Newer med-tech companies enjoying continued progress

By Larry Haimovitch

Medical Device Daily Contributing Writer

August 21, 2013

BOSTON — The Canaccord Genuity (Vancouver, British Columbia) 33rd Annual Growth Conference, which was held here last week, once again featured a diverse group of public medical device companies. These participants represented a broad range of medical device markets, including cardiovascular, diabetes, orthopedic, oncology, ophthalmology, aesthetics and interventional medicine.

With reports abounding that hospital admissions and procedures are down, it might be expected that the med-tech industry would be under pressure and reporting mediocre or dismal financial results. While this may be true for some “legacy” more mature companies, many of the lesser-known and “younger” companies are enjoying stellar progress.

LeMaitre Vascular (LMAT; Burlington Massachusetts), a company dedicated solely to serving vascular surgeons on a global basis, has reported three consecutive quarters with 10% or higher revenue growth. This growth rate significantly outpaces the low single digit growth of the overall vascular surgery device market and is being sparked by Xenosure, which CEO George LeMaitre called a  “growth engine.”

Xenosure is a bovine pericardium vascular patch that is used primarily for carotid and vascular reconstructions, two key LMAT target markets. The

biocompatibility of the bovine material, its uniform thickness throughout that allows for easier and more efficient suturing and its exceptional tensile and suture retention strength has provided LMAT with an excellent product in a niche market that CEO LeMaitre pegged at $30-40 million annually.

In its recent 2Q-2013 analyst conference call, Lemaitre predicted that Xenosure’s 2013 revenue would reach about $7.3 million, up about 40% over the 2012 level.

LMAT, which markets directly to end-users with 85 sales reps in 17 countries, has 13 vascular surgery product lines addressing a worldwide global market of $750 million. Its growth has also been fueled by an active acquisition program (mostly “tuck-ins”) with 13 deals consummated in the past 15 years. LeMaitre candidly admitted that three of the deals have failed to meet expectations with another three “to be determined” for success or failure.

In addition to an active external development program, LMAT has also aggressively invested in R & D and has introduced 15 new products in the past 12 years. Again, LeMaitre noted that while the track record shows “10 clear victories,” the record is not unblemished, as three were scored as failures with two as “to be determined.”

Overall, LeMaitre noted with pride that his company has grown at a 13% CAGR for the past decade (based on its guidance for 2013) and that it poised for solid gains in the years ahead.

Another company racking up impressive gains is Zeltiq Aesthetics (ZLTQ; Pleasanton, California), whose CEO Mark Foley presented here. ZLTQ is the dominant market leader in the non-invasive fat reduction segment of the aesthetics market, with over 1,700 devices placed worldwide to date. It has placed 1100 in North America.

The company enjoyed robust growth in its most recently reported quarter, with revenue growth of 18%, paced by a 27% gain in North America. In addition to strong system placements, system utilization was outstanding with 112,974 cycles shipped in 2Q, up 34% from last year’s 2Q and 45% over 1Q.

"We were very pleased with our second quarter performance," noted Foley who added that its 18%% revenue gain over last year’s 2Q was considerably better than its competition.

Whereas the Solta Medical (Hayward, California) and Cutera (Brisbane, California) devices both use heat to create fat reduction, ZLTQ's unique cryoablation technology relies on extreme cold to create apoptosis or cell death. Foley pointed out that heat causes discomfort or pain in some patients whereas the Zeltiq CoolSculpting system is virtually pain-free.

Foley ticked off several key factors that are buoying the company:

•Its technology demonstrates consistent and proven efficacy, resulting in high practitioner and patient satisfaction

•It provides a compelling economic value proposition for the doctor, with only 180 cycles yielding 100% payback on the equipment. 30 patients per month generates over $500K per month in practitioner profit, almost entirely incremental

•The market opportunity is huge, (Foley estimated it at $11 billion in the US alone), with 67% of population with unwanted bulges

•The procedure is comfortable, taking only one hour procedure

Foley also noted that there have been myriad alterations in the company’s strategies and tactics since he became CEO in August 2012.

These include the following:

•Significantly strengthened the breadth and depth of the management team, with key additions in high levels positions.

•Bifurcated the sales force into account managers who are responsible for driving system sales and practice support specialists for growing utilization increasing focus and improving predictability

•Marketing resources have been focused on enhancing outcomes and supporting localized awareness efforts with measurable return on investment for its physician customers

•R&D investments have been streamlined, resulting in new applicators such as CoolFit. Foley noted that there are several others applications for cryo technology and that the company hopes to introduce at least one new application in the next few months.

•An innovative program called CoolConnect, is in its early stages of a full rollout. About 100 systems have been converted with the remaining installed base scheduled over the next several months. This will drive point of sale data for Zeltiq and hopefully will boost the MDs return on investment.

With an excellent performance in 2Q, ZLTQ’s stock has rebounded nicely from its lows and late last week the company filed a Form S-3, which gives it the flexibility to sell common stock or otherwise raise capital (debt, preferred stock, or warrants) and/or facilitate the sale of secondary shares.

ZLTQ had over $50 million in cash and equivalents as of June 30, 2013, and appears to have enough cash to last well into 2015. It appears that this registration is to enable an orderly distribution of venture capital shares, who now own over 60% of the company’s stock.

Another star performer in the medtech space is STAAR Surgical (Monrovia, California), whose first half worldwide revenue increased 15% over last year. STAAR is benefitting from torrid growth of its Visian ICL (implantable contact lens), especially outside the U.S. According to CEO Barry Caldwell, international Visian sales are being fostered by two key factors.

First, its innovative CentraFLOW technology has streamlined the procedure tremendously by eliminating the need for a pre-implant procedure called an irodotomy. This procedure is typically performed a few days before the ICL is implanted. The availability of CentraFLOW also improves the economics to the ophthalmic surgeon, by eliminating a pre-procedure patient visit. Caldwell noted that in Korea, some patients are walking into the surgeon’s office and within two hours have had their ICL implanted.

CentraFLOW has been approved in several international markets (most recently India this week) and has been characterized as a ”game changer” by some ophthalmic industry pundits.

In the U.S., STAAR is working closely with the FDA to design an acceptable protocol so that it can initiate a domestic clinical trial. According to Caldwell, that trial could commence here before the end of the calendar year. 

On its second quarter conference call, Caldwell discussed another potentially very favorable development, the likelihood that the FDA’s Ophthalmic Devices Panel before year-end could review its Visian Toric ICL. This product has been under review by FDA for several years now and represents a signficany breakthrough with the FDA.

The potential domestic availability of this product, which addresses both high myopia and astigmatism, is huge. In international markets, the toric Visian accounts for roughly half of all ICL procedures and carries a premium price versus the non-toric product.

“We are very hopeful that the toric ICL will be reviewed by the Ophthalmic Panel before year end,” said Caldwell, adding that its approval would be a major positive for the company.

2013 Canaccord Genuity Conference

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