CDU Executive Editor
NEW YORK – Cardiovascular firms, as usual, captured much of the attention at the US Bancorp Piper Jaffray Health Care Conference, held at the venerable Hotel Pierre in late January. As befits its well-deserved reputation as a brokerage house with a big-time focus on cardiology, US Bancorp Piper Jaffray (Minneapolis, Minnesota) attracted all of the sluggers in the sector – and a lot of scrappy "singles hitters" as well. Several small companies with big dreams were in the lineup for the private-company showcase, and took advantage of brief moments in the spotlight to outline the concepts upon which they have been established. Two of the firms that attracted the most interest among the crowds of investors that often filled the hotel's subterranean Wedgewood Room to overflowing were Acorn Cardiovascular (St. Paul, Minnesota) and HeartStent (Minneapolis, Minnesota), both with innovative approaches to cardiac therapies.
Acorn has developed the CorCap Cardiac Support Device, a unique treatment for congestive heart failure (CHF) patients, specifically those categorized as Class III in the New York Heart Association classification system. Donald Rohrbaugh, Acorn's chairman, unabashedly called CorCap a "new paradigm" aimed at "halting the progression of heart failure," not just treating its symptoms, as in the traditional medical management of the disease. He called heart failure "the only cardiac disease still increasing in prevalence," saying it affects just under 5 million persons in the U.S., with an overall economic cost in terms of medical treatment and lost wages of some $40 billion annually.
Even in describing the CorCap as "radically different" from other treatments being developed to address heart failure, Rohrbaugh may have been guilty of understatement. The device, a mesh-like pouch that is placed around the heart and then adjusted to fit, is designed to support a heart that has been enlarged through cardiomyopathy and by reducing its size in order to reduce the pumping demands upon it. The heart is reduced in size by 3% to 5% immediately upon being fitted with the CorCap, he said. The device's effects include reduced heart wall stress, reduction in the amount of muscle stretch and a halt in the release of proteins produced as a result of cell stretch. Rohrbaugh said the CorCap is made of "a unique material which we developed internally" and protected by 15 patents. That material is wrapped around the heart, "reshaping it into more of a natural football shape than a basketball shape." He noted that the clinical effects of the CorCap now have been seen out to two years, with the general result that a treated heart "has gotten smaller because it has recovered." Rohrbaugh said that one key measurement of how well the CorCap is working is measuring ejection fraction, the volume of blood pumped by the heart. "Ejection fraction improves as the heart operates more efficiently, reversing the effects of heart failure," he said.
Placement of the CorCap device is complementary to such cardiac surgical procedures as valve repair or replacement and coronary artery bypass grafting. Rohrbaugh said the company now is looking beyond its initial Class III patient cohort target, citing myocardial infarct (heart attack) patients as another potentially significant market sector. "There are 1.1 million new MIs a year in the U.S., he said, and 190,000 of them will develop heart failure within six years." He said Acorn will start a clinical study for the MI application this year, and added that NYHA Class II-classified patients are another target for development. Some animal data has been gathered covering the devices use with bi-ventricular pacing, so that is another potential future application.
As of the time of his presentation, Acorn had nearly 175 patients enrolled in trials in 27 U.S. and Canadian sites, along with 23 European sites in four countries. Rohrbaugh said the company expects to receive the CE mark and begin European commercial sales in the latter part of this year, and continue along the regulatory path in the U.S., where its studies are being conducted under an investigational device exemption. Commercial clearance by the FDA is predicted by 2004.
HeartStent's minimally invasive revascularization device and ventriculocornary artery bypass (VCAB) procedure are designed to compete with standard coronary artery bypass grafting CABG. President and CEO John Schorgl praised CABG as having saved millions of lives, but noted, "it is a highly invasive procedure that has many opportunities for complications." In contrast to the residually painful artery or vein stripping and open-chest surgery that are part of most bypass procedures, HeartStent's VCAB procedure involves use of what he termed "a proven synthetic conduit" and takes less than 5 minutes vs. hours for a normal CABG procedure. One end of the HeartStent device is placed through the ventricular wall, and the other is connected to the left anterior descending artery. Contraction of the heart sends blood flowing through the device directly into the coronary artery, restoring blood flow to the heart muscle.
"We have a very unique and exciting technology," said Schorgl, one supported by a strong intellectual property position (64 patents issue or pending) and dealing with a $1 billion market. "Our device is very beating-heart friendly," he noted. In studies to date, the procedure has shown "over 80% long-term patency." Schorgl said HeartStent will start clinical trials in Europe in the first half of this year and is "in discussions with the FDA on an IDE [investigational device exemption]." Among other product developments, he said the company is planning to launch an imaging/interventional catheter that "docks with the ventricle leg of our device." Schorgl's presentation may have generated instant results. Asked by a member of his investor audience if the company was seeking additional funding, Schorgl said that HeartStent is seeking $20 million in Series B financing to fuel its product development efforts.
Novoste is moving ahead
A 10-year-old company dominates a potential $630 million market sector and boosted year-to-year sales by 1,000% but has a market capitalization of only $150 million. Thomas Weldon can't explain it, and that's clearly frustrating to the chairman and acting CEO of Novoste (Norcross, Georgia), whose company invented the market segment within which it operates – radiation treatment for in-stent restenosis. Part of the reason for the apparent disregard the market has for the developer of the Beta-Cath system for brachytherapy is the mania over drug-coated stents, still unapproved anywhere as a commercial product but looming in the not-too-distant future as a potential breakthrough product.
Many within the investment community – and a lesser number in clinical circles – see coated stents as poised to deliver a knockout blow to Novoste. Weldon, who has reassumed the CEO role after the late-2001 departure of William Hawkins to take a position with Medtronic (Minneapolis, Minnesota), said he doesn't see that happening. For one thing, brachytherapy as delivered by Novoste's Beta-Cath system is a fairly well-established therapeutic modality – or will be by the time the first drug-coated stents come on-line commercially. For another, drug-coated and drug-eluting stents are unlikely to maintain what until the time of his presentation has been a virtually spotless clinical record (no longer so spotless after more recent reports). And thirdly, there's more to Novoste than just radiation treatment of coronary stents.
As for the here and now, Novoste has racked up some impressive numbers, despite operating in what Weldon calls "probably the most complex environment facing any medical technology company." For example, it is regulated by not one but two federal agencies – the FDA and the Nuclear Regulatory Commission. And its sales force has to sell to both radiation oncologists and interventional cardiologists. Sell they did in 2001, with some $70 million in product revenues. "In terms of new technology," said Weldon, "only stents had a more impressive start." As of year-end, some 340 hospitals – just under half of the 700 or so that have both radiation oncology units and cardiac cath labs – were Novoste customers. And the Beta-Cath record of clinical performance is impressive. "We haven't had a single patient come back restenotic," Weldon said.
What about the looming impact of drug-coated stents? For one thing, he said there were likely to be some chinks in what at that point looked like the shiniest of armor. "It [coated stents as a whole] won't be a perfect product," Weldon said. Noting that the clinical community will "need to see longer-term data" on such stents, he said the question will be whether they can prevent recurrence of restenosis. "If not, can the health care system afford to support a $2,500 stent?"
For discussion's sake, Weldon said company officials have asked the "what if" question of whether coated stents might wipe out Novoste's core business. If they did, he said, "We'll still have a $206 million business" dealing with small in-stent restenosis, long and diffuse in-stent restenosis and other complex lesions – none of which can be addressed with coated stents. In addition, the company is studying products for peripheral arteries, arterial-venous dialysis graft disease and treatment of vulnerable plaque. Those also are potential markets "protected" from drug-coated stents, he said.
Big hitters take their swings
The biggest names in the interventional products game also were part of the US Bancorp Piper Jaffray conference batting order. But the big hitters in question were there primarily to do some pitching to the audience of investors, highlighting past successes and future plans. St. Jude Medical (St. Paul, Minnesota), Boston Scientific (BSX; Natick, Massachusetts) and Guidant (Indianapolis, Indiana) topped the final-day lineup for the 14th annual health care gathering. Add Medtronic, which would have been the cleanup hitter had it not preceded its brethren to the podium by a day, and conference organizers had all bases covered with top performers in med-tech's hottest sector.
Terry Shepherd, St. Jude's CEO, highlighted his firm's steady performance, noting that it had "met or exceeded the Street's expectations for 14 consecutive quarters." What is especially noteworthy about the company's robust performance is that for a heart valve company, as St. Jude long was known, its growth has occurred in every business line except valves. Shepherd said that market has shifted over the past year-and-a-half to a clinician preference for stented tissue valves, at the expense of the mechanical valves that were the genesis of his company – a sea change that left St. Jude stuck in the starting gate from a new-product perspective. The good news is that the valve business is a lot smaller part of St. Jude as a whole than was true several years ago. In fact, today fully 70% of total company revenues are in the cardiac rhythm management sector, in both low-voltage (pacemakers) and high-voltage (implantable cardioverter defibrillators) technologies. That business, built largely by acquisition during the 1990s, now is the largest of the three sectors of the company's business, the others being cardiac surgery (including valves, but also the home of one of the firm's most exciting technology initiatives, the Symmetry aortic connector) and cardiology/vascular access. The latter business includes another promising area of activity, the Angio-Seal system for arterial wound closure.
In its various areas of business, Shepherd said St. Jude's goal is to surround clinical decision-makers with potential clinical solutions "without a bias to a particular technology." And in providing that wide range of products, he said the company thinks it can increase its revenues at a rate faster than the projected market growth. Shepherd was particularly enthusiastic about the Symmetry product. "The anastomotic connector business is what's exciting to us," he said, describing it as a $1 billion to $1.5 billion market activity that St. Jude has "pretty much to ourselves now," although Johnson & Johnson (New Brunswick, New Jersey) has a recently FDA-approved competing product. He also cited the Angio-Seal business, now contributing about $100 million a year to St. Jude's revenues, as one "with a lot of room to grow." That growth is expected to be spurred by launch of the Angio-Seal STS platform (see page 19). For 2002 as a whole, St. Jude is projecting growth of 40% to 45% in the ICD sector, spurred by the Atlas family of products, which Shepherd characterized as "the highest-output, full-featured dual-rate ICDs on the market," and by the mid-year introduction of the Epic line, which will be "downsized, but with no reduction in output."
In introducing Boston Scientific vice president and CFO Larry Best, Piper Jaffray senior analyst Tom Gunderson described the company as "the Rodney Dangerfield of med-tech," noting that it doesn't seem to get any respect, even though it is "the top interventional cardiology company" and was the top performer in Piper's med-tech group in 2001. Best played off that theme further. After outlining his company's breadth and depth of products and citing BSX's No. 1 position in virtually all of the markets in which it competes, he chose a simple, self-deprecating description of Boston Scientific: "We're pluggers." But don't mistake "plugging" for "plodding." As Best noted, "Everything we do is targeted toward high-growth markets with high margins." Much of what the company is today was built on a foundation strengthened by two major periods of acquisition, one in the late 1990s, the other this past year. That trend will continue, but Best said, "we now are looking outside interventional cardiology."
One segment where Boston Scientific does not enjoy a market-leading position is coronary stents, "the one area where we did not 'own' our product," Best said, without specifically referencing the company's soured relationship with its Israeli-based stent supplier, Medinol. BSX now is pushing its own Express coronary stent product through the regulatory process, but it stands fourth in that market sector, Best acknowledged, "with a long way to go." Things look brighter in the drug-coated stent arena, where the company is in the hunt along with privately held Cook (Bloomington, Indiana), both somewhat behind the Cordis (Miami Lakes, Florida) unit of Johnson & Johnson (New Brunswick, New Jersey), which is likely to be first to market in the U.S. How will BSX do under that anticipated scenario? "It all depends on clinical data – ours and [that of] our competitors," he said, adding that customers in the interventional cardiology community "like data, and data sells [products]." As for those industry watchers who say J&J will get there first and thus will dominate the coated-stent market, Best said simply, "We'll see."
Guidant president and CEO Ron Dollens focused on his firm's recent past performance and 2002 outlook, but also discussed what the med-tech industry is doing to impact health policy, which has resulted in a more responsive FDA and a Center for Medicare & Medicaid Services that is "opening up Medicare for innovative technologies." On the business side, he identified the heart failure market as representing "a huge opportunity" for Guidant, with the positive impact of its sponsored MADIT II trial not only spurring ICD sales by the company, but by the industry as a whole. He also cited Guidant's involvement in the coated-stent sector, including a distribution agreement with Cook and progress on its own actinomycin-D product.
Medtronic CEO Art Collins said the company's product pipeline "is unparalleled in our history and the industry." Among its "attractive growth platforms" are ICDs, a market he said is only 20% penetrated, and thus ripe for growth. Collins said Medtronic has the "broadest and deepest" ICD lines in a highly competitive market segment. As a market leader with revenues approaching $6 billion, Collins said that financial performance gives Medtronic "great flexibility moving forward."