Good showing at clinical conference

Positive LEADERS trial. Last week, Biosensor’s LEADERS clinical trial results at nine months succeeded in showing that it was non inferior (of equivalence) to the J&J Cypher sirolimus-eluting stent in terms of the primary end point of cardiac death, myocardial infarction (MI), and targetvessel revascularization (TVR). The lead investigator indicated that the results can be representative of “real world” settings, as the trial recruited “all-comers” (real world patients with minimal exclusions). In an unprecedented occurrence, the results were published online simultaneously in Lancet, a world renown high impact scientific journal.

A SYNTAX error? The SYNTAX trial showed that stents were not statically equivalent to bypass surgery for complex left main and multi-vessel disease cases. But until recently, tackling left main disease was “taboo” for stenting, and the vast majority of multi-vessel disease cases were sent directly to surgery. However, clinicians now see the results as a further option to the painful process of bypass surgery for serious cases like left main-stem and multi-vessel situations. It was stressed that stenting was hardly done for left main-stem and three-vessel disease before, and now there is data that shows some safety profile for stenting vs bypass surgery.

Risks still remain.

Clinical trial analysis

Positive LEADERS1 trial. Biosensor’s LEADERS clinical trial results at nine months succeeded in showing that it was non inferior (of equivalence) to the J&J Cypher sirolimus-eluting stent in terms of the primary end point of cardiac death, myocardial infarction (MI), and target-vessel revascularization (TVR). The lead investigator Dr Stephan Windecker (Bern University Hospital, Switzerland) indicated that the results can be representative of “real world” settings, as the trial recruited “all-comers” (real world patients with minimal exclusions), including those with multivessel disease and those who had previously undergone revascularization procedures. In an unprecedented occurrence, the results were published online simultaneously in Lancet, a world renown high impact scientific journal.

One and only… so far. In meeting its primary end point for this ninemonth period, the BioMatrix DES became the only DES (Drug Eluting Stent) to date that showed equivalence to the industry leading Cypher DES with a 1700 patient base that was quickly recruited in another unprecedented time frame of only six months. Medtronic had attempted a similar comparison(ENDEAVOR III trial) but did not meet its primary end point at nine months and with a smaller trial with 425 patients. 

Setting the trend in clinical studies.

What about late stent thrombosis? Another concern was that the trial still showed a “relatively high” rate of stent thrombosis for both Cypher and BioMatrix. We are of the view that this was expected as patients recruited were sicker and 81% of those implanted with either DES were off-label uses. We are also hopeful of better indications for this condition as more follow up is done with the BioMatrix DES, as it is now effectively converted to a BMS (with typically lower thrombosis rates). The conversion of the DES into a BMS is possible as the BioMatrix was coated with a biodegradable polymer. The polymer breaks down after six to nine months, and the rationale for the biodegradable polymer is to reduce the risk of late stent thrombosis. Presently, even clinicians do not know the real cause of late stent thrombosis, but one of the explanations is a hypersensitivity reaction to the polymer.

Why only non-inferiority?

SYNTAX and its implications. Boston Scientific (BSX) announced its 12- month data from the SYNTAX trial, which compared percutaneous coronary intervention (PCI) using the TAXUS® Express2™ Paclitaxel-Eluting Coronary Stent System to coronary artery bypass graft (CABG) surgery in the most complex patient groups. The trial indicated that DES are statistically inferior to bypass surgery for the primary composite end points. However, the combined rate of “hard” end points (death, heart attacks and stroke) were no different between the two trial groups and secondary-end-point findings, showed a statistically lower risk of stroke among patients with stents but a statistically higher need for re-intervention.

Delving deeper into the data

A team choice. Dr Petr Widimsky (Charles University, Prague, Czech Republic) indicated to publications like Heartwire that both the surgeons and cardiologists can be happy about the SYNTAX results. “Surgeons, because they have shown that surgery is slightly better, and cardiologists, because they’ve shown that cardiology is not worse for hard end points,” he said. He also indicated that the key message for practice goes two ways. One: the importance of a ‘heart team’ for these types of patients, involving cardiologist and surgeon, to discuss the patient’s options. The second message is that patients should be involved themselves. Because if there are two options that are basically equal, the patient should have the right to decide: it is his chest that will be cut open, or he will likely be coming back for a repeat procedure.

J&J in bypass surgery.

We postulate below what the conversation between a doctor and his patient may sound like. We reiterate that the conversation below is intentionally dramatized to highlight the radical differences in choosing stenting vs. bypass surgery.

Patient: Hi Doc, you’ve checked me out. Give me my options.

Doctor: Your heart needs quite a lot of work with a number of clogged arteries. I give you two options. The first is to go for stenting. It’s a fast procedure. You do it today and you can head home tomorrow because it’s minimally invasive. We’re only going to make a small cut at your thigh. However, you might need to come back to see me again for another procedure because the stents might not hold your arteries open for a long period of time.

Patient: Doesn’t sound too good but not too bad either… though I would like to see you the next time in another setting other than your clinic… And the second option?

Doctor: Well, you could also do a bypass surgery. It’s historically shown that the results are more durable but it’s going to be painful. You will be anesthetised as we will be opening up your chest and may have to stop your heart and put you on an artificial heart and lung machine while taking a redundant vein out permanently from your leg to replace the clogged up arteries in your heart. You’ll probably need to stay about 1-2 weeks in the hospital and will only regain relative normalcy of independent lifestyle about 3-6 months later.

Patient: ?!?!?

Doctor: But like I said, chances are, you likely won’t need to see me again for another procedure in the foreseeable future. So what’s your decision?

More data to prove DES safety. In late June 2008, Dr David Malenka et al published a report in the Journal of the American Medical Association that analysed a total of about 67,000 patients that received BMS and DES in the ratio of about 60:40 respectively. The analysis concluded that over a two-year follow-up period, repeat revascularisation procedures were lower in DES patients vs. BMS patients. There were no differences in rates of death or heart attacks between the two groups. This clearly shows that DES, when used with appropriate caveats (anti-platelet treatment), has net benefits when compared with associated risks (i.e. late stent thrombosis).

Following COURAGE

Competitor analysis

Competition still hot. We managed to interact with most of the major competitors in the stent business and came away with various impressions: Johnson & Johnson (Cordis). This camp was affected the most by the LEADERS trial results. Industry talk indicated that there was a general concern about the good data and the technology surrounding BioMatrix especially in comparison with the market leading albeit much older Cypher DES. In an effort to boost its revenues, J&J recently obtained new regulatory clearances for its Cypher stent in the EU. However, its DES innovation pipeline continues to be relatively thin, with only the new Presillion BMS and ongoing trials for its recently acquired Conor Medsystems’ stent system which is not available for sale.

Medtronic and Abbott. Continues to push ahead with its 2nd generation DES (albeit with non-biodegradable polymer) in an effort to secure market share. Medtronic’s ENDEVOUR DES managed to secure about 20% of the US market since its launch in Feb 2008 while Abbott’s Xience V DES launched in May 2008 is hoping to secure 30% of the US market by 2010. Our interactions with representatives of these two companies were forthcoming, indicating a certain level of confidence in their companies’ products.

Boston Scientific and Hexacath. These were the last of the 2 companies that we tried to interact with. However, we found their representatives to be relatively stand-offish and overly defensive about their products’ future. We postulate that it might be an indication of its lack of response in product pipeline in this tough stent market.

Fertile grounds to boom.

Mergers and Acquisitions trend

Medical Device M&A trends still healthy.

M&As still at good valuations.

State of the market

Worldwide demand. There are many estimations of the coronary stent market by various agencies and companies but a conservative average would indicate that the worldwide coronary stent market would amount to US$4.8-5b in 2008, as compared to approximately US$5-5.5b in 2007. The estimate for drug-eluting stents is expected to represent about 80% of the dollar value of worldwide coronary stent market sales in 2008, similar to 2007.

Driving factors.

Retarding factors. The recent uncertainty regarding the safety and efficacy of DES, as well as the increased perceived risk of late stent thrombosis following the use of DES, was and is still the main reason for a slow down in the worldwide DES market size as compared to prior years.

Redeeming data. However, more data (like those presented at ESC 2008) addressing the risk of late stent thrombosis and supporting the safety of DES systems appear to have had a stabilising effect on the declining demand, as cardiologists regain confidence in this technology. There are evidences from the other DES manufacturers that indicate the penetration rates for DES have been increasing, in conjunction with better data demonstrating long term safety of this medical technology.

DES is here to stay.

Key Risks

Bigger companies have stronger balance sheets. All of the big four stent companies are significantly bigger and have a much wider and established marketing presence in all geographies. Biosensors continues to acknowledge their smaller size and will compete on strong clinical data vs. pure marketing based events.

They have bundling capabilities of products. Larger companies have a larger slew of cardiovascular products and can offer a stronger proposition of a one-stop-shop for medical centres with volume and diverse product bundling with discounts.

Research grants for clinical centres and to PIs. It is common practice for medical companies to sponsor medical suites, hospital facilities and research grants to clinicians. This can be a very strong incentive for clinicians to take up their products vs. Biosensors which possesses limited bandwidth in this aspect.

5th to market. Although BioMatrix shows non-inferiority to the market leading stent, it is still 5th to market. We are of the opinion that clinicians have indicated that they will take it up when there is competitive pricing or superior services rendered (e.g. reliable supply chain).

Price wars. Despite strong competition, the larger companies may be able to embark on a price war to starve out smaller companies like Biosensors.

Contract manufacturers. Despite being strongly vertically integrated in terms of possessing control of its own IP, we think that Biosensors’ reliance on its sub contractors for some portions of its manufacturing can be a point of weakness. Biosensors has indicated that it has been rationalising its supply chain and has put in place a spectrum of back-up subcontractors to ensure sustainability of its operations.

Overall, future looks good.

EARNINGS FORECAST

Year Ended 31 Mar (US$ m) FY07 FY08 FY09F FY10F

Revenue 34.4 44.3 134.3 190.9

Gross profit 14.3 20.6 92.2 117.1

Operating expenses -54.5 -57.6 -69.4 -74.5

Operating profit -40.3 -37.0 22.8 42.7

Finance income/expense, net 1.9 -0.6 -0.6 -0.6

Joint Ventures 0.0 4.4 2.9 0.0

Others 3.3 6.7 -4.5 0.0

Pre-tax profit -35.1 -26.4 20.6 42.0

Tax -1.2 -3.6 -13.2 -7.1

Minority interests 0.0 0.0 0.0 0.0

Net profit -36.3 -30.0 7.4 34.9

Dividend 0.0 0.0 0.0 0.0

EPS (US$ cents) -4.0 -2.9 0.6 2.9

Fully diluted EPS (US$ cents) -4.0 -2.6 0.6 2.9

EPS growth -52.8% 35.8% 123.7% NM