CDU Executive Editor
NEW YORK – Whether it is because of U.S. Bancorp Piper Jaffray's headquarters location in Minneapolis, Minnesota – arguably the center of the cardiovascular product universe – or because of its noted expertise in analyzing and raising funds for companies within that sector, many think of its annual health care investors conference as a "cardiology" conference.
While the Piper Jaffray gathering has substantially diversified in recent years and featured a big-time health care information, health care services and biotechnology presence at this year's conference, it was true to its device roots – and more specifically, the cardiovascular sector, with a nice mixture of the key players and emerging companies involved in that important area of the medical technology industry.
Among the big hitters presenting at the three-day gathering at The Pierre hotel in early February were Medtronic (Minneapolis, Minnesota), the cardiovascular sector colossus; Guidant (Indianapolis, Indiana), which in a few short years since being spun off from Eli Lilly and Co. (also Indianapolis) has emerged as a strong challenger to Medtronic; Boston Scientific (BSX; Natick, Massachusetts), which bills itself as the largest company in the world in interventional and catheter-based medical products; and St. Jude Medical (St. Paul, Minnesota), which dominates the heart valve segment.
Also presenting was Baxter International, which by mid-2000 will spin off its CardioVascular Group into a freestanding public company, Edwards Lifesciences (Irvine, California), that will be closing in on $1 billion in annual revenues even as it takes its first steps on its own.
The Piper Jaffray mix also included several smaller companies that are carving out interesting and potentially profitable market niches.
Medtronic CFO Robert Ryan, whose presentation touched on both his company's traditional cardiovascular business and its recent forays into several other sectors, said Medtronic is "winning in the marketplace," and noted that the company expects a continuation of its strong revenue growth, which averaged 18% a year during the 1990s and is expected to grow at 16% to 18% a year over the next 10 years.
In the cardiac rhythm management arena, the foundation upon which Medtronic was built, the company is following a co-morbidities strategy which he said "plays to our strength of market leadership in all five segments [bradycardia, tachycardia, atrial fibrillation, congestive heart failure and external defibrillators]." Medtronic is a huge player in the two largest segments, with what Ryan described as a 51% share of the bradycardia market (to what he said were St. Jude's 22% share and Guidant's 20% share), and a just less than 50% share of the tachycardia market (to Guidant's 40% share and St. Jude's 10% share).
He also cited the company's efforts in the vascular area, including cardiac stents from its AVE (Arterial Vascular Engineering; Santa Rosa, California) unit, abdominal aortic aneurysm grafts from AneuRx and the TALENT system from World Medical, which was an acquisition by AVE just prior to its own acquisition by Medtronic.
Ryan also touched on the big steps Medtronic has taken in recent years in the neurological and spinal sectors, referring to them as "businesses with tremendous growth potential."
But much of his focus was on the company's Vision 2010 plan, which is aimed at effective management of chronic diseases. Ryan described such efforts as "Medtronic's strategic imperative." He said chronic diseases account for 80% of U.S. health care spending, but said "the power of information technology and medical technology will lead the way" to a better quality of life for those afflicted.
Noting that "Medtronic will play a leading role" in the management of chronic diseases, Ryan described the Vision 2010 program as having three pillars:
1) Empowerment of the patient.
2) The information revolution.
3) Technology convergence.
He said the program "will augment medical technology with disease management." Medtronic's plans in that area are reflected in its recently announced alliance with Healtheon/WebMD (Atlanta, Georgia) involving a variety of initiatives, including what the company described as "development of an Internet system for disseminating information on medical products and treatments, as well as creating dedicated online health information channels for disease-focused communities." The $100 million investment by Medtronic over the next four years links the company with the hottest – and biggest – name in the burgeoning e-health arena.
Beyond the Vision 2010 initiative, what lies ahead for Medtronic? "We're better-positioned than ever before in our 50-year history," Ryan said, saying there is "a tremendous pipeline of products across the entire company."
Ron Dollens, president and CEO of Guidant, had a similar message, giving a rapid-fire overview of a wide range of product development activities that will impact the company in both the near term and somewhat further down the road. He cited in particular the Prizm dual-chamber implantable cardioverter defibrillator (ICD), which was being put into the hands of Guidant's U.S. sales force on the day of Dollens' presentation. Upbeat about opportunities in the cardiovascular sector ("We think this is a fabulous place to do business"), Dollens was especially high on growth opportunities in the ICD sector, predicting a 20%-plus growth rate. He said the results of the MUSTT trail, published in December 1999, led Guidant to think the potential patient population for ICDs may be three times larger than previous estimates. "We see growth [in the ICD segment] for as far as we can look forward," Dollens said.
He noted that Guidant is marshaling its efforts in new areas of largely unmet need: heart failure, atrial fibrillation and abdominal aortic aneurysms (AAA), the latter of which is "an area we're really excited about."
Describing the drive to succeed as being driven by new products, Dollens said, "When you see Guidant get into a business, we bring something to it ... we feel we can invent and innovate in both vascular intervention and cardiac rhythm management."
He also cited the contributions already being made through his company's late-1999 acquisition of minimally invasive cardiac surgery market leader CardioThoracic Systems (Cupertino, California), which during the week of the Piper Jaffray conference introduced 10 new products for off-pump (beating heart) surgery (see Product Pipeline, page 13).
Boston Scientific CFO Larry Best forecast at least a momentary timeout in the company's super-aggressive acquisition efforts, saying that much of the company's attention during 2000 will be focused on wringing "operating efficiencies out of this business we've built." And a considerable business it is, with $2.8 billion in revenues in 1999, up from only $450 million as recently as 1994. "That's a lot of growth, Best said. "We're very proud of what we've built. We're the largest company in the world in interventional and catheter-based medical products."
And, said Best, "we're the only company focused strategically on interventional medicine in the entire anatomy, not just cardiovascular." He said Boston Scientific "pioneered the peripheral vascular market, and has a leadership position in the neurovascular market." In fact, said Best, with broad-based participation in more than 60 product categories, BSX has leading positions "in virtually all of them."
One where it doesn't, for a variety of reasons, is coronary stents, where Best said Boston Scientific has had a "very stable" No. 2 market position, but added, "we don't plan to be No. 2 for long." One of the reasons for the company being off the pace in the stents sector has been problems with its NIR platform, but, said Best, "our competitors' technologies can be beat, and our pipeline, once it appears, will surprise you."
In addition to noting that Boston Scientific is "very married to the NIR platform," and that the market "will see new versions added," Best said the company is "working very hard on coated stents, with multiple programs under way." He cited the company's alliance with Angiotech (Vancouver, British Columbia, Canada) in the coated-stent sector, with human clinical trials expected to begin in the first half of the year. "If we're right on this," he said, "it could be a home run" for Boston Scientific, partially because the company's alliances with Angiotech and Cook (Bloomington, Indiana) will make it harder for competitors to get into the sector.
Among emerging business sectors, he cited carotid stents, saying, "it's not a question of if there is a market, but when." He added that the carotid market "could be as large as the cardiac stent market."
Best also noted Boston Scientific's European alliance with PercuSurge, maker of the GuardWire emboli containment system for use during certain interventional procedures.
He was less certain of how strong the nascent brachytherapy market may prove to be, but said, "if there is a market for radiation, we'll be there."
As did Medtronic's Ryan and Guidant's Dollens, Best cited the strength of the overall marketplace and the opportunities contained therein. "The markets are there," he said. "We have to re-gear ourselves to meet those opportunities." Fortunately, he added, "we have a great deck of cards with which to play; I wouldn't trade our base for anyone's."
Tom Gunderson, Piper Jaffray managing director and senior research analyst, had referred in conference-opening remarks to successful "one-trick ponies" in the device sector. In introducing Terry Shepherd, president and CEO of St. Jude Medical, Gunderson said the company "might be the best one-trick pony in the history of medical technology," but added that "the pony has learned some new tricks."
Shepherd noted that, while St. Jude has built itself into the preeminent company in the heart valve segment, its focus now is on several disease states, including heart valve disease, cardiac rhythm disease, coronary artery disease, heart failure and peripheral vascular disease, although the latter "is really an aspiration at this point."
That said, he noted that "we are still a device company, focused on technologies to be used by the primary physician problem-solvers" in the areas where St. Jude is involved.
Shepherd said the company's acquisition of Vascular Science (VSI) in September 1999 "leveraged our position with cardiac surgeons." VSI's anastomosis device, the VSI Proximal Connector, replaces sutures and difficult techniques with a one-piece, one-deployment procedure that can be conducted in seconds. "We have an FDA filing in and expect approval in the first half," Shepherd said. He noted that he had just come from the Society of Thoracic Surgeons meeting in Fort Lauderdale, Florida, and that "excitement is very high in the clinical community" regarding the VSI device.
He said that St. Jude's Cardiac Rhythm Management Group represented the bringing together of four different companies, and "there were a lot of rocks in the road" to making that work. But over the past several months, Shepherd said, "this has been the great success story of our company."
As for what's coming, Shepherd noted the first implants in December 1999 of the Photon, the company's first dual-chamber ICD, then cited atrial fibrillation and congestive heart failure as having "very attractive" patient demographics for St. Jude. "AFib is a natural expansion of our existing cardiac rhythm management market," he said, "serving the same clinicians, who are comfortable with device interventions."
He said the company is looking forward to several product launches in 2000, adding that "we are well-positioned in large, emerging cardiac rhythm management indications."
Baxter International CFO Brian Anderson noted that the spin-off of the company's CardioVascular Group into Edwards Lifesciences will occur by the end of the first quarter, ahead of the original schedule that called for it to be completed about mid-year.
He didn't offer much in the way of detail on the spin-off, other than noting that Edwards will be "a significant player in the cardiovascular sector." The new company will have some 5,000 employees worldwide, including more than 1,400 at the Irvine location.
Among other presenters at the Piper Jaffray gathering, CryoLife (Kennesaw, Georgia) President and CEO Steven Anderson attracted an attentive audience to hear what Piper Jaffray managing director Archie Smith termed "an intriguing growth story." That story's main theme is diversification, which has allowed the Atlanta-area company to move forward even in the face of sluggish heart valve sales – one of the twin foundations on which the firm was built.
Anderson said 1999 "was a year in which the product diversification strategy we put in place 10 years ago began to pay dividends." That strategy, he said, was driven by "two breakthrough technologies" – BioGlue surgical adhesive and SynerGraft tissue-engineered technology for removing porcine cells from a porcine heart valve, creating a biological scaffold with the potential for being repopulated by the patient's own cells.
With these developments, CryoLife now has four business elements: human tissue preservation, including heart valves, veins, and cartilage; xenograft (porcine) heart valves; bioadhesives; and tissue engineering, which Anderson described as "combining xenograft and human devices." As a doctor filmed for a CryoLife promotional video put it, "Science fiction is becoming science fact."
Anderson described the company as "pioneers in surgical adhesives," and said the protein-based BioGlue, which is in clinical trials in both the U.S. and Canada, "is very strong and easy to deliver – the most user-friendly surgical sealant on the market." And a sizable market it is, pegged by CryoLife at about $600 million.
He said the SynerGraft heart valve "will revolutionize the human implantable heart valve business." He said the company will file for an investigational device exemption in the first half of this year to begin human testing in the U.S., and that international trials will begin late in the first quarter.
John Erb, president and CEO of IntraTherapeutics (St. Paul, Minnesota), discussed the company's products for diagnosis and treatment of peripheral vascular disease, including the IntraStent, a balloon-expandable biliary stent, which is its main product.
Erb, who described his company as "the only U.S. pure play company in peripheral stents," said IntraTherapeutics will introduce seven new products this year, following a strategy of designing "specific stents for very specific applications."
The new products will contribute to a rapid ramp-up of revenues, from about $11 million in the present fiscal year to $31 million next year.
Gunderson introduced PercuSurge (Sunnyvale, California) as "the name you hear in any discussion of emboli protection." No wonder, because the company has a strong intellectual property position in the sector, bolstered by 43 issued or pending patents.
Peter Rule, president and CEO of the company, discussed development of the Guard Wire Emboli Containment System, and noted that the company has "a cascade of revenue-generating products in the pipeline." Already approved in Europe for several indications, PercuSurge will pursue U.S. use in saphenous vein grafts, acute myocardial infarctions, carotid arteries, and renal arteries.
Other cardiovascular-related companies that drew investor attention during the Piper Jaffray conference included Endocardial Solutions (St. Paul, Minnesota), EndoSonics (Rancho Cordova, California), Micro Therapeutics (Irvine, California), and Novoste (Norcross, Georgia).