From BB&Ts

The year may be new, but the Big Picture story is the same one we’ve heard for a decade: Mergers and acquisitions in the medical technology industry will continue through 2008, according to Jefferies & Company (New York), a global investment bank and institutional securities firm.

What does seem new for the med-tech industry is the rapidly increasing influence of Asia.

The analysts at Jefferies are predicting that the largest market opportunities are in China, India and Eastern Europe, according to the firm’s equity research report, “Themes & Tactics: U.S. Top Picks 2008,” issued early last month. Bottom-line lower costs associated with manufacturing are driving this trend, Mark Richter, a device and diagnostics analyst for Jefferies, told Biomedical Business & Technology.

“As companies are looking for continued growth, they are looking to buy distributors internationally. It’s an additional growth driver,” Richter said. “Thirty-five percent of med-tech revenues come from international, and the companies are looking for more international growth.

“Companies that move into Asia will be helped because they can capture substantial savings in their costs,” he said. “Inverness Medical is a classic example. They are shutting down manufacturing facilities in the U.S. and saving money. For every test they transfer overseas, they save 20 cents. There’s tons of capacity in Asia and cost savings.

“CEOs are becoming less concerned about IP [intellectual property] violations as IP protection becomes more stringent and upheld over there,” Richter said.

Inverness Medical Innovations (IMI, Waltham, Massachusets), a developer of rapid point-of-care diagnostics, has been scooping up diagnostics firms at a rapid rate and is one of two “top pick” med-tech companies for Jefferies in 2008. And it is continuing to shift its manufacturing to China to garner huge costs savings.

Its numerous acquisitions in 2007 include Cholestech (Hayward, California), a maker of rapid diagnostic products, for $326.3 million; Matritech (Newton, Massachusetts), a developer of protein-based diagnostics, for about $36 million; HemoSense (San Jose, California), a developer of hand-held blood coagulation monitoring systems, for $165 million; Biosite (San Diego) for $92.50 a share; and Alere Medical (Reno, Nevada) for $302 million.

IMI “was our top pick last year too,” Richter said. “It’s got even more legs of growth for this year for a couple of reasons, including its acquisitions of Biosite and Cholestech.”

The company also is planning to migrate tests from the emergency room to doctors’ offices, opening up another avenue for increased revenues.

Jefferies’ other favorite company is Allergan (Irvine, California). Allergan’s ophthalmology and aesthetics portfolios, he said, should “continue to provide upside to Street projections over the next several quarters.”

Richter predicts Allergan will pursue new acquisitions in 2008, particularly in the field of urology, to complement its development work for Botox in overactive bladder and its purchase of Esprit Pharma (Princeton, New Jersey) in October. In 2006, Allergan acquired Inamed (Santa Barbara, California) and its sector-leading Lap-Band system for gastric bypass.

Richter said reimbursement for the bariatric product will improve further following the launch of Ethicon Endo-Surgery’s (Cincinnati) Realize band. Other Inamed products, including breast implants and dermal fillers, beat sales expectations in the most recent quarter, resulting in strong double- and triple-digit growth. “Allergan has raised its full-year guidance for both product lines, citing no evidence of any slowdown, which we believe bodes well for 2008,” he said.

Overall, Richter said a weak consumer market and a weak dollar, combined with cheaper med-tech valuations, “could ignite significant buyout activity in 2008.

“Med-tech in general is delineated into the haves and have-nots,” he said. “The mid- to large-cap consolidators and the small one-product companies have outsourced their R&D. When these small companies start executing, these larger companies will take them out.”

Enrollment ‘challenges’ lead NMT to close migraine trial

A trial testing the closure of a patent foramen ovale (PFO), a hole in the heart that fails to close after birth – in this case specifically targeting the relief of migraine — has been terminated by the sponsoring company, NMT Medical (Boston), which is one of two major players in the PFO-closure sector.

That application has been seen by companies developing PFO closure devices as an important expansion, and validation, of these device systems. But NMT Medical said last month that it is closing down its PFO/migraine trial, MIST II. In particular, it cited “challenges” in patient enrollment.

The MIST II trial was evaluating the safety and efficacy of its BioStar implant for the treatment and prevention of migraine headaches in patients with PFO. It was designed as a double-blinded trial, aiming to randomize about 600 patients with PFO to either PFO closure with BioStar or a control arm. The device, made of bioabsorbable collagen matrix material, is designed to promote closure of structural heart defects, such as PFO.

The move is expected to save the company about $14 million over the next two to three years. NMT said it plans to spend part of that savings on CLOSURE I, its pivotal PFO/stroke and transient ischemic attack (TIA) trial.

John Ahern, NMT’s president/CEO, told BB&T that the criteria that had to be met by trial enrollees were “far more restrictive than anyone would have anticipated.” As a result of the rigorous patient screening process, he said, patient randomization progressed more slowly than anticipated.

The company originally had expected MIST II to be a “fast-enrolling trial and that everything would get done and buttoned up in a year,” Ahern said, but this clearly was not the case.

MIST II was being conducted at 20 centers in the U.S. The trial was approved by FDA in September 2005 and redesigned in August 2006. More than 1,400 patients had been screened for enrollment in the trial, but only a handful of those patients met the requirements to be randomized, Ahern said.

Though citing the potential money saved, the company said that the decision to close the trial was based solely on the strict enrollment requirements, he said, not cost.

Ahern said that this was an important, yet difficult, decision for the company. “We determined that it was in the best interest of NMT and its shareholders to terminate further enrollment in MIST II to better allocate those resources toward our ongoing stroke initiatives,” he said.

The company will explore other regulatory pathways to gain approval for BioStar in the U.S., according to Ahern. The device was launched in Europe and Canada last July after receiving the CE mark in Europe and a Health Products and Food Branch medical device license in Canada.

“While NMT continues to believe in the relationship between PFO and migraine, it has become clear that an acceptable enrollment dynamic was not possible and completing the study would require more time and financial resources than we are willing to commit at this time,” he said. “Therefore, we believe it is in the best interest of those involved to close the study.”

The trial’s co-principal investigators – Stewart Tepper, MD, associate clinical professor of neurology at the Yale University School of Medicine (New Haven, Connecticut) and Mark Reisman, MD, director of cardiovascular research at Swedish Medical Center (Seattle) – agreed that a PFO/migraine connection still needs to be studied. “Future study designs should address patient inclusion/exclusion criteria and their impact on the enrollment process,” Tepper said.

Ahern said that results of the MIST I trial, conducted in the UK, are expected to be published in Circulation early this year. That trial, he said, supports further investigation into the PFO/migraine connection.

AGA Medical (Plymouth, Minnesota), one of NMT’s primary competitors in this sector, launched a Phase III trial in 2006 with its Amplatzar PFO closure device to examine the link between PFO and migraine headaches. AGA also is engaged in a study examining the ability of PFO closure to prevent stroke.

Novadaq imaging system gets FDA approval for organ transplants

Novadaq Technologies’ (Toronto) SPY imaging system received FDA 510(k) clearance in January for organ transplant surgery, allowing surgeons to visualize blood flow to the new organ while the patient still is on the operating table.

The creation and maintenance of adequate blood supply to the newly transplanted organ is critical to the success of transplant surgery. Inadequate blood flow can lead to serious complications such as organ thrombosis and allograft failure.

“Our product allows visualization of blood flow to any organ,” Arun Menawat, PhD, president/CEO of Novadaq, told BB&T. “When they do transplant surgeries, they are interested in knowing the quality of the organ and whether or not it’s receiving the blood supply. Once they confirm that, they want to know if the blood is perfusing properly to all areas of the organ.”

SPY use in transplant surgery is expected to create endpoints for the surgery that allows surgeons to quickly assess whether or not the transplant has been successful.

“Over the long term, this should facilitate more organ transplants,” Menawat said.

SPY was originally cleared by the FDA in 2005 for use in coronary artery bypass graft surgery. Last year, Novadaq increased its sales team to facilitate more SPY sales in the U.S. Menawat said 100 units already are installed in U.S. hospitals.

“Intra-operative fluorescence imaging using the SPY System has opened a new portal in transplant surgery. Potentially, the days of qualitative assessment of organ appearance, pulse quality, and simple quantitative vascular flow measurements using electromagnetic devices as the sole measurement of an organ transplant are limited,” said Edmund Sanchez, assistant director of transplantation services at Baylor University Medical Center (Dallas).

“Our familiarity study of SPY in liver, kidney, and pancreas transplant has demonstrated many potentially beneficial aspects of intra-operatively assessing organ perfusion through imaging,” he said. “The success of organ transplantation is highly dependent on vascular patency and allograft perfusion. The SPY System has allowed intra-operative visualization of both immediately after reperfusion.”

SPY has a camera head that is arrayed on an articulating arm to facilitate use for different parts of the body.

In addition to the clearance for organ transplant, Novadaq has received a broader indication for the use of SPY in cardiovascular surgery, beyond the originally cleared indication in coronary artery bypass.

Stryker picking up Curis’ BMP-7 program where Ortho left off

Curis (Cambridge, Massachusetts) has licensed its bone morphogenetic protein-7 (BMP-7) program to Stryker (Kalamazoo, Michigan), ending a seven-month search to replace former partner Ortho Biotech Products (Bridgewater, New Jersey).

Michael Gray, CFO of Curis, termed Stryker “the ideal partner” to develop and manufacture BMP-7, which he called a “complicated protein.”

Stryker certainly has the experience to get the job done. The company already markets a BMP-7 product used to stimulate bone healing in certain spinal fusion and long-bone procedures. That product, called OP-1, combines recombinant human BMP-7 with a purified Type I collagen carrier.

Stryker gained access to the BMP-7 patents through a 1985 deal with Creative BioMolecules, which later became a part of Curis. But Stryker’s license previously covered the use of BMP-7 only in the repair or regeneration of local musculoskeletal tissue defects and dental defects. Curis initially licensed all other BMP-7 rights to Johnson & Johnson’s (New Brunswick, New Jersey) Ortho unit.

Under the Ortho deal, Curis received $3.5 million up front and might have gotten up to $30 million in milestone payments if a BMP-7 product had gained FDA approval for the treatment of kidney disease. But the program never made it past pre-clinical development, and Ortho handed back all rights earlier this year.

Now Stryker is picking up those rights in exchange for $1 million up front and undisclosed clinical, regulatory and sales milestones.

Curis said global commercialization of a BMP-7 product could result in $41 million in payments, $14 million of which would go to a former collaborator of Creative BioMolecules if the product is associated with chronic kidney disease.

Pre-clinical data thus far indicate that BMP-7 might indeed be applicable in treating conditions associated with chronic kidney disease, such as fibrosis and blood vessel calcification. The signaling protein also has been linked to upkeep of the skeleton and vascular system, and Gray mentioned stroke as another possible indication.

In other Stryker news, the company said last month that two of its products cited in an FDA warning letter recently posted by the agency offer no risk to patient safety, but that it is recalling the products anyway because they “in some cases exceeded” its own internal criteria.

The company said that because of this “deviation from internal specifications,” it is voluntarily recalling its Trident PSL and Hemispherical Acetabular Cups manufactured in its Cork, Ireland, facility.

There is “no clinical evidence to indicate that the products mentioned in the letter represent a risk to patient safety,” it said.

The finding of deviations from specification was the result of “a comprehensive review and investigation” of its internal processes, Stryker said. And while it noted the exceeding of its internal standards, it said that the review indicated that that all Trident Acetabular products manufactured in Cork, Ireland, have met all U.S. and international performance standards for sterility and biocompatibility. It also cited “independent clinical evidence” that favorable performance of these devices “compares ... with other high-performing acetabular devices.”

Northstar Neuroscience trial for cortical stimulator missess endpoint

Northstar Neuroscience (Seattle) stock plunged 83% in the latter part of January on news that its EVEREST pivotal trial evaluating cortical stimulation to improve hand and arm function in stroke survivors failed to meet its primary efficacy endpoint. On a day when U.S.stock indices plummeted generally following huge falloffs on global markets, Northstar’s stock closed at $1.37 in heavy trading – 16 million compared to average volume of 290,000.

“To put it mildly, we are extremely surprised and disappointed by these results,” said John Bowers, president/CEO of Northstar, during a conference call.

Despite the stock tumble, Northstar is in a solid financial position to press forward with other neurostimulation indications and applications. As of Dec. 31, the company had $80 million in cash and investments. Northstar had the most successful med-tech IPO in 2006, raising more than $100 million.

Hopes in the stroke sector were high for EVEREST, which was designed to determine whether cortical stimulation in conjunction with rehabilitation therapy would provide greater gains in hand and arm function for stroke victims and improve on daily living activities, compared to rehabilitation therapy alone.

Cortical stimulation therapy is a method for the precise delivery of low levels of electricity to the outer layer of the brain via an implanted stimulator system.

At the four-week follow-up, 30.8% of the patients receiving cortical stimulation achieved the threshold of clinically meaningful improvement for the composite primary efficacy endpoint defined in the study protocol, compared to 29.1% of the patients in the control group.

The primary efficacy endpoint required a 20% absolute difference between these two groups. Further analyses of the components of the primary endpoint also failed to show a statistically meaningful difference between investigational and control subjects.

Northstar is in the process of collecting and processing data through 24 weeks in readiness for analysis of longer-term follow-up and other secondary outcome measures. “While this process is not yet complete, we’ve conducted a preliminary review of some of these longer-term data,” Bowers said. “Based on this initial review, we believe that our subsequent formal analysis of these data is unlikely to provide sufficient evidence of efficacy to support a PMA submission for our therapy.”

Synergy raises $143M for new fund focused on med-tech

Synergy Life Science Partners (Portola Valley, California), a venture capital limited partnership focused on investments in emerging medical device technologies, reported the completion of fundraising for its debut fund with $143 million in committed capital. The firm said it has closed on six investments to date.

Tracy Pappas, CFO of Synergy, told BB&T that the firm’s goal is to invest the money in large therapeutic areas, primarily cardiovascular disease, orthopedic and spinal diseases and injuries, metabolic disorders such as diabetes and obesity, neuron-mediated disorders, oncology and ophthalmic conditions.

Founded in 2006 by John Onopchenko; Richard Stack, MD; and William Starling, Synergy invests directly in private, early-stage device firms or emerging companies that are developing disruptive technologies to address unmet or under-served human healthcare needs.

“We’re excited about our fundraising accomplishments and our early portfolio,” said Onopchenko, a managing director of Synergy. “We’ve received a great deal of support from our new limited partners, who share our vision for building and accelerating the delivery of innovative medical products. Our goal is to help dramatically improve the standard of patient care in our therapeutic categories, while generating exceptional returns to the customers of and investors in our portfolio companies.”

Tracy Harris, director for Parish Capital Advisors, said Synergy’s “innovative strategy” for device investing is “an ideal fit for our portfolio.

“We believe the unmatched industry expertise of the managing directors and the fund’s strategy of targeting early-stage companies in large therapeutic areas position Synergy to offer outsized returns for investors,” Harris said.

Synergy said it has the right to invest in companies initiated by Synecor, a medical device incubator co-founded by Stack and Starling.

QLT says it will sell U.S. assets and lay off 115 ‘to enhance value’

QLT (Vancouver, British Columbia) last month reported that following a months-long review, it will implement several initiatives, including the sale of QLT USA, whose primary assets include the Eligard product line for prostate cancer, Aczone, a dermatology product for the treatment of acne vulgaris, and the Atrigel drug delivery system, either in a single transaction or series of transactions.

Eligard is an extended-release injectable depot available in one-, three-, and four-month formulations. That product was acquired through QLT’s 2004 acquisition of Atrix Laboratories (Fort Collins, Colorado) and is partnered with Sanofi-Aventis (Paris).

The company also said it would sell the land and building associated with and surrounding the company’s corporate headquarters in Vancouver and reduce by 115 its employee headcount with planned future reductions as assets are divested.

The company said it intends to retain “adequate proceeds” from these sales in order to repay the outstanding convertible debt in September. In addition, it will evaluate options for the optimal use of the balance of cash proceeds from the asset sales and will provide updates on these options at the appropriate time.

“Following a comprehensive review of available options, the QLT board has concluded that seeking offers for the sale of QLT USA as a whole or of its assets is a key initial step in executing our strategy,” said Boyd Clarke, QLT’s chairman.

QLT said it plans to focus its ongoing business primarily on its Visudyne franchise and its clinical development programs related to its punctal plug delivery technology and its photodynamic therapy dermatology technology.

QLT develops pharmaceuticals in the fields of ophthalmology and dermatology. In addition, it utilizes three technology platforms, photodynamic therapy, Atrigel and punctual plugs with drugs, to create products .

$90 million payment by Illumina ends dispute with Affymetrix

Affymetrix (Santa Clara, California) and Illumina (San Diego) reported an agreement that settles patent infringement litigation between them. Illumina agreed to pay Affymetrix $90 million, without admitting any liability. Affymetrix in turn agreed to dismiss all lawsuits it had brought against Illumina. Illumina agreed to dismiss its counterclaims in the lawsuits.

In exchange for the payment, Affymetrix granted Illumina, its affiliates and its customers a perpetual covenant not to sue for making, using or selling any of Illumina’s current products, evolutions of those products and services related thereto.

Affymetrix said it also extended the covenant not to sue for four years for making, using or selling Illumina products or services based on future technology developments.

The covenant not to sue covers all fields other than photolithography, the process by which Affymetrix manufactures its arrays and a field in which Illumina does not operate.

In March 2007, the U.S. District Court for the District of Delaware ruled that Illumina had infringed patents held by Affymetrix and Illumina then said it would appeal the verdict. In October, Affymetrix added additional infringement claims to its suit against Illumina, and court action was expected to begin in early February.

The settlement will resolve all litigations and payments resulting from lawsuits Affymetrix commenced against Illumina in U.S. District Court for the District of Delaware, in Regional Court in D sseldorf (Germany), and in High Court of Justice, Chancery Division – Patents Court in London.

Illumina manufactures tools and integrated systems for the large scale analysis of genetic variation and biological function.

Q-Ray’s ionization ‘blather’ and ‘bunk’ results in $16 million fine

The U.S. Court of Appeals for the Seventh Circuit last month upheld a district court ruling requiring marketers of the “Q-Ray Ionized Bracelet” to give up almost $16 million in net profits as part of a maximum $87 million they must pay in refunds to consumers.

The court concluded: “The magistrate judge did not commit a clear error, or abuse his discretion, in concluding that the defendants set out to bilk unsophisticated persons who found themselves in pain from arthritis and other chronic conditions.”

The court found that the defendants’ claims about how their product worked, for example, through “ionization” or “enhancing the flow of bio-energy” were “blather.” Easterbrook wrote, “Defendants might as well have said: ‘Beneficent creatures from the 17th Dimension use this bracelet as a beacon to locate people who need pain relief, and whisk them off to their home world every night to provide help in ways unknown to our science.’”

The FTC filed its case in 2003, alleging that QT Inc., Q-Ray Company and Bio-Metal, located in Illinois, and their owner, Que Te Park, made false and misleading advertising claims that the Q-Ray bracelet provided immediate and significant pain relief, and that they deceptively advertised their refund policy.

In 2006, the federal district court in Chicago found in favor of the FTC. In November 2006, the court required the defendants to turn over a minimum of $22.5 million in profits and up to $87 million in refunds to consumers who bought the bracelets between Jan. 1, 2000, and June 30, 2003, when the bracelet was advertised on infomercials, Internet sites and at trade shows.

The district court later reduced the disgorgement amount to $15.9 million.