Medical Device Daily National Editor
NEW YORK – "Lumpy."
That was the term occasionally heard at the Piper Jaffray Health Care conference last week to indicate, for instance, a company's herky-jerky cash flow, or the ups and downs of foreign exchange rates, or perhaps the occasional disruptions of patent challenges.
But the term also could be used to describe the positioning changes that many smaller and medium-sized companies frequently must go through to reach profitability and maturity.
Take, for instance, Abiomed (Danvers, Massachusetts), Cyberonics (Houston), and Greatbatch (Clarence, New York).
While these companies undoubtedly would dislike being described as lumpy, their developmental pathways obviously have not been straight lines.
Rather, they have experienced significant redirections and redos – occasional misdirections, perhaps – as they drive toward fulfillment of full potential.
Abiomed, for instance, may still be best associated in many minds with its AbioCor artificial heart. But it has clearly shifted to an aggressive emphasis on another heart technology, the Impella ventricular assist device, a platform system that the company says will drive profits and advance its presence in the cardiovascular arena.
Presenting at Piper Jaffray, President/CEO Mike Minogue told his audience at the Palace Hotel that up to 80% of the company's focus is on expanding Impella use, and Minogue has been the main driver in shifting emphasis away from the artificial heart, the technology pursued with missionary-like zeal by company founder David Lederman.
Minogue noted that the company has eight products cleared or approved by the FDA, but that "all these things are secondary to Impella."
Aimee Maillett, Abiomed public relations specialist, assured Medical Device Daily that the company has not abandoned the AbioCor heart, and that the company is expecting implantations of the AbioCor next year, with four centers readied to do them.
But she acknowledged that the company has shifted focus from a heart device that will simply extend survival – in best-case scenarios up to 24 months – to a device offering "recovery" of the heart and a much extended lifespan, the targeted patient pool younger people before they reach end-stage cardiovascular illness.
This, of course, also translates to larger profit potential.
Minogue told conference attendees that the Impella offers three types of action which not only provide greater infusion of blood but also help the heart recover pumping function. This clinical benefit, he noted, translates to huge healthcare savings, for instance, in making unnecessary the continuing use of drug therapy.
The goal, he said, is 'to obsolete balloon pumps and ionotropic drugs," used with the intention of strengthening the heart muscle.
Delivered by a less-invasive percutaneous method, the Impella currently is being used in the majority of heart transplant centers and the company is driving to penetrate cath lab environments with an expanded sales force and more staff to provide training in the use of Impella, Minogue said.
Cyberonics is a company that might best be described as recovering from misdirection.
The company achieved initial success with its implanted vagus nerve stimulation (VNS) device to treat epilepsy.
But under its former president, Robert "Skip" Cummins – another executive with impassioned faith in his company's product – Cyberonics pushed for primary use of VNS technology as a therapy for depression resistant to drug therapy, or "treatment-resistant depression" (TRD).
It fought a disruptive, six-year battle which ultimately served to gain FDA approval for the TRD application in 2005 (MDD, Feb. 4, 2005), but uptake subsequently was stymied by failures to win reimbursement coverage, especially by the Centers for Medicare & Medicaid Services (MDD, May 9, 2007).
President/CEO Daniel Moore told conference attendees that a new board has "basically moved the company away from the depression indication ... back to the epilepsy market."
In the process, he said, "We've just started doing all the natural things you do in the medical device business," such as changes in the company's sales structure to match "what's happening within epilepsy," expansion to international markets and more R&D work.
"We are in a situation where we believe it's better to have two or three or four products," Moore said. "We intend to have multiple products for epilepsy."
The company posted 2Q09 results of $36 million, a 24% increase over results of 2Q08, attributable mostly to sales for the epilepsy application.
He noted the large patient pool target, some 2.7 million epilepsy patients (about 125,000 newly diagnosed each year), and approved labeling enabling the company to treat 400,00 of that 2.7 million pool.
In its most recent quarterly report, the company said that about 3,600 patients were implanted with VNS over the past 12 months in the U.S. and 5,700 worldwide, indicating only minimal penetration of the available market.
"We want to educate more physicians on the benefits of VNS therapy and bring more products to those physicians to help them treat their patients," Moore said. Rather than pursuing a direct-to-consumer strategy, Cyberonics will be "definitely more focused on physicians," especially with "more clinical data."
Perhaps best fitting the "lumpy" company characterization is Greatbatch, which has grown, contracted, refocused, expanded and is again going through the contraction/consolidation/integration process.
Greatbatch is an original equipment manufacturer (OEM) making key components used in implantable products for cardiovascular, neuromodulation, orthopedic and radiologic applications. Pursuing a refocusing strategy in 2004, it began scaling back from 16 locations to six "campuses," President/CEO Thomas Hook said in his presentation.
The company then went into acquisition mode last year.
"In 2007, we did a recapitalization and looked for targeted deals," Hook said. This resulted in the accumulation of seven companies and 30 facilities, with Greatbatch now undertaking what he called "a dozen consolidation exercises."
"We can probably get down to a dozen facilities. We've been aggressive in shedding overhead, shutting facilities, consolidating the manufacturing environment."
What, he was asked, gave the company the confidence to go through the integration process again?
"A lot of patience, operating skills, a little therapy," was Hook's response, accompanied by a wry grin. "What we looked at is the cost-effectiveness of smaller deals, the opportunities for synergies, the technologies we wanted."
Full integration will take another two years of "hard work," he said, but that the results are already being seen.
In its overview book for the conference, Piper Jaffray noted the company's expanding margins and growth of "71% YTD over prior-year levels." But it also expressed a "lack [of] conviction in the company's ability to achieve continued gains from its consolidation efforts."
Asked about new offerings, Hook cited the rollout of advanced technologies to aid medical device customers in making their devices MRI-compatible and "wireless sensing technologies, commercially based, for oil and gas and related industries, as well as medical implantable industries.'
Hook said that Greatbatch is "growing organizationally because we're serving customers very well."
And perhaps to allay investor fears concerning the need for even more integration "exercises," he said the company has "no other acquisitions planned."