FOOL ON THE
HILL
Artificial Hearts for Investors
Replacement
hearts zoomed back on the radar last week when a patient in Louisville received
the first totally implantable artificial heart replacement: Abiomed's AbioCor.
Risk-tolerant investors might find more fertile ground in companies whose
products assist the heart, rather than replace it. Better still, they should
employ watchful waiting.
By Tom Jacobs (TMF
Tom9)
July 9, 2001
Unless they were on Mars without the wireless Internet,
investors couldn't miss the news last week about the implantation of an
Abiomed (Nasdaq: ABMD)
AbioCor replacement heart in a Louisville patient. This event reminded many of
the unsuccessful Jarvik-7 artificial heart,
and the media attention surrounding William Schroeder, who lived -- suffered,
really -- through 620 days in 1984 with the device.
While Abiomed deserves a lot of credit for bringing the more advanced AbioCor
to its first human tests, it isn't necessarily going to provide better outcomes
than the Jarvik-7. Investors should look beyond the headlines.
Folks, let's have a heart-to-heart about hearts. Lub dub.
Replacement hearts
These are the first human tests of the
Abiomed plastic and titanium AbioCor device, pursuant to a Food & Drug
Administration (FDA) investigational device exemption (IDE). The AbioCor is
a Class III medical device, subject to the government's most rigorous
regulation. The company first tested the AbioCor in animals, developing the data
necessary to secure the IDE.
The IDE granted permission to start testing the device in a small number
of end-stage heart patients with irreparably damaged hearts who were
at risk of imminent (within 30 days) death and whose other organs
function. As it develops data, Abiomed must then seek FDA approval to
expand the number of test patients. The company's goal is to develop enough data
on the safety and effectiveness of the device to satisfy the FDA when Abiomed
submits its pre-market application.
Why replacement hearts? Only about 2,000 hearts are available annually
for transplant, not enough to satisfy even a small part of the estimated 200,000
patients worldwide who would benefit from a replacement heart -- artificial or
otherwise. The goal is a device that allows end-stage heart patients to leave
the hospital and live normal lives for a time. Abiomed reportedly believes
survival of up to six months would represent success.
Who will pay?
I am not a heartless demon. Really. But as
investors, we have to talk hard money, even when we're looking at potential help
for people in dire straits. For a medical device maker, a product's success
depends not only on securing FDA approval, but also on convincing
health insurance companies to pay for it. There isn't a very big market of
people who can pay the $75,000 to $100,000 estimated cost for an AbioCor
system -- or even the $25,000 the company says it might cost after sales ramp --
so unless you're a non-profit company, you need to convince insurers that the
benefits of the heart outweigh the costs. For an insurer, that means that the
AbioCor must save money.
Insurers spend a lot of money on cardiac care for patients. Based on the last
complete statistics, which are from 1996, half of the 700,000 annual U.S.
deaths from cardiac disease are sudden. That leaves a large number of coronary
heart disease (CHD) and congestive heart failure (CHF) patients whose hearts
progressively decline, and who are likely to spend much time -- and
certainly their last days -- under very expensive hospital care. Think machines,
drugs, medical personnel, and lengthy stays. If a company can make a product
whose cost compares favorably with these expenses, chances are insurance
companies would pay for it.
There may not be enough savings if the AbioCor keeps a patient out of
the hospital for six months, but the company hopes to achieve
multiple-year durations through testing and further work. That's when the
cost-benefit analysis becomes more favorable to the company's product,
especially when compared to after-care for transplant patients, which
includes expensive immunosuppressive drug therapy. (Immunosuppresive
therapies are meant to temper the natural response of the body's immune system,
which can cause the rejection of transplants. The AbioCor is not expected to
provoke immune response).
If you're the patient, you'll surely be happy with anything that
improves quality of life, whether you're waiting for a heart transplant that is
unlikely to come or just wanting to spend a few months of your life not
sitting in a hospital in the form of a human pin cushion. But unless you're
King Midas or Queen Latifah, you won't be able to do it with
AbioCor without insurance.
Heart assistance
There are other possibilities beyond
replacement hearts. Some companies market temporary heart assist devices,
such as ventricular-assist devices (VADs). Remember that the heart has four
chambers -- two atria and two ventricles. The blood enters the atria, which
deliver it to the ventricles. They in turn pump blood to the lungs and the rest
of the body. VADs pump the pumper, so to speak. Abiomed's BVS, on the
market since 1992, is a VAD.
Temporary assist devices are deployed in three ways:
- as bridges to recovery, in patients whose hearts are temporarily
indisposed -- not fully restarting after open-heart surgery, for
instance, and thus incapable of being weaned off the heart-lung
machine;
- as bridges to transplant, for patients awaiting heart transplants; and
- for staging, for such patients as those in transport or between heart
transplant rejection and replacement heart implant.
According to the company, Abiomed's BVS device is used typically where a
patient's heart can recover in less than a week. At least two other companies,
Thoratec Corp. (Nasdaq: THOR) and
World Heart Corp. (Nasdaq: WHRT),
market temporary heart assist devices.
Permanent heart assists?
Some companies hope to market
longer-term, or permanent, heart-assist devices. One is Arrow
International (Nasdaq:
ARRO), which developed the LionHeart left ventricle assist systems
(LVAS). Arrow is profitable, benefiting from a mature product line of critical
care and cardiac assist products, including a variety of catheters. (Catheters
are hollow tubes inserted into the body to assist the flow of fluids.)
It hopes for future growth from the LionHeart, which is not a
bridge-to-transplant or bridge-to-recovery device, but intended for patients
with "progressive, irreversible, end stage congestive heart failure for which
heart transplantation is not an option." Pursuant to an IDE, the LionHeart has
been implanted in 19 patients, one of whom has survived 20 months on the
device.
The LionHeart involves a wearable battery power supply, but patients may have
up to 20 minutes of untethered use. The goal is to allow the patient to return
to home, work, and leisure activities. Investors may find greater potential for
the LionHeart than the AbioCor, because current tests show at least the
possibility of long-term survival and thus a better -- or at least earlier
-- shot at a favorable cost-benefit analysis.
The LionHeart has some competition. World Heart's Novacor LVAS is already
approved as a temporary assist device for bridge-to-transplant use, and 25% of
test patients from that group have stayed on it for at least six months. The
company is now conducting clinical trials of Novacor LVAS in the U.S. for
long-term use. Thoratec is testing its HeartMate II in Europe, also for
longer-term use.
For more information on heart assist devices, Texas A&M University
maintains a handy website devoted
to heart assist device research, development, and products.
Choices for investors
There is no doubting the need for
help for CHD and CHF patients, nor that current drug treatments are limited. But
a risk-tolerant investor looking at the heart assist medical device sector
should first determine whether the opportunity is worth the risk. The big money
would appear to be in the possibility of a long-term -- possibly permanent --
assist device, if and until a replacement heart can provide significant survival
times. If so, it's important to examine which companies are the strongest
financially:
ABMD ARRO THOR WHRT
----------------------------------------------
TTM revenues $ 25M 324M 85M 3.5M
Market Cap. 546M 838M 802M 126M
TTM EPS (0.55) 2.11 (1.76) (1.69)
P/E ratio N/A 18 N/A N/A
P/S ratio 21.7 2.6 7.6 35.9
Cash
(Most Recent Q) 92.5M 3.5M 89M 36.8M
Burn Rate
(Last FY) $14.5M N/A 2.8M 22.5M
% Of Float
Held Short 28.1% 3.3% 1.0% 1.2%
Notes:
TTM = Trailing 12 months
P/E = Price-to-earnings
P/S = Price-to-sales
Burn Rate = Capital expenditures minus net cash
from operating activities, within a set time period.
Only Arrow is profitable, and its cash flow -- running about $9 million a
quarter -- may well keep it afloat while it tests LionHeart. Abiomed and
Thoratec's cash cushions appear sufficient salves for their burn rates for a few
years, but World Heart may have to find a partner or hit the capital markets in
under two years. The short interest is notable because the market appears
to find Abiomed overvalued.
With so many variables at play here, investors should proceed cautiously
knowing there's much more to the heart medical device story than Abiomed's
AbioCor. At least for now, you can't always get what you want -- a new,
replacement heart that works indefinitely -- but it's possible you might sooner
get what you need: a heart assist device that works long-term.
Unless investors have mad money -- stark, raving, mad money
-- it may be best to employ that time-honored medical therapy:
watchful waiting.
Tom Jacobs (TMF Tom9) currently causes others to need medication but
takes none himself. At press time, he owned no shares in companies
mentioned in this story. To see his stock holdings, view his profile, and check out
The Motley Fool's disclosure
policy.
----- Original Message -----
Sent: Monday, July 09, 2001 1:51 PM
Subject: [sharechat] ...MMD... Micromed.
Industries... Latest Developments
Readers of this post are not asked to buy,
hold or sell MMD stock. To do so will be entirely at their
own risk!
Followers of
MMD,
This is a summary post and a
copy of the content follows:
" Readers,
The important post no.
340 summarizes the business, the products and the status
of the " Artificial Heart " or " VentrAssist "
trials which were held by MMD up to June 1, 2001. To
understand the content mentioned below, please read post 340,
first!
To quickly locate post 340, look for the
date of the post you are reading now, then enter the number " 340 " in
the search box provided below that and click on " Go ". I suggest you
print that page as constant references will be made to post no.
340!
This new post discusses developments since
June 1, 2001 and before reading the contents of this post, you have agreed to
absolve the writer of any liabilities ( as you did in post
number 340 ) arising from reading the following
content:
1.Markets.
There are two distinct markets for
Artificial Heart devices:
1.1 A device which
completely replaces the patient's
current heart. Normally, this patient would be the recipient of a
transplant.
Abiomed Inc.( ABMD ) has produced such a device,
weighing over 1 kg., a large sized object which can only be fitted to a
grown-up person. This device is being trialled and will
be expensive. The market for this device is
about $US 1 Bill.
1.2 The " Heart
Assist " device discussed in post No. 340: Arising
from heart attacks, this device will be connected to an existing heart
for a period. It gives the heart time to recover; reports indicate that
up to 40 % of patients recover after only three months on an artificial heart.
The device can be disconnected
when wanted and the patient will continue to live his/her normal
life.
A few of these devices will be trialled in the
next two years, however, as post No. 340 pointed out, the MMD's "
VentrAssist " device is radically different and has some very attractive
features not shared by other devices.
The market for these Heart
Assist devices is some $US
11 Bill.
or $A 22 Bill. and is rising due to
an increasing rate of heart failures. It is a massive market!
MMD hopes
to
get a large
chunk of this
market pending the successful outcome of the human trials to
take place at the end of this year or soon thereafter.
Commercialisation
could then start in 2003: MMD's device does not require long periods
for testing as is required when testing many pharmaceutical
products.
2. Developments.
MMD has refined their "
VentrAssist " device which can now be fitted to young
persons; it has the size of a child's fist and blood damage is now
minimal ( unlike other devices ) as was shown in extensive and successful
animal trials, one lasting over six months. There are additional
features:
2.1 It has the potential to
be put in without the patient being on heart-lung bypass. Surgery will
therefore be less invasive and therefore will have less risks.
2.2 Post no.
583 is a News Release from MMD and it mentions that a
sheep implanted with this device has given birth to a healthy male lamb. This
gives new hope to pregnant patients who cannot tolerate risky anticoagulants
which need to be used with other Artificial Hearts.
MMD has secured another US patent. This covers
all aspects of its device.
MMD already has a second - generation
product in mind that will be made of plastic and will cost about a quarter of
the current price of the titanium one ( which costs $ A 60 -100 k ). It
will be implanted only for three to six months.
Implantation into the sheep only took
90 minutes and the technique does nor
require major surgery.
MMD will address the
following needs for improvement in subsequent models: At present, the
power supply needs to be changed two to three times a day. Cables pass through
the skin: a transcutaneous control system ( as ABMD's device for total
heart replacement has, see above ) will be less restrictive and is being
looked at."
Gerry Stolwyk
See IRG research reports
