Johnson & Johnson's (J&J; New Brunswick, New Jersey) Cordis (Miami Lakes, Florida) subsidiary, maker of the recently FDA-approved Cypher drug-eluting stent, and to a lesser extent Wyeth (Madison, New Jersey), maker of the sirolimus compound used on the device, have received the lion's share of the attention when talking about the first U.S. player in this hot sector. However, the third element of this triad, the coating which is responsible for regulating the release rate of the drug is another important part of the system that often is overlooked when discussing these potentially lucrative devices.

SurModics (Eden Prairie, Minnesota), the developer of the drug-eluting coating for the Cypher, has quietly put together a very successful business model, earning a large portion of its revenue from coating technology licenses that it grants to medical device manufacturers. The company said it expects to begin receiving royalties from U.S. sales of the Cypher in September. The stent uses SurModics' coating to provide controlled release of specialized drugs that significantly reduced restenosis in clinical trials.

About 800,000 Americans undergo coronary interventions involving stent placement each year, according to the American College of Cardiology (Bethesda, Maryland). Of those patients, more than 150,000 to 200,000 are expected to undergo repeat treatment within one year. Drug-eluting stents have the potential to virtually eliminate such problems and analysts predict the stent market will double in size, possibly reaching $5 billion within the next two years. "The Cypher stent is expected to revolutionize the way doctors treat coronary artery disease, and this approval is a significant treatment advance for cardiac patients in the U.S.," said Dale Olseth, chairman and chief exectuive officer of SurModics. "We are pleased to collaborate with Cordis on this exciting product."

The company's drug elution technology is a polymer blend that involves non-photochemical reagents. Therapeutic drugs can be entrapped within the polymer coating to provide controlled site-specific release of the drug into the surrounding tissue. The coatings can be customized to release drugs over time periods ranging from hours to months and can be combined with other features (for example lubricity, heparin and anti-adherence) on the same surface to provide added benefit to the medical device. Perhaps most importantly, with the coating a drug can be administered at the site of action rather than systemically and the delivery rate can be adjusted to suit various applications.

Aron Anderson, director of the drug delivery program for SurModics, told Cardiovascular Device Update that his company has been working with J&J on the Cypher program for about six or seven years. He noted the company's drug-elution coating technology could be used in a wide variety of products, not just on stents. "We have the capability to manipulate the formulation of that coating to help us work with different types of drugs or to achieve different properties for the coating on the surface of a device," Anderson said. "We think the effectiveness we're seeing in stents is going to play out in other implants or other medical device applications."

While the company is obviously excited about these other potential device applications with the new polymer, the royalties from Cypher program alone are poised to take it to a new level in stock valuation, according to several analysts, and SurModics is poised to enter several new arrangements with other unnamed companies in the stent sector.

Focusing on a long-term CHF solution

CardioEnergetics (Cincinnati, Ohio) President and CEO Mark Byrne believes the company's heart-assist device, RePower, ultimately will offer a solution to those suffering from congestive heart failure (CHF). The differentiator between RePower and other heart-assist devices is that it is designed to eliminate strokes due to blood clots on exposed artificial materials in the bloodstream. RePower is designed to "fix what's broken, the muscle," said Byrne.

"This [aspect] is very important," because everyone who had tried to correct CHF with an artificial heart has created a pump in the heart, which increases the risk of stroke, he said. Also, the longevity of that type of solution is made more unlikely by the pump coming in contact regularly with blood, which "can be challenging for any material," Byrne said. RePower is meant to essentially provide the benefits that cardiopulmonary resuscitation would and make it permanent. "The invention is a way to do that" so as to be friendly to the heart and to provide a "long-term solution," Byrne said. The device involves a band that fits around the lower part of the heart and is connected on each side of the heart by small blocks that fit around the entire bottom of the heart, which causes the heart to pump blood. That device is activated by a conversion and control center in the abdomen, in turn activated by a wireless battery worn outside the body, which provides the power for the device. The conversion and control center, which is attached to the heart by a cable that runs under the skin of the abdomen, basically converts electrical energy into mechanical energy and causes the heart to pump. "We use wireless energy power transfer to go from outside the body to inside the body," he said.

The device is made out of a "variety of different materials," including stainless steel and titanium, he said. The component that goes inside the heart to help hold the device in place and provide "some of the functionality" would be covered rapidly with natural tissue, Byrne said, so it doesn't become a risk for blood clots and strokes.

The inventor of RePower, David Melvin, MD, PhD, is the founder and chief scientific officer of CardioEnergetics, which was established in 1998. Melvin developed the technology while a faculty member at the University of Cincinnati, so it is licensed by the company from the university. Byrne joined CardioEnergetics in January 2001, bringing medical device industry experience acquired at two Johnson & Johnson (New Brunswick, New Jersey) medical device companies and at Battelle (Columbus, Ohio).

CardioEnergetics is seeking to raise about $4 million in Series A funding, which would provide two years of funding and carry the company through certain animal studies. It already has concluded proof-of-concept in basic animal studies, however. "We've built working prototypes," Byrne said. "We're looking to raise $4 million so we can take it to the next level and develop options for further study."

At the end of that two-year period, Byrne said the company "would be able to show data where animals have survived 30 to 60 days." At that point, the company would hope to raise $7.5 million to continue with animal studies. As a regulated Class III device, RePower would require a great deal of data to illustrate efficacy and safety before CardioEnergetics could apply for an investigational device exemption. At that point, or even during the final animal studies, the company would be seeking a corporate partner to continue studies into humans.

"Anywhere in that continuum, we would consider [a partner]," Byrne said, noting that the company is interested in finding partners and investors who can help bring the product to market. CardioEnergetics also would consider "a strategic sale." The company has $820,000 in grant money from the National Institutes of Health (Bethesda, Maryland) and has raised a total of $2.4 million to date from stock sales, consulting income and a development agreement for what it calls "other related technologies."

The market for the device is estimated to be $10 billion by CardioEnergetics. There are 23 million people worldwide who are diagnosed with CHF. In the U.S., there were more than 550,000 new patients in 2001, and the disease is estimated to cost the U.S. healthcare system between $35 billion and $40 billion annually, the company says.

First implant from Medinol-Gore alliance

Building on an alliance initiated last September with stent maker Medinol (Tel Aviv, Israel), W.L. Gore & Associates (Flagstaff, Arizona) last month reported the first implant of the NOA Coronary Stent System. It is the first product to result from the collaboration. The NOA System, which has won the CE mark for use in Europe, combines Medinol's new-generation NIRTOP stent with Gore's expanded polytetrafluoroethylene (ePTFE) Aptera Balloon. The implant was performed by Professor Martin Rothman at the London Chest Hospital in the UK. Over the course of two days, a total of eight NOA Systems were used to treat six patients, Gore said.

Gore and Medinol reported last September that they had entered a collaboration "relating to stents and stenting solutions." As part of the alliance, Gore said it would begin worldwide distribution of Medinol's NIRflex stent product portfolio. Additionally, the companies agreed to cooperate to combine their individual technologies toward the development and distribution of "new, innovative, high-quality stenting solutions."

Medinol reported in March 2002 that it had received regulatory approval to market the company's next-generation NIRFlex stents across Europe, calling it "a significant breakthrough" for the company. Medinol also said that it was the first time the company would independently market a stent mounted on its own delivery system, having previously been alligned with Boston Scientific (Natick, Massachusetts). Medinol's NIR family of stents includes products for both coronary and peripheral use.

New equity firm closes on initial fund

Thomas, McNerney & Partners (New York), a newly formed healthcare private equity firm that invests in life science and medical technology, reported the closing of its initial fund, totaling $216 million, raised from what it called "a broad mix of institutional investors, including pension funds, university endowments, foundations and insurance companies." The firm has as its mission "to invest in companies at all stages of development in the medical device, biotechnology and pharmaceutical sectors as well as related fields." It said its partners have nearly 60 years of combined healthcare investing and operating experience, "including more than 35 years as active private equity investors."

The firm is seeking "to back organizations with strong management teams, sound business models and the potential to grow into market leaders" and said it will focus on investments of $10 million to $20 million per company. "Historically, this investment flexibility and focus on fundamentals have allowed us to make successful investments and exits in all market cycles," said James Thomas, managing partner.

The company was founded by Thomas and two other managing partners, Pete McNerney and Karen Boezi. Thomas came from E.M. Warburg, Pincus & Co., where he led the healthcare technology private equity practice. McNerney and Boezi came to the firm after overseeing the healthcare investment practice for Coral Ventures. The firm recently added Venture Partner Alex Zisson, a former managing director and leader of healthcare equity research at JPMorgan H&Q, and Chief Financial Officer Susan Haedt, who has more than 16 years of financial services and CFO experience.

McNerney said, "We appreciate the endorsement of our team and strategy by the limited partners, as indicated by the size of the fund, given difficult market conditions. Despite the current economic and political conditions, the pace of innovation in the healthcare technology field is substantial, and we intend to capitalize on the significant long-term growth opportunity it represents." Besides its headquarters, the company has offices in Minneapolis, Minnesota, and San Francisco, California, thus being situated, it said, "in three major hubs of life science and medical technology innovation."