Medical Device Daily Contributing Writer

BOSTON — The 28th annual Global Growth Conference, sponsored by Canaccord Adams (Vancouver, British Columbia) here last week, featured about 350 growth companies from a wide swath of the economy.

Although medical technology was dwarfed by many other economic areas, it still was a very prominent participant and drew strong interest from money mangers eager to hear timely updates and "pitches" from these companies.

On the eve of the conference, highly-regarded Canaccord med-tech analyst Jason Mills published an impressive and comprehensive report titled "A-Fib: Near a Tipping Point," in which he asserted that the med-tech companies serving this sector are "just scratching the surface of a $13 billion market opportunity."

Mills estimated that within the atrial fibrillation market, the catheter ablation sector, basically targeting intermittent or paroxysmal Afib (PAF) in developed countries (U.S., Europe, Japan) is only 3.6% penetrated. He also believes that surgical ablation, targeting mostly persistent or chronic Afib (CAF), is less than 2% penetrated.

CEO Dave Drachman of Atricure (West Chester, Ohio) said that "we are a company on the move" in the Afib space, with the leading market share in the surgical ablation arena. He claimed a 52% share, nearly double his next largest competitor, Medtronic (Minneapolis), and quadruple the share of ATS Medical (ATS; also Minneapolis).

Drachman defined the surgical ablation market in two buckets — "concomitant" (i.e., in tandem with another open-heart procedure such as a CABG or valve replacement) and "stand-alone" (a less-invasive procedure solely for treating Afib) — and indicated that his company has been involved in nearly 55,000 procedures since entering this market in early 2003.

He said that the latter opportunity was vastly larger than concomitant, estimating it at about $2 billion. Stand-alone is particularly attractive because it is buoyed by a lucrative reimbursement level that Drachman said makes it "the most profitable cardiovascular procedure in the hospital today."

Based on company data and information provided on its quarterly conference calls with the financial community, Atricure's revenue per procedure in this category typically reaches or exceeds $9,000, while a concomitant operation yields about $3,000.

Atricure was a pioneer in the Afib surgical space and Drachman noted that the company continues to be keenly committed to innovation and new products. Its aggressive R & D spending, which has accounted for about 18% of first-half 2008 worldwide revenue, is highly productive, based on its pipeline of new products.

These additions, which will roll out over the next 12 to 18 months, include disposable cryo-energy probes, an expanded platform for its already very successful Coolrail linear ablation pen, a next generation isolator clamp and a left atrial appendage (LAA) clip.

Drachman defined the latter as a potential "franchise product" based on a huge untapped market and its apparent superiority over the currently available and aging stapling or suturing approaches.

Although a controversial issue, many experts believe that occluding the LAA will reduce the risk of an embolic stroke following an Afib ablation. AtriCure recently received FDA approval to begin enrollment in its EXCLUDE left atrial appendage occlusion trial, which will need to recruit 60 patients, 30 of whom will be followed for six months.

A 510(k) filing could occur in mid-2009, implying a possible FDA clearance and domestic launch in late 2H09. In the Canaccord report, Mills said, "We expect the clip to become a 'staple' within AtriCure's minimally invasive product suite."

Drachman pointed out that his company has been making enormous financial strides with its "disciplined spending," noting that 1H08 revenue surged 23% over the prior year, with a modest 4% increase in expenses. The company showed a loss of about $5.2 million in the first half of 2008 on revenue of $28.4 million. It hopes to achieve break-even status and positive cash flow sometime in 2009.

"We are all about execution and are totally committed to profitability," he said.

The ebullient sentiments of Mills and Drachman on the Afib opportunity were heartily supported by the CEO of ATS, Mike Dale, who said that it is "the biggest opportunity in cardiac surgery today." He indicated that this "truly emerging market" is only about $151 million today, but represents a $1 million to $3 billion overall opportunity.

Whereas Atricure was described by Drachman as a "pure play," with 100% of its sales generated by Afib, ATS is broadly diversified within cardiovascular surgery. In launching coverage on ATS earlier this year, Mills had estimated that about one-quarter of its global revenue of roughly $65 million in 2008 would be generated from its A-Fib efforts.

Atricure derives a significant percentage of its revenue from the minimally-invasive, beating heart stand-alone Afib procedure and uses radio frequency energy. Conversely, the vast majority of ATS's Afib revenue today is coming from its stopped-heart concomitant procedures using cryo-energy.

ATS is a newcomer to the stand-alone market and derives a modest amount of revenue from its stopped-heart, robotic or endoscopic, right-sided incisions. These early cases are being performed by either robotically or endoscopically competent cardiovascular surgeons or surgeons skilled in mitral valve repair.

Dale alluded several times to the company's strong relationship with and support from its new medical director and noted cardiac surgeon James Cox, MD, of the Washington University School of Medicine (St. Louis). Cox, who pioneered open-chest atrial fibrillation surgery decades ago, has stated on many occasions that "the only sure way" to achieve normal rhythm in AF patients is to cryo-ablate the coronary sinus.

Dale was clear in the breakout session that ATS "has beating-heart aspirations," but candidly admitted that neither Cox nor his company had a "definitive solution" as yet. Some cardiovascular surgeons believe that extremely cold cryo energy is incompatible with the circulating warm blood that exists in a beating heart procedure. Thus, a solution will be technically challenging and require considerable development efforts.

In the past several years, under the leadership of Dale, ATS has been transformed. Just one year ago, it derived more than 80% of its global revenue from the essentially mature mechanical heart valve market. In the most recent 2Q08, that contribution had dropped to less to 64%.

This improved balancing of its revenue mix was mainly due to the June 2007 acquisition of the surgical cryo business of CryoCath and the September 2006 purchase of privately-owned, venture capital-backed valve maker 3f Therapeutics (Lake Forest, California).

ATS is currently registering robust growth all three new area. The tissue valve product line is been buoyed by the launch of the 3f stent-less aortic tissue valve in Europe. Valve repair is benefiting from the introduction of two new mitral valve annuloplasty rings, while Afib revenues are enjoying nice gains from a better focus and broader distribution.

On the company's recent conference call with analysts, Dale indicated that FDA approval for its 3f tissue valve could come shortly. This would be a big boost to the company, enabling it to compete in the far larger domestic tissue valve market.

As a result of ATS's aggressive acquisition strategy, its "superior product solutions" and its single-minded focus on cardiac surgery, Dale said he believes that his company is on the verge of "dramatic and significant leverage" in its operations.

No Comments