes the actual addressable market for the particular technology that you're looking to sell or looking to buy, and that will always be a fraction of the total market."

According to McGlynn, many investors "lost heart" in the cardiovascular market after stents, thinking all the unmet clinical needs had been addressed. He asked panel members what non-stent investments they would be interested in.

Fitzgerald cited heart failure, stroke and peripheral arterial disease as potential interest areas. Topping the list of interests is percutaneous valve technologies, a treatment that "is here to stay" and that will "make a huge impact on how we treat people with heart disease."

Dagi also said stroke was interesting, though hard to treat, especially from an FDA standpoint. The next large stroke area probably will be arteriovenous malformations, he said. HML is looking hard at congestive heart failure, the largest enters for Medicare & Medicaid Services expenditure, Dagi added.

Middleton mentioned tissue regeneration as an important area, as well as related areas such as gene therapy and the use of stem cells to regenerate heart tissue.

Another top-of-mind issue at the panel was the investment landscape, and panel members were optimistic about med-tech receiving money.

Dagi said HML sees this "as an incredibly interesting and potentially profitable time to invest. The only thing we wish is that we had more money to put to work right now." He said HML is reserving more money for its existing companies, but that it expects to put the same amount of money or more to work in 2009.

Middleton said Sanderling likely will be providing more reserves for existing companies and less money to new companies. One area of interest for 2009 will be new companies that don't require a lot of capital.

In a similar vein, Fitzgerald said Latterell is "hunkering down a little bit, taking care of the home."

Due to similar plans by other investment firms, companies looking for money may not have many funding choices this year. For companies with no data that are short on cash, "you've either got to take the valuation hit, get the money and move on, or you're going to have to find an alternative financing strategy," said Maroney.

Despite the cash crunch, the panel concluded on a positive note. Maroney said that it is now a fantastic time to start a company. "In bad times you get better people ... for reasonable prices," he said.

Fitzgerald said he was impressed with the current innovation, especially since innovators even have started thinking about costs and regulatory issues up front. "I think the quality today is better than it was last year. People get lazy when there's a lot of money... . From an innovative standpoint, I am incredibly encouraged. It's like being in a sandbox."

Firms of all sizes make pitches

The JP Morgan conference has something for everyone, with companies representing varying sub-sectors within the field and representing all different levels of capitalization from large-cap well-established companies to much smaller private companies still trying to make a name for themselves.

Definitely falling into the large-cap camp is Medtronic (Minneapolis), one of the largest medical technology companies in the world. Company Chairman/CEO Bill Hawkins said during his presentation that with healthcare reform on the horizon, he believes his company is poised "to be part of the solution, not the problem."

Unquestionably, the big news for the company was the announcement that very week of its pending acquisition of Ablation Frontiers (AB; Carlsbad, California) for an initial payment of $225 million plus potential milestone payments.

Medtronic said the goal of its newly formed AF Solutions franchise, led by VP and general manager Reggie Groves, is to be the physician partner of choice for atrial fibrillation (AF) ablation by bringing breakthrough AF therapies to the patients and physicians that are simpler, safer, effective, and offer more predictable procedure times than current treatment methods.

Following Medtronic's recent acquisition of CryoCath Technologies (Montreal), the addition of Ablation Frontiers' anatomically designed, catheter-based ablation technologies and its unique radiofrequency (RF) energy system will allow Medtronic to deliver the industry's broadest range of therapies, the company said. Medtronic reported its intention to buy CryoCath in September for $380 million in cash.

In 2006, Ablation Frontiers received the CE mark to begin marketing its system of catheters and the RF generator in the European Union. Ablation Frontiers is conducting a clinical trial under a FDA investigational device exemption to gain approval for permanent, or chronic, AF in the U.S.

Hawkins said this latest acquisition will allow the company "to democratize the whole AF procedure." He added that the AB technology "basically obviates the need to do extensive mapping and make this procedure easier to be done by a variety of different [emergency technicians]."

Hawkins said he sees the neuromodulation space as one area that has potential for great growth in the near term, particularly with the aging population and with that increasing numbers of people with neurodegenerative diseases. Areas that the company is working in include epilepsy, Parkinson's disease, and obsessive compulsive disorder.

Hawkins also said he sees the diabetes market as another potentially large market opportunity which is "particularly underpenetrated outside the U.S." He said the company is very excited about opportunities it sees in the area of glucose monitoring. "We really are transforming this ... from being kind of a pump business to really a business of monitoring and managing the people with overall diabetes." He said the ultimate goal in this space is to "close the loop" and develop an artificial pancreas.

On the private front, Evalve (Menlo Park, California), a promising developer of devices to enable percutaneous repair of cardiac valves, made its pitch for investor attention.

Ferolyn Powell, president/CEO of the company, said that Evalve's focus is to transform an existing surgical technique into a much less-invasive percutaneous procedure, with the focus being on mitral valve regurgitation, also known as MR.

MR is the most common type of heart valve disease in the U.S. and the second most common in Europe. Since the surgical approach involves the use of a heart-lung bypass machine, a vast majority of patients elect not to undergo the procedure, which leads their hearts susceptible to chronic volume overload, and ultimately in many cases, to heart failure.

The company's MitralClip is the first commercially available system that allows for a non-surgical option for patients suffering from MR. Repair with the device is performed by physicians in the cath lab, and the heart beats normally during the procedure. Use of the device may help patients delay or avoid surgery, having also preserved the surgical options of valve repair or replacement.

Using a tiny barbed, wishbone-shaped device, the heart is fixed non-surgically from the inside out. A catheter is carefully guided through the femoral vein in the groin, up to the heart's mitral valves. The clip on the tip of a catheter is then clamped on the center of the valve leaflets, which holds them together and quickly helps restore normal blood flow out through the leaflets.

Percutaneous mitral valve regurgitation repair was cited as the fifth most important new advance in the most recent Cleveland Clinic Top list of medical innovations that was unveiled in November.

Powell characterized the MR market as being over $4 billion in the U.S. alone, a figure which she said could be doubled when incorporating a worldwide market.

Powell noted that the device, which is currently approved for use in Europe, is on its way to earning a U.S. approval as well, with its recent completion of a U.S. pivotal study in 2008. She said the company expects to file its PMA submission for the MitraClip in the first half of 2010 with expected U.S. launch by the first half of 2011.

AccessClosure (Mountain View, California), a company founded in 2002 to develop a vascular closure product for use during interventional and diagnostic procedures, was pitched by its president and CEO, Fred Khosravi.

The company's lead product, the Mynx vascular closure device, was approved by the FDA in May 2007 and since then, has been used in more than 150,000 patients. The device achieves femoral artery hemostasis via extravascular delivery of polyethylene glycol (PEG), a biomaterial commonly used in medical devices and pharmaceutical products.

Khosravi described how the product works. The water-soluable PEG mix sealant is delivered to the targeted area via a 6 Fr or 7 Fr procedural sheath. Temporary hemostasis is achieved by introducing an inter-arterial balloon, followed immediately by the mix sealant.

The non-thrombogenic sealant then instantly absorbs blood and subcutaneous fluid, rapidly expanding up to three to four times its original size inside the tissue tract and producing a durable hemostasis. The sealant dissolves within about 30 days, leaving nothing behind but a healed artery.

Since the product was approved by the FDA 18 months ago, Khosravi said that Mynx already has achieved a 12% market share in the vascular closure market. He also noted that the device is sold at an average 25% premium to existing closure devices. Khosravi attributed the product's success to a key metric that he said differentiates it from any other product on the market – that it "is 99.9% free of any major vascular complications."

Over the next 18 months, Khosravi said the company plans to introduce a 5 Fr product for use in diagnostic procedures. He said the smaller size will allow the company to further penetrate into the manual compression market.

Clearing the bioabsorbable hurdle

Looking to develop a bioabsorbable coronary stent is REVA Medical (San Diego), whose Chairman Bob Stockman said his company has finally emerged from a 10-year odyssey in its quest to perfect the stent geometry.

Sullivan noted that in the earliest days of stent design, the big companies involved in the space had sought to design absorbable stents but they were handicapped by both the materials available to them at the time as well as the geometries of the stents, which he characterized as "too thick and stubby," which prevented a practical root for stenting an artery open.

More recent efforts to develop bioabsorbable stents have so far met with limited success, he said, mainly because the stent fails to provide adequate support for the vessel over an adequate period of time, as exemplified by the first version of the Absorbable Metal Stent (AMS) from Biotronik (Berlin).

When researchers at REVA first decided to create a degradable stent, they already had the design in hand. They had recently developed a metal stent with a novel "slide and lock" design, in which the stent unfolds in the artery like an extension ladder instead of bending and expanding outward like most other stents.

The second challenge was finding the right material for the absorbable stent. Researchers at Rutgers University (Camden, New Jersey) helped the company develop a stent that is comprised of a tyrosine-derived polycarbonate material that has strength, flexibility, recoil and X-ray visibility equivalent to that of metal. A paclitaxel-eluting version also is in development.

As opposed to metallic drug-coated stents, Stockman said REVA's product addresses concerns regarding incomplete healing and late-stage thrombosis in patients, as well as reducing the need for long-term anti-platelet medication.

REVA, which commenced first-in-man trials in June 2007 (the RESORB trial), has established a broad strategic relationship with Boston Scientific (Natick, Massachusetts).

Targeted, intimate setting

Back at the OneMedPlace meeting, several smaller companies made their pitches in a much more intimate setting.

Attempting to bring to market a product to improve the surgical repair of mitral valve regurgitation is a company called Neochord (Minnetonka, Minnesota). John Seaberg, the company's president/CEO, said the company has developed a device that eliminates the need for a sternotomy and cardiopulmonary bypass.

The company licensed the technology from the Mayo Clinic (Rochester, Minnesota) that was invented by a cardiac surgeon while in practice there. The tool is designed to allow for the use of minimally invasive use surgical techniques for the implantation of artificial chordae tendineae on a beating heart.

During normal function, the chordae tendineae tether the mitral valve leaflets, ensuring correct closure during ventricular contraction. Rupture of the chordae due to myocardial infarction or degenerative disease is a common cause of mitral leaflet prolapse and subsequent mitral regurgitation.

Seaberg said the company is currently looking for investors to top off a $3.5 million Series A round, the funds of which will be used to carry the company through the completion of its human feasibility trial which it intends to begin in May 2009.

While the company plans to pursue those people who are already prime surgical candidates, Seaberg said NeoChord's ultimate goal is to tap into the U.S. patient population of more than 2 million people with mitral regurgitation who have not been treated because the risks of the current procedure are currently deemed to be too high compared to the severity of their disease. These people, he said, are in need of a minimally invasive treatment option.

"Current patients will be treated with less trauma, lower risk and less cost and frankly, that more patients will be treated because of the less invasive technology."

According to Seaberg, the clinical literature has shown that it is much better to treat patients in this sector while they are still relatively symptom-free. He noted that nearly 42% of asymptomatic patients died from complications related to this disease within five years. "It is a silent killer," he said.

Seaberg said the company is hoping to have FDA approval for the technology sometime in 2012.

Developing a photonic-based platform technology for the diagnosis and treatment of various diseases is InfraReDx (Burlington, Massachusetts). The private company is initially focusing on the creation of a system that will enable the diagnosis of lipid-core containing plaques in the coronary arteries.

The company received FDA clearance for its catheter-based LipiScan coronary imaging system in April 2008. The LipiScan device uses near-infrared (NIR) spectroscopy to identify lipid core containing plaques of interest in the coronary arteries in patients already undergoing cardiac catheterization. Such plaques, which cannot be detected by commonly used tests such as a treadmill exam and even coronary angiography, are suspected to be the cause of most sudden cardiac deaths and non-fatal heart attacks. This condition recently attracted heightened attention due to the death last June of Meet the Press host Tim Russert.

James Muller, company founder and president/CEO, said that NIR spectroscopy is used to measure the chemical composition of unknown substances. The LipiScan system uses optical technology, much of it developed for telecom uses, to deliver and retrieve NIR light from coronary plaques.

Muller said the light reflected back at different wavelengths is analyzed to detect the chemical composition of the coronary plaques. At the completion of the catheter pullback, the LipiScan console instantly displays the scan results on a "chemogram," a digital color-coded map of the location and intensity of lipid core containing plaques of interest in the artery.

The company believes that the vulnerable plaque diagnostic market will exceed $2 billion by 2013. Muller said the company's primary customers include interventional cardiologists, and its secondary market extends its reach to clinical research for drug and medical device development.

According to Muller, the company is preparing a second generation of the device that can visualize and determine the chemical composition of lipid-rich plaques.

InfraReDX has currently raised more than $87 million in private funds and is in the process of raising a $20 million C-2 round that Mueller said "will get us to financial breakeven."

Symphony Medical (Laguna Hills, California) is looking to treat heart failure, post-operative atrial fibrillation and other cardiac abnormalities with its biopolymer and biotherapeutic devices.

The company's CEO, Raymond Cohen, noted that the company's goal is to deliver biocompatible polymers to specific areas of the heart during either open chest surgery or via a minimally invasive procedure. He said the biopolymers are engineered to achieve clinical benefit by locally modifying cardiac physiology.

The company currently has two products in its late-stage development pipeline. Algiysl-LVR is a treatment to prevent or reverse the progression of chronic heart failure and mitral regurgitation. The other product, Plexisyl-AF, is a prophylactic method of preventing sustained post-operative atrial fibrillation, a common side effect of the roughly I million coronary bypass and cardiac valve replacement surgeries performed each year.

Cohen described how the company's lead product, Algiysl-LVR, is delivered to achieve ventricular augmentation. He said the polymer is administered as an inert compound into the left ventricular wall of the heart where it reshapens and thickens the tissue. By restoring the shape of the ventricle from more of a "basketball shape to more of a football shape," Cohen said pumping efficiency is re-established and cardiac wall stress is also reduced. Essentially, the strategically placed biopolymer reconstructs the heart chamber so that it assumes its more natural, healthy form. Cohen said the implanted material does not cause negative immune reactions and it coexists permanently with the heart muscle.

Cohen said the company is planning a first-in-man study of the Algiysl-LVR product sometime this quarter. The company filed an IDE for the product in December. The Plexisyl-AF product has advanced to human clinical trials, and a human clinical study was completed in Europe in May 2008. The company plans to file an IDE for that product sometime this quarter, and a U.S. clinical study is planned for 2H09.