CDU Executive Editor
SAN FRANCISCO – Cardiovascular device firms of every shape and size – small caps, medium caps, big caps, early stage, development-stage and commercialization stage – took part in the 24th annual JPMorgan Healthcare Conference at the packed-as-usual Westin St. Francis Hotel early last month. The fact that nearly all of them drew standing-room-only audiences to their respective presentation venues shows the continuing interest the sector holds for the investment community.
Small- to mid-sized companies carrying much of the load in the absence of such big hitters as Boston Scientific (Natick, Massachusetts), Johnson & Johnson (J&J; New Brunswick, New Jersey) and Guidant (Indianapolis), those absences doubtlessly keyed to the then-unfinished business of what has become an auction for the latter firm (see page 7).
Representing one of the larger players in the sector, Dan Starks, chairman, president and CEO of St. Jude Medical (St. Paul, Minnesota), was glad to accept accolades for the company having notched 29 consecutive quarters of meeting or exceeding analysts’ earnings expectations. But his message to attendees dealt more with the future than the past.
After rattling off statistics showing five-year compounded annual growth rates of 19.3% in revenues and 26.7% in earnings per share, he told the last-session-of-the-day audience in the hotel’s Grand Ballroom: “The point is, we’re not done.” As proof, he pointed to third-quarter results indicating that sales of St. Jude’s implantable cardioverter defibrillators (ICDs) were up by 68%. Starks added that over the past five quarters, the period in which the company had participated with a full line of ICD products, it had gained eight to nine points of global market share. “We expect to continue to grow market share,” he said, adding that St. Jude anticipates “strong growth in ICD sales in 2006-2008.”
So, what comes next after ICDs?
Starks devoted considerable time to hyping the company’s efforts in the atrial fibrillation (AF or AFib) sector. “The Afib patient pool is staggering,” he said, numbering some 2.5 million in the U.S. alone. And, he added, “currently only 1% of the AF population is served with curative therapies.”
Noting that St. Jude was the first company in the sector to create a separate division focused solely on AF – doing so a year-ago last month – Starks said the acquisitions of Epicor Medical (Sunnyvale, California), Irvine Biomedical (Irvine, California) and Endocardial Solutions (also St. Paul) all were part of broadening the push in addressing opportunities in this area.
“Our advances [in AF] are accelerating,” he said, adding: “St. Jude Medical’s Afib program is out on the leading edge and far ahead of the rest of the sector.”
Turning to the company’s Cardiology Division, Stark said that business unit is “building on the leadership of the Angio-Seal vascular closure product line.” He pointed to the acquisition of Velocimed (Maple Grove, Minnesota) in April 2005 as a building block for the division and cited such key new products as the Premere PFP (patent foramen ovale) closure device, the Proxis embolic protection system and the Venture wire control catheter.
The company’s Cardiac Surgery business was built on St. Jude’s superiority in the mechanical heart valve space, an area where the company still dominates, but one that Starks acknowledges is a declining market. To compensate for that falloff, St. Jude is, in his words, “becoming competitive” in tissue valves and valve repair programs. “We can leverage the excitement of our atrial fibrillation program into the Cardiac Surgery business,” Starks said.
An area of particular excitement for the company is its Neurostimulation business, an entirely new technology activity for St. Jude, entered via its acquisition last November of Advanced Neuromodulation Systems (ANS; Houston). “This is another large [over $1 billion], fast-growing [15% to 20% annually], under-penetrated [less than 10%] market,” Starks said. ANS gives St, Jude an immediate No. 2 position in the largest segment, spinal cord stimulation.
“There is huge, long-term growth potential in additional indications such as migraine, depression, obesity, brain injury and Parkinson’s disease,” he said, adding that there also are both technological and geographic synergies to be achieved between the two companies.
Growth beat goes on for Medtronic
Stepping to the podium shortly after a JPMorgan Chase (New York) official hailed the “compelling” economics of healthcare as a sector of interest for investors, Medtronic (Minneapolis) Chairman and CEO Art Collins offered up some substantial reasons why the growth “beat” goes on. The first med-tech presenter at this year’s conference, Collins outlined the near- and somewhat longer-term outlook for the largest pure-play company in the sector.
Similarly to Doug Braunstein, head of Americas investment banking for JPMorgan Chase, who noted that the dollar amount of investments in healthcare had more than doubled over the six years he has been delivering the welcoming remarks at the conference (see sidebar above), Collins cited the strategic focus for Medtronic as it eyes growing from its present $10 billion in revenues to a projected $20 billion by the end of the decade.
He particularly emphasized the diversification path the company has followed over the past decade, shifting from a focus heavily tilted toward pacemakers and other cardiac rhythm management (CRM) products to one where its CRM business shares top billing with Spinal and Neuro/Diabetes.
“We believe we’re operating in a natural growth sector,” he said, noting the usual demographics dealing with a populace that is living both longer and more actively. Medtronic is “well-positioned in large markets,” Collins said. While the cardiovascular market is “highly penetrated” by his company and others, he said “the other markets where we participate are under-penetrated.” He said: “Market development is a significant part of our efforts,” noting that two-thirds of Medtronic’s 2005 revenues were from products introduced in the past two years.
In order to ensure that the beat continues to go on, the company invests heavily in research and development. In fiscal 2005, the company’s R&D spending hit a milestone of $1 billion, he said, and that the figure as a percentage of revenues will continue to go up. “We now have the richest product pipeline in our history,” Collins said.
He noted that the company is “increasingly . . . building information technology into our products,” citing, for example, Medtronic’s big push in patient monitoring, which he characterized as a “game changer” in terms of addressing the chronic diseases that “dominate healthcare spending.”
CRM continues to be a big part of the company’s product mix, accounting for some 47% of total revenues, but Spine and Neuro/Diabetes also are big contributors. The three business units overall represent 85% of revenue growth, Collins said.
The spinal market is one where Medtronic claims its usual No. 1 spot. “Back problems are the second-largest reason you go to see a doctor,” he said, drawing knowing nods from many in the audience. Worldwide, 1 million persons undergo spine surgery procedures annually.
In addition to the company’s push into minimally invasive spine surgery, Collins cited its Infuse morphogenic bone growth factor program, which he said “greatly simplifies spinal fusion surgery.”
He noted that Medtronic has five artificial discs currently available in Europe and is “moving through the FDA approval process” with those products.
Collins also cited the company’s leadership in insulin pump and glucose monitoring technology, mentioning the “limited launch” currently in process for its Guardian RT continuous glucose monitor.
Addressing what many would consider a chink in Medtronic’s armor, given its unusually low No. 4 spot in the coronary stent market, he took a “nowhere to go but up” stance. “Stent sales amount to less than 1% of our total revenues,” Collins said, “so we have a lot of room for growth.”
He noted that the firm’s first-generation Endeavor drug-eluting stent (DES) has been launched in more than 85 countries to date, with an estimated U.S. launch date of 2007.
Trials of the next-generation Resolute DES are under way.
Conor Medsystems, ev3 draw attendees
Two companies that attracted sizable audiences to their presentations in the California Room setting were stent developer Conor Medsystems (Menlo Park, California) and growth-by-acquisition endovascular firm ev3 (Plymouth, Minnesota). In introducing Conor Chairman and CEO Frank Litvack, PhD, JPMorgan med-tech analyst Michael Weinstein referred to the company as “one of the more interesting and closely followed companies in the cardiovascular space in some time.”
For his part, Litvack characterized his firm as “an innovative, vascular drug-eluting company,” adding: “We believe our technology will allow us to push the limits of drug-eluting stents [DES] beyond where they are today.”
That technology features a design focus on drug delivery, with the company’s CoStar stent incorporating hundreds of small reservoirs into which drug/polymer combinations can be loaded. That’s distinctly different from the other versions of DES on the market or coming to it in the near future, which universally involve a drug coating on a conventional mesh stent.
Those reservoirs on the cobalt chromium stent “allow enhanced control of drug release,” Litvack said. In addition, the CoStar stent features bioresorbable polymers that are absorbed by the body after the drug is released, which in concert with complete drug discharge “may solve” the problem of delayed stent thrombosis.
He noted that Conor had had “a very busy year” in 2005, including commercial launch of the CoStar DES in “a few international countries,” the start of enrollment in the pivotal COSTAR II trial in the U.S., and the presentation of results from three clinical trials – COSTAR I (Cobalt chromium STent with Antiproliferative for Restenosis), PISCES (Paclitaxel In-Stent Controlled Elution Study) and EuroSTAR (EUROpean cobalt chromium STent with Antiproliferative for Restenosis).
Enrollment in the COSTAR II trial stood at 800 last week, and the company is anticipating completing enrollment of an anticipated 1,700 patients at some 85 clinical sites during 1Q06. The study is a comparison of the CoStar with Boston Scientific’s market-leading Taxus Express2 DES.
Litvack said the company’s 2006 agenda includes the hoped-for launch of CoStar in Europe and other markets and the advancement of Conor’s next two products into clinicals.
Those include a pimecrolimus/paclitaxel-eluting stent, which he said is “the first duel-drug stent” in development, and a fully bioresorbable stent being developed in a program with Biotronik (Berlin/Lake Oswego, Oregon), which he characterized as in the “feasibility” stage, but with “a lot of progress” being made.
Biotronik is Conor’s distribution partner in Europe and Latin America, while St. Jude Medical is the company’s partner for Asia Pacific and Japan.
The dual-drug stent involves pimecrolimus, a drug licensed by Conor from Novartis (Basel, Switzerland). Calling it “a very potent anti-inhibitor,” he said the beauty of the dual-drug approach is that pimecrolimus is a fast-release drug and paclitaxel has a longer release profile.
Speaking from the same podium a day earlier, ev3 President and CEO James Corbett cited his firm’s two primary divisions, the CardioPeripheral Division and NeuroVascular Division, the latter including the operations of Micro Therapeutics (MTI; Irvine, California), the remaining minority stake of which was acquired by ev3 in a deal that closed the Friday before the start of the JPMorgan conference.
“We’re in large and really under-served markets,” he said, pegging their potential value at $1.6 billion a year and growing by more than 20% annually. “There is a lot of opportunity for innovation in these spaces in the area between the big companies and small, single-product companies,” Corbett said. “Part of our strategy is addressing the striking overlap in the area of occlusive disease.”
He said ev3 had introduced 12 new product platforms in the past year, adding that more than 90% of the company’s revenues come from products introduced in the past two years.
And, while noting the steady growth of revenues, Corbett pointed out that the company currently has only about a 5% share of the addressable market, so there’s ample room for growth. He pegged the peripheral vascular disease market opportunity alone at $1 billion, with opportunities “in carotids, renals, iliacs, SFAs and tibial/lower leg.” ev3 has products “that address all these vascular ‘beds’ – with more on the way,” Corbett said.
Citing clinicians’ shift from surgical to endovascular treatments, he highlighted a variety of products, including the SpideRx embolic protection filter, which he said is “the only filter compatible with users’ preferred wires,” allowing physicians to use any company’s guidewire in conducting endovascular procedures. Corbett cited critical limb ischemia as “a key area of focus” for the company.
Noting the broad product line ev3 now has in the neurovascular area, he said, “we’re the only company [with] all the products needed” to work in that sector, including MTI’s Onyx liquid embolic to treat arterio-venous malformations. “We have the broadest product pipeline” in the sector, Corbett said, adding: “We compete very well with Boston Scientific” in neurovascular.
Saying that ev3’s expertise is in “leveraging multiple platforms,” he added, “We have the portfolio to meet endovascular interventionalists’ needs.” Corbett said that the company’s biggest growth this year will be outside the U.S., as it expands both its geographic and product reach internationally.
Smaller firms attract big interest
An interesting gauge of the level of investor interest in the med-tech sector at gatherings such as the JPMorgan conference is the turnout for presentations by the so-called “little guys.” Among those that drew overflow crowds to their sessions was FoxHollow Technologies (Redwood City, California), whose SilverHawk plaque excision device for treatment of peripheral vascular disease has stirred considerable interest despite a paucity of clinical data and apparent turmoil in the executive suite.
In introducing the company, JPMorgan Chase’s Weinstein called FoxHollow “one of the most dynamic healthcare companies to go public in recent years.” In notes on the company in the conference compendium of information on participating firms, he said he anticipates another year of “robust” sales growth.
The company’s founder, president and interim CEO, Dr. John Simpson, handled the FoxHollow presentation in the wake of the surprise departure via “retirement” of former CEO Robert Thomas late last year.
Citing peripheral artery disease (PAD) as “an extraordinarily large market” with some 2.5 million patients diagnosed with the disease and four times that many as yet undiagnosed, Simpson noted the tendency for clinicians to recommend amputation of the lower limbs for many suffering from extreme forms of the disease, including a disproportionate number of African-Americans suffering PAD.
Adding that 40% of such amputations are done without an angiogram even being taken, he said that use of the SilverHawk device to shave off arterial plaque offers “opportunities to treat this disease that are short of amputation.”
Simpson said the company’s goals for 2006 include the initiation of three new clinical studies as part of its market-building efforts, along with continue expansion of its sales force, which grew to 206 in 4Q05 and is targeted to grow to 250 by the end of this year.
Calling the SilverHawk system a “disruptive technology,” he said there are “all kinds of opportunities” for the company in the sector as it pushes to meet its goal of “eradicating” vascular disease.
That same description might apply to the Crosser system, made by FlowCardia (Sunnyvale, California), designed to allow interventional cardiologists to quickly and safely cross chronic total occlusions (CTOs) in coronary arteries.
Another standing-room-only crowd jammed into the smallish Elizabethan C&D space to hear President and CEO Wick Goodspeed discuss that privately held firm’s approach to this vexing problem, estimated to involve more than 20% of all interventional cardiology procedures. “This is a very common thing,” he said, adding that CTOs “show up regularly when interventional cardiologists do angiograms.”
Noting that CTOs “represent a challenging clinical interventional procedure,” Goodspeed said it represents “a very big market opportunity,” valued at more than $750 million.
The big risk to interventionalists in trying to open a CTO via a guidewire – the current standard of care – is perforation of the artery, so “a system that would avoid perforation gets their attention,” he said. The Crosser system features a nitinol core wire that transmits “vibrational energy” to the site of the occlusion. Goodspeed characterized it as a “mini-jackhammer” vibrating against the occlusion to bring about recanalization of the CTO.
While it is a transformational type of technology, the system uses a 0.14” guidewire, the typical wire used in cath labs, which brings familiarity to the interventional cardiologist using the system. “It’s a simple, intuitive, straightforward device,” Goodspeed said, “one that doctors pick up quickly.”
The company has a 235-patient study under way in Europe, with participating cardiologists including such luminaries in the field as Eberhard Grube, Antonio Columbo and Patrick Serruys. A total of 105 CTOs have been treated thus far under a protocol involving patients who have failed standard care.
A U.S. pivotal trial has seen 82 of a planned 105 patients treated with the Crosser system thus far. Enrollment is expected to wrap up by the end of March, and Goodspeed said the company anticipates FDA clearance by 3Q06.
He emphasized the safety of the procedure, noting that no arterial perforations have occurred in the 232 cases performed thus far, all of which took place after conventional guidewire treatment failed.
In the FlowCardia product pipeline is a peripheral version of the Crosser device, currently in the design stage.
NMT Medical, Thoratec draw interest
Two cardiovascular product companies with current dominant market positions in their respective spaces were among a flurry of med-tech firms that took to the podiums as the annual conference sped through its final-day schedule.
Neither NMT Medical (Boston) nor Thoratec (Pleasanton, California) is among the device sector’s larger players, but the fact that each has a substantial lead over existing or emerging competitors in their sectors is testimony to the nature of med-tech, where small, innovative firms are in the forefront of innovation.
NMT is a pioneer in the PFO closure field. PFO, or patent foramen ovale, is a septal heart defect in which a flap-like opening remains between the right and left atriums. The opening can allow a right-to-left shunt of venous blood flow between the two chambers when triggered by a cough, for example.
As company President and CEO John Ahern noted, PFOs have been linked to “brain attacks,” such as that suffered by Israeli Prime Minister Ariel Sharon, whose condition started with a PFO-related embolic stroke that was followed by hemorrhagic stroke.
The stroke indication was NMT’s initial focus for its StarFlex PFO closure device, and continues to represent what Ahern characterized as a “very large market opportunity” valued at perhaps $4 billion worldwide, including an estimated potential patient population of 250,000 annually in the U.S., 780,000 worldwide.
But the stroke indication pales in comparison with the other major market NMT is seeking to address –migraine headaches. He said research has shown that migraine with aura patients are seen as having twice the incidence of PFO as the non-migraine population.
Armed with a growing body of research that PFO closure effectively eliminates migraine symptoms, NMT is moving to address what Ahern said is a vast market with “staggering” economic impact. He said migraine is estimated to have an estimated impact of $10 billion to $15 billion in the U.S. alone.
NMT’s migraine model sees potential for treating between 1.5 million and 3 million patients in the U.S. and some 4.8 million worldwide. In dollar figures, that’s $24 billion - yes, billion – which even if it were cut in half for a more conservative estimate, would total more than the estimated drug-eluting stent market, Ahern said.
Migraine sufferers, whose standard treatment is drugs, drugs and more drugs, are anxious for a non-pharmacological alternative. When investigators in the UK sought volunteers for NMT’’s MIST (Migraine Intervention with STARflex Technology) clinical trial, 14,000 persons applied for 500 study spots.
Given what Ahern referred to as “a huge, underserved need,” a description that could fit both the migraine and stroke applications, it should be no surprise that the market has attracted a slew of competitors, including such device sector “big guys” as Johnson & Johnson (New Brunswick, New Jersey), Boston Scientific (Natick, Massachusetts) and St. Jude Medical.
But despite the pessimism of those telling Ahern his company, with its estimated $23 million in 2005 revenues, will get steamrolled by the deep-pocketed newcomers, he said: “Quite frankly, I like where we’re at.”
He pointed to the fact that NMT has both mechanical (CarioSEAL and STARflex) and biological (the in-development BioSTAR) closure devices, five approved clinical trials under way – and another awaiting approval – and broad intellectual property coverage with 20 issued patents and 50 applications.
“Because PFO closure is our sole focus,” Ahern said, “we will continue to lead in this very large opportunity.”
In a presentation that followed NMT’s, but took place in the top-shelf setting of the hotel’s Grand Ballroom, outgoing Thoratec CEO Keith Grossman cited that firm’s dominant position in the ventricular-assist device (VAD) sector. He noted that Thoratec’s current-generation VAD, the HeartMate XVE, is the only device with FDA approval for both bridge-to-transplant (BTT) and destination therapy (DT) use.
Grossman said the company has about a 90% to 95% share of the BTT market in the U.S. With only about 2,000 human hearts made available for transplant in the U.S. each year, the BTT application obviously is a much more limited market. However, with an estimated 5 million heart failure patients in the U.S. alone, 10% of whom reach Class IV, or end-stage status, each year, the permanent implantation segment is the central focus for the company.
It has received boosts in the past year from dramatic improvements in Medicare and private-payer reimbursement rates, and from the adoption of new American Heart Association/American College of Cardiology guidelines recommending the use of VADs for end-stage heart failure patients.
Grossman noted that the company has begun to record revenues from sales of its next-generation HeartMate II device following CE mark approval in November and sale of the device for clinical-trial use. The HeartMate II is an implantable unit powered by an axial rotary-flow pump with only one moving part. It is designed to be very durable, Grossman said, with a projected five- to 10-year life span. It is one-fifth the size of the HeartMate XVE and one-third the weight.
In the wings is the HeartMate III, which Grossman said would feature a centrifugal-flow pump with no bearings and even longer life, anticipated to be more than 10 years.
Grossman also touched on the company’s International Technidyne (ITC; Edison, New Jersey) subsidiary, which operates in the point-of-care diagnostics space. He said that unit, which accounts for about 38% of total Thoratec revenues, “is really a terrific performer for us.”
ITC produces hand-held devices used primarily in blood coagulation testing in hospital, physician office and home settings.
Grossman pitched Thoratec to the investor audience on the basis of the large and growing heart failure market, which he characterized as “a very good place to be.”
He cited the company’s “unusually large” market share in the VAD sector, the increasing acceptance of VADs in the clinical community, the acceleration of introduction of the HeartMate II and the fact that the company, holding the only approved destination therapy approval in the U.S., has “no near-term competition.”