In a move designed to shore up its sagging vascular brachytherapy (VBT) sales, which have been ravaged by the drug-eluting stent (DES) phenomenon, Novoste (Norcross, Georgia) said in an earnings conference call last month that it had signed an agreement with Guidant (Indianapolis, Indiana) to facilitate a transition to Novoste products by existing customers of Guidant's vascular brachytherapy system in the U.S. and Canada. As part of the terms of the agreement, Guidant will discontinue its vascular brachytherapy business in the U.S. and Canada specifically sales of the Galileo Intravascular Radiotherapy System over the next six months. The agreement is an asset purchase agreement in which Novoste will acquire information regarding Guidant's VBT business, including that firm's U.S. and Canada customer list.
During an established transition period, expected to be about six months, Guidant and Novoste will jointly cooperate to transition the Guidant accounts to Novoste products for any customer that wishes to continue vascular brachytherapy. Guidant also has agreed not to compete in vascular brachytherapy in the U.S. and Canada for a period of five years. Novoste paid $2.5 million to Guidant at the signing of the transaction and has agreed to pay a 5% royalty on its net sales of all vascular brachytherapy products in the U.S. and Canada, up to an additional payment of $4 million.
"Novoste specializes in radiation therapy technology and this agreement seeks to consolidate the Guidant and Novoste brachytherapy business to better serve the interests of both companies' physician customers and their patients," said Al Novak, president and chief executive officer of Novoste, adding that this agreement was the first step in the financial turnaround for his company, which has suffered substantial financial reverses in recent years. "We expect to have a smooth transition to our Beta-Cath System and are hopeful that the majority of Guidant's customers will elect to continue with vascular brachytherapy, the only clinically proven treatment for in-stent restenosis."
As expected, Novak said, the company's first-quarter results continue to reflect the negative impact that drug-eluting stents have had on VBT sales. "The reason remains the positive impact that these stents have on the rate of restenosis that makes up our market opportunity," he said. "It was always clear that drug-eluting stents would be used aggressively by physicians; however, we continue to believe that as physicians determine the best use of these devices, they will continue to use VBT to treat those patients where in-stent restenosis occurs."
The impact of those drug-coated stents has severely cut into demand for the Beta-Cath system for radiation therapy to treat restenosis in uncoated stents in coronary arteries, the bedrock of Novoste's business. Indeed, net revenue for 1Q04 were $7 million compared to $20.7 million in the prior-year period. Net loss for the quarter was $4.6 million, or 28 cents a diluted share, compared to a net income of $2.1 million, or $13 cents a diluted share in 1Q03.
While Novak noted that in a bare-metal stent world, "we faced a sizeable market opportunity that easily absorbed three competitors, J&J [Johnson & Johnson (New Brunswick, New Jersey], Guidant and ourselves . . . there is only room for one company specializing in vascular brachytherapy in a drug-eluting stent market. That company is Novoste." The VBT market was further stabilized, he said, by J&J's exit from the sector last December. While the market share for vascular brachytherapy has taken a dramatic downturn, Novak said he believes it is still viable. "Our market, in-stent restenosis, did not and we believe will not disappear." He said that while drug-eluting stents are good, "they are not perfect."
According to Novak, the agreement with Guidant "was as fundamental as it was obvious." He noted that his company began to look at ways to match the reduction in market opportunities and the dwindling number of VBT procedures "with a matching reduction in the number of companies competing in this market." The Guidant agreement "concludes the first stage of our efforts associated with this effort," he said.
Guidant said in a press release that it is discontinuing its Galileo system for the treatment of in-stent restenosis due primarily to the significant impact of drug-eluting stents. It said exiting the market would allow it to focus on its broader vascular intervention product line and DES development and clinical trials. Following a brief transition period, Guidant will close its Houston and Pearland, Texas, facilities. The company noted that about 100 Guidant employees would be affected by the move. The financial results for the Galileo product line will be reported as discontinued operations. During the first quarter, Guidant recorded a charge of $11 million, net of tax related to the exit of the business.
Novak noted that both J&J and Guidant exited the VBT market to concentrate on the bigger DES market, leaving Novoste as the "sole provider" of VBT. And while the VBT market is much smaller, he said he believes it has a place in the interventional cardiology market. He said both VBT and DES "represent the future of interventional cardiology. One [DES] is the front-line technology and the other [VBT] is its backup."
While Novoste has been able to continue as a going concern through the initial onslaught of drug-eluting stents, it has come at a cost. Since January 2003, the company has eliminated more than 200 positions. It currently has about 115 employees, most of them at its suburban Atlanta headquarters location. "These decisions are never easy, as they affect so many good people," Novak said, "but the financial performance of the organization is our first priority during this transition period."
Novak said the company has another mandate that should contribute to its financial upswing: to continue to look for new opportunities to both diversify its current product line as well as exploit its field team strength in the marketplace. He said that 2004 "will be the year that Novoste moves beyond being a single-product vascular brachytherapy company." Novak said it would become a cardiology-focused new technology company "with a specialized focus in technology niche markets." He also noted that Novoste is "having discussions" with several companies that he believes can "deliver differentiable products that deal with several unmet clinical needs."
Medtronic recalls two ICDs
Medtronic (Minneapolis, Minnesota) reported in April the voluntary recall of two older implantable cardioverter defibrillator (ICD) models after it became aware of four deaths and one serious injury that could be related to the failure of a key part of one of the devices. The Class I recall involves a small subset of Micro Jewel II Model 7223Cx and GEM DR Model 7271 ICDs that may take a longer-than-normal time to charge before delivering therapy. Most of these devices, implanted in 1997 and 1998, are close to the normal replacement time generally within a couple of months. No other Medtronic devices are involved in this action, the company said.
The Micro Jewel II device is no longer sold, and the GEM DR device has limited distribution in the U.S., according to Medtronic. Physicians are being notified that they should verify the charge time and battery voltage of each affected device. If any devices exhibit unsatisfactory charge times, the company recommends scheduling ICD replacement. However, the final decision whether to replace the device is based on the physician's medical judgment and specific patient needs, it said.
When a cardiac arrhythmia requiring cardioversion or defibrillation shock occurs, the capacitor is normally charged, and the device delivers the appropriate shock. With the ICDs in this recall, however, the capacitors may take longer than normal to charge near the end of the battery service life and thus could cause a delay in delivery of shock therapy or a non-delivery of shock. Such a delay or non-delivery could result in patient injury or death because patients are not receiving the appropriate therapy in time. Medtronic said it no longer uses this capacitor technology. The company said that a total of 6,268 of the affected ICDs were manufactured, of which about 1,800 are thought to be still implanted in patients worldwide.
MIV raises funds for coating technology
MIV Therapeutics (MIVT; Vancouver, British Columbia) has raised additional funds necessary for completion of the next stage of its research and development program leading toward commercialization of its biocompatible coating technology developed for cardiovascular stents and other medical devices. MIVT entered into agreements with certain accredited investors for the sale of common stock and common stock warrants for gross proceeds of about $700,000. When combined with the proceeds from its March 22 private placement, MIVT has now raised more than $3 million in fiscal 2004, it said.
Pursuant to the securities purchase agreements, the company sold an aggregate of about 1.6 million shares of common stock, and issued to the investors Series A warrants to purchase an aggregate of about 800,000 shares at an exercise price of 66 cents per share and Series B warrants to purchase approximately 800,000 shares of common stock at an exercise price of 66 cents per share and 400,000 shares of common stock at an exercise price of 75 cents per share.
Ventracor adds to production capability
Ventracor (Sydney, Australia) reported it will enhance its production capability to manufacture its VentrAssist "artificial heart" to meet expected global demand for the product. Ventracor's chief executive officer, Dr. Colin Sutton, said the company had just commissioned a new 260-square-meter clean room and manufacturing facility at its headquarters, calling it "a major capital investment that will help guarantee the future growth of Ventracor. It will help ensure we continue to meet our milestones and guarantee supply of VentrAssist systems to be used in our clinical trial for European approval due to begin mid-2004."
The new facility gives Ventracor engineers and technicians a manufacturing area in which electrostatic discharge, air quality, temperature, humidity and pressure are all controlled. Ventracor has installed an ISO 14644-1 Class 6 and Class 8 clean room. Class 6 indicates no more than 35,200 particles larger than 0.5 microns per cubic meter of air. The VentrAssist left ventricular assist system is designed as a permanent alternative to a heart transplant for hundreds of thousands of patients worldwide suffering end-stage heart failure.