medical supplies and devices
TRANSCRIPT
May 12, 2016
Reason for report:
PROPRIETARY INSIGHTS
Richard Newitter(212) [email protected]
Danielle Antalffy(212) [email protected]
Ravi Misra(212) [email protected]
Puneet Souda(212) [email protected]
MEDICAL SUPPLIES AND DEVICESTakeaways From West Coast MedTech Doc Day
• Bottom Line: Key highlights from our discussions with 11MEDACorp specialists below and additional detail on p3.
• Hospital Admins: Utilization Up Though Likely To Normalize/Bundled Payment Nearer-Term Focus Remains on Post-AcuteCare/Scale Still Viewed as Important. Specialists noted an uptick inadmissions/volumes in 1Q -- consistent with strong utilization trends thathave been broadly reported across MedTech this quarter. While volumesare likely to stabilize, currently this patient inflow is having a negativemargin impact, as incoming newer patients are higher risk. Consistent withrecent checks with other hospital admins (LINK) on bundled payments:1) the biggest priority is migrating care from the inpatient to ambulatory/outpatient settings; 2) bundled payment models will likely expand intoother service lines and institution's will focus on patient selection anddownstream costs before revisiting implant pricing, and 3) device multi-linecontracting is on the rise (scale matters).
• Neuromodulation could be on the cusp of significant growthinflection. Our neuromodulation specialist brought up several tailwindsthat should expand use of SCS devices, with volumes potentiallyincreasing 2-3x in the next few years and beneficial for all playersincluding STJ [OP], NVRO [OP], BSX [OP], and MDT [MP]. NVROhas been gaining share in and growing his practice, with nearly all of hispredominant back pain patients receiving a Senza given the stronglysupportive data as well as a significant increase in trial to permanentimplant rates (now over 80% from ~50% previously).
• “Leave nothing behind” trend bodes well for drug coated balloon(DCB) adoption. DCB adoption has been gaining share in our specialist'spractice and he has a positive view on increasing adoption as indicationsexpand. Regarding new entrants (i.e., SPNC’s [NR] Stellarx), early dataappears encouraging in his view, but his institution would find it difficult tostock all three DCBs if approved. Product breadth is an important factorin this service line that could ultimately limit manufacturers without adiversified portfolio, which we think bodes well for MDT [MP] and BCR’s[MP] and their ability to maintain share within this expanding mktlonger term in our view.
• Spine discussion focuses on better management of surgeries andnew technologies. Patient stratification is becoming more important asinstitutions manage outcomes across the continuum of care. While thereis no bundled payment program in spine tied to outcomes, the specialist/institution’s processes are in sync with outcomes based approachestowards case management. From a product perspective, the specialistprefers SYK’s [OP] expandable interbody over GMED [OP] thoughnoted that GMED’s usage could be higher if the company could supplymore biologics, a position that we view as supportive of GMED’s ongoinginvestments in biologics. He thinks NUVA [OP] is positioned well in his
S&P 500 Health Care Index: 800.22
Companies Highlighted:ABT, BCR, BSX, CNMD, CSII, EW, GMED, HTWR,
ISRG, IVTY, JNJ, MDT, NUVA, NVRO, STJ, SYK
Please refer to Pages 12 - 13 for Analyst Certification and important disclosures. Price charts and disclosures specific tocovered companies and statements of valuation and risk are available athttps://leerink2.bluematrix.com/bluematrix/Disclosure2 or by contacting Leerink Partners Editorial Department, OneFederal Street, 37th Floor, Boston, MA 02110.
MEDICAL SUPPLIES AND DEVICES May 12, 2016
practice and has captured 60-70% of his lateral cases, and thinksEllipse will allow NUVA to gain market share in early onset scoliosis, andopen an opportunity for NUVA [OP] to pull through screws/rods sales overtime.
• Case for robotics is becoming more compelling according togeneral surgeon. The specialist views robotics as a “must have”technology with better outcomes and perhaps even cost equivalence vs.lap in hernia (giving us increased confidence in sustainability of DDprocedure growth for ISRG [OP]). He was positive on CNMD’s [OP]Airseal ("nice to have," used in all robotic cases except inguinal hernia).He was particularly bullish about IVTY's [OP] illumination platformwhich he considers “must-have” and expects will gradually get usedin 100% of his mastectomy cases---he is working to push this through hishospital's value access committee, and thinks approval will come shortly.
• In electrophysiology, ablation volumes growing double-digits whileCRM seeing share shift to MRI compatible devices. The EP specialistbelieves ablation volumes have increased 20%+ in some cases vs.our ~10% AF ablation market estimate. With higher success ratesand shorter procedure times from contact force sensing catheters(JNJ [OP] and STJ), his institution is taking a more aggressive approachto patient treatment and in some cases shifting treatment paradigms;ablation is now preferred as an earlier intervention vs. drug therapy.He also uses MDT’s Arctic Front cryoballoon in most of his paroxysmalpatients and even some persistent patients. Within CRM, he views MRIcompatibility as the most motivating factor in device choice. Because ofthis, he’s moved the majority of his cases towards MDT and Biotronik overthe last few years but does believe he will likely shift share back to STJonce the company launches its own MRI compatible systems.
• Intermediate risk indication set to drive dramatic growth in TAVRadoption, TMVR still early. With an upcoming intermediate risk approval– possible in late 3Q16/early 4Q16 according to EW – the interventionalcardiology specialist believes that TAVR volumes are poised for20%-30% growth overall. And ultimately, he thinks TAVR canpenetrate nearly 100% of the intermediate risk patient population,which we believe represents the size of high risk and inoperablepatients combined. This physician – a key thought leader in mitralsurgery – believes that TMVR is still over a decade away from becominga truly viable and commercializable technology like TAVR though mitralremains a highly underpenetrated and undertreated disease state.
• In Neurovascular, interventional radiologist expects MechanicalTherapy (MT) to increase as a % of a still underpenetrated ischemicstroke intervention mkt oppt'y; though he is cautious about overutilization down the road. The MRCLEAN study has led to an inflectionin the specialist's stroke volumes, and he sees room for higher penetrationin the US where treatment using mechanical retrievers is just <2%penetrated (15K of 800K ischemic strokes/year) but one that could becapped in his view as he believes brain vessel physiology and strokediagnosis limitations (i.e. timing) could lead to diminishing returns beyond~50K treatments/year (~6% penetration), in his view. Overall, theconversation suggests there is a significantly greater role for MT instroke that should continue to provide meaningful DD growth runwayfor the next several years at least within MDT's, SYK's and PEN's[NR] neurovascular franchises.
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Doc Day: A Deep Dive into Physician Views across Multiple Specialties We hosted a doc day in San Francisco, CA last week with MEDACorp physicians across a
number of key MedTech specialties to assess market growth outlooks and key technologies
driving growth and share shifts within each specialty. Below, we provide highlights from our
discussions with 11 physicians and hospital administrators covering a range of topics
including the outlook on utilization and reimbursement, as well as in-depth discussions on
each specialist’s service lines and views on new technologies.
Hospital Admins: Utilization Up Though Likely To Normalize/Bundled Payment
Commentary Focuses on Downstream Costs/Scale Still Viewed as Important. The
hospital administrators included the interim CEO of the institute, the chairman of the
orthopedic surgery department, and the director of accountable care. On the utilization front,
volumes have been up at their institution, with both hospitals operating at maximum capacity.
The admins attributed the recent uptick in admissions to residual effects of the ACA that is
allowing previously uninsured patients access to care, which could account in part for the
recent Q1 sales and earnings strength across MedTech broadly. While these admins think
volumes are likely to stabilize, currently this patient inflow is having a negative margin impact,
as incoming newer patients are higher risk patients.
On bundled payments, all three echoed commentary that we’ve heard from our recent checks
with other hospital admins (LINK), namely 1) the biggest priority is migrating care from the
inpatient to ambulatory/outpatient settings, 2) bundled payment models will likely expand into
other service lines – the next most logical service line being cardiology/heart failure while
they believed spine was actually still several years off from falling under this payment model
– with institutions continuing to focus on patient selection and downstream costs before
revisiting implant pricing, and 3) device bundling across service lines is likely to increase and
scale is important for both the buyer and the seller of devices.
Nearer term, the admins’ priorities are on care coordination as new Medicare payment
models such as CJR and BPCI become more prominent. With payment now tied to
outcomes/readmissions, the specialists are looking to reduce readmissions which they
believe are related more to post-discharge care than to surgery. Thus not only are admins
looking for better coordination with rehab/nursing facilities, they are also looking for better
ways to screen patients before surgery (something we heard from orthopedic surgeons at
NASS as well) and maintain contact with patients through outreach programs such as
telemedicine and other patient engagement products. One theme that emerged during our
Q&A was that there will likely be a continuing trend of risk stratification among patients, both
in terms of which patients are eligible for surgery, as well as in terms of where higher risk
patients get treated (i.e. shunting complex cases to more specialized or academic centers).
Longer term, these admins plan to turn back towards reducing device costs once they get
through the downstream care coordination process. Still, the focus on post-acute care
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MEDICAL SUPPLIES AND DEVICES May 12, 2016
remains the “low hanging fruit’ and will take 2-3 years before they can refocus on implant
prices. In orthopedics for example, implant remains the most costly line item in the surgical
stay, and looking forward administrators plan to reduce this expense by:
Dissuading surgeon preference by negotiating one shelf price for all implants.
Currently UCSF orthopedic surgeons pick implants off a color coded chart stratified
by implant price; or
Moving to a bundled purchase option with tiered service plans. The specialists noted
that Cardinal Health (OP) offers trauma implants at a lower cost as they can “make
up the difference” on other service lines in the hospital (a scale strategy which we
think could apply to MDT [MP]/JNJ [OP] as well). Moreover, the ortho specialist noted
that Cardinal is developing tiered service plans depending on levels of rep support.
And while the admins have seen this low cost/reduced service implant model begin
to play out in ortho, they believe it will extend into other service lines, with these
admins calling out cardiology/heart failure as the next most logical target with spine
still several years away. That said, the ortho admin continues to think reps will have
an important role and will never be fully eliminated from the OR, both in the
community setting (to help the surgeons that perform 1-2 cases/year) as well as in
academic centers (having reps in the OR for medium/complex cases is cost effective
because they can help move the case through and save on OR time).
Scale was again reiterated as a key factor for both providers and manufacturers. From the
hospital perspective, the specialists believe there will be additional consolidation and
centralization of volumes at academic/specialized centers. In their view this should benefit
large chains as they will have even greater leverage on device prices. For manufacturers, the
admins noted that multi-service line purchasing does not yet exist at UCSF, but that
expanding bundled payment programs (i.e. cardiac/heart failure is expected by 2018) is likely
to make the institution more amenable to multiline contracting.
Neuromodulation Growth on the Cusp of Major Inflection. Our neuromodulation
MEDACorp specialist believes there are a number of tailwinds that should expand use of
SCS (Spinal Cord Stimulation) devices, ultimately anticipating a 2x-3x increase in volumes
over the next few years. A number of favorable dynamics support his view, including: 1) the
FDA/CDC focus on better pain control as reduction in opioid usage is likely to turn attention to
alternative pain management therapy including SCS; 2) an expanding neuromodulation
device selection that is already broadening treatment – i.e. NVRO’s [OP] Senza in
predominant back pain and STJ’s [OP] DRG in extremities pain – and bound to expand
further into new indications and non-traditional areas including pre-surgical pain
management, chronic angina, peripheral pain and IBD; 3) use of therapy earlier in the
treatment paradigm rather than its traditional position as an end-stage therapy for pain
management before moving onto drug pumps – a shift this physician believes is being driven
by NVRO’s Senza HF10 therapy. With NVRO’s Senza, which this physician now uses in
nearly any and all predominant back pain patients – ~1/3 of total chronic pain patients, based
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on our estimates – with Senza pushing trial to implant success rates to 80%+ from ~50%
previously.
Taken together the MEDACorp physician commentary is supportive of all players – MDT,
BSX [OP], STJ, and NVRO – in the broader neuromodulation and specifically within the SCS
market in the near to medium term. Beyond NVRO’s Senza, this physician noted other
interesting technologies and/or important features, including: (1) STJ’s Burst therapy –
expected to launch in the U.S. in 2H16 and Dorsal Root Ganglion stimulation (DRG) currently
launching in U.S.; (2) MDT’s full-body MRI products, which he believes does help MDT
defend against current share shift to an extent but also noted that all devices will eventually
have MRI compatibility; and (3) StimWave, wireless technology that reduces the implant size
by externalizing the battery allowing the therapy to penetrate additional areas and Nalu,
another wireless technology delivering pain relief which is still in early stages of development.
The physician specialist noted that the number of neuromodulation devices have doubled in
the last two years and should double again in two years. And while MRI compatibility is an
important feature that previously restricted his usage primarily to MDT, an expanding number
of indications has helped spur adoption of other devices.
Clinical data is also helping drive utilization according to this physician, and this has been led
almost entirely by NVRO’s Senza RCT – the first randomized controlled trial within SCS that
demonstrated sustained superiority to a conventional device. While the majority of SCS
devices are placed in private practice, and academic centers have historically not had the
leading edge, that is likely to change given the innovation in the space and number of trials
enrolling as a result of these new devices, with more data only raising awareness. This
physician believes that the decision making process has gone from whether to use
neuromodulation to which device offers the best solution for the patient’s therapeutic needs –
definitely representing a sea change from earlier approaches to the treatment paradigm for
chronic pain patients. Ultimately, he believes different devices are better suited to different
patients, and with more device options available, physicians will be able to tailor therapy to
better meet each patients’ needs based on factors like location and intensity of pain, to name
a few.
“Leave nothing behind” trend bodes well for drug coated balloon adoption. The
peripheral vascular specialist performs a broad range of procedures including atherectomy,
stenting, drug coated balloons (DCB), and abdominal aortic aneurysm repair (AAA). DCB is
used in ~20% of his overall practice currently (in his SFA/popliteal cases) and has gained
share at the expense of stent usage. Over time, he continues to see DCB usage increasing,
particularly in combination with atherectomy and as surgeons move towards “leaving nothing
behind” (i.e. no stents left in the vasculature). As well, he sees utility in in-stent restenosis
cases, where DCBs are being currently used off-label as a standalone first line therapy at his
institution and BCR [MP] plans to submit a PMA application to the FDA for this indication by
3Q16. The specialist also has a favorable view on other label expanding indications for DCBs
such as dialysis access, which represents a “dramatically larger market” vs. SFA/pop. As a
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reminder, BCR’s AV access trial completed enrollment in 1Q16 and expectations are for a
PMA submission in 1Q17 and US launch by 2H17.
The specialist noted that MDT’s In.pact is the preferred DCB at his institution and used in
60% of procedures (vs. 40% for Lutonix) given the slightly better clinical data. That said, he
thinks that embolization could be more of a risk with MDT’s In.pact (we think potentially tied
to higher paclitaxel level on the balloon vs. Lutonix), but this hasn’t affected his usage and he
believes it’s too early to gauge whether/how much of an issue this may or may not become.
Regarding SPNC’s [Not Rated] Stellarx, the early data appears encouraging in his view, but
his institution would find it difficult to stock all three DCBs if/when Stellarx is approved. In his
view, product breadth is important and a lack thereof for SPNC could limit the willingness to
purchase from a manufacturer that specializes exclusively in this area (e.g. bodes well for
diversified operators like MDT and BCR and their ability to maintain share longer term in our
view).
On the atherectomy front, he noted that it represents 10-20% of his volumes, and he’s using
the devices in combination with DCBs in cases with calcified lesions. The specialist’s primary
device is MDT’s Silverhawk, and while they do use CSII’s (MP) Stealth/Diamondback in the
cath lab, he personally has been satisfied with Silverhawk’s outcomes. The physician was
less enthusiastic about SPNC’s laser atherectomy given the high cost and limited utility,
though he does find it useful in CTO crossing cases.
Spine discussion focused on better management of surgeries and new technologies.
The spine specialist noted that 60% of his institution’s volumes are in revision and, in his
view, the largest opportunity for innovation will be around technologies that can limit
revisions, reoperations, and readmissions. As in the orthopedic surgeon’s practice, this
specialist noted that patient stratification is becoming more important as institutions manage
outcomes across the continuum of care (pre- to post-operative). While there is no bundled
payment program in spine tied to outcomes, the surgeon/institution’s processes are in sync
with outcomes based approaches towards case management. His institution provides fitness
trackers to all patients to assess movement and physiology pre- and post-surgery, with this
specialist not operating on patients with BMI >35 (4x more likely to be readmitted according
to data at his institution) and preferring to send patients home after surgery vs. rehab (fewer
readmissions). He is also trying to form a multidisciplinary panel at the institution that would
review and greenlight complex cases to avoid unnecessary surgery.
The specialist also believes that the number of spine procedures done in outpatient settings
will increase to ~30% over the next few years vs. 15% today. He sees an addressable pool of
~300K surgeries with cervical/lumbar stenosis that could be suited to the outpatient
approach, including discectomies, laminotomies and cervical laminotomies. The advantages
to outpatient in his view include improved surgical efficiency, patient convenience, lower cost,
and more profitable for the surgeons (if they have ownership stakes in the outpatient
facilities). That said, he noted that insurers haven’t been pushing institutions to perform more
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surgeries out of the hospital; we think this could be a result of limited comparative outcomes
around readmissions/reoperations in outpatient spine vs. inpatient.
On implant price, the institution allows any vendor to compete as long as they can match the
set formulary pricing. This currently translates to MDT/JNJ splitting the majority of the
institution’s caseloads, followed by NUVA [OP], and then SYK [OP]/GMED [OP] getting the
remaining cases. The specialist primarily uses MDT, followed by SYK, then GMED/NUVA
tied for third, and he uses NUVA in 60%-70% of his direct lateral cases.
Product-wise, the specialist has favorable views on SYK and NUVA. He prefers SYK’s
expandable interbody (Coalign) to GMED and Spinewave, though noted that GMED’s usage
could be higher if the company could supply more biologics, a position that we view as
supportive of a positive ROI from GMED’s ongoing investments in biologics. While this
specialist does not perform many early onset scoliosis cases, he believes that Ellipse will
allow NUVA to gain market share in this segment and that there will be an opportunity for
NUVA to pull through screws/rods sales with Ellipse.
General surgeon believes case for robotics is becoming more compelling. Our general
surgeon performs a mix of open/lap/robotic procedures and his robotic procedures have been
increasing (32 in ’15, 10 ytd) as ISRG’s Xi launch rekindled his interest in the technology,
particularly in ventral hernia. In his view, robotics is a “must have” technology. Currently, his
institution has an Si machine which is primarily used by urologists/ob-gyns and is close to
purchasing an Xi system (with table motion, “a big deal that will facilitate colorectal
resections”) with installation expected by the summer.
The specialist views robotics as a game changer in ventral hernia repair and cited the
advantages of suturing and repairing the primary defect with mesh as more effective and also
less fatiguing than laparoscopy. Currently he performs ~50% of his ventral hernia cases
using the robot and plans to increase that to 70%-80% as table motion and multiquadrant
capabilities make it easier for him to do more cases.
Cost has been a key pushback for robotics usage vs. lap, and this specialist doesn’t see
instrument costs as substantially higher in ventral hernia procedures vs. lap. In his view,
robotics is actually enabling him to do cases even faster. In inguinal hernia, he noted that the
cost factor is also negligibly different, although he sees less utility for robotics and only uses it
in recurring inguinal hernia cases.
We continue to view general surgery as a key growth driver for ISRG [OP], and we believe
the company will be able to deliver double-digit procedure growth for the next 2-3 years on
the back of ongoing dV utilization in hernia and colorectal. The surgeon’s comments that
every fellowship trained colorectal surgeon undergoes robotic training should also act as a
long term tailwind that favors robotics adoption.
The specialist also had positive commentary around CNMD’s [OP] Airseal, which he uses in
all robot cases except inguinal hernia, and sees it as a “nice to have” technology. In breast
surgery, the specialist called IVTY [OP] a “must have” technology that would be used in all of
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his ~15 mastectomies/year, and he likes the clinical literature findings around fewer patient
burns and faster OR times. Still, the product is going through value analysis committee and,
while it has been approved, he hasn’t received it yet.
In electrophysiology, ablation volumes growing double-digits while CRM seeing share
shift to MRI compatible devices. The electrophysiology (EP) specialist estimates that his
caseload split is 50/50 between implants and ablation, but he noted that while his implant
volumes have been flat over the last five years, ablation volumes have increased significantly
– 20%+ in some cases vs. our ~10% AF ablation market estimate. New products that can
ablate deeper and sense muscle contact – notably contact force sensing catheters from both
JNJ and STJ – have led to increased success rates (~5% points better) and reduced
procedure time by 20-30 mins. As a result, the institute is taking a more aggressive approach
to patient treatment and in some cases shifting treatment paradigms; ablation is now
preferred as an earlier intervention vs. drug therapy, with this shift likely only accelerating as
awareness within the referral chain continues to grow. He also uses MDT’s Arctic Front
cryoballoon in most of his paroxysmal patients and even some persistent patients given what
he believes are even higher success rates – 10-12 points – and a significant reduction of an
hour or more in OR time. This, in his view, is more than enough to offset the price premium
for the cryoballoon.
Contact force sensing catheters have also prompted more treatment of persistent AF
patients. This physician initially tried to limit his use of contact force sensing catheters given
the price premium. But after gaining some experience with these devices, he’s now shifted
almost 100% of his cases to contact force sensing catheters given the higher success rates
and shorter procedure times. From a product perspective, he believes JNJ’s ThermoCool and
STJ’s TactiCath catheters are similar; however, he personally prefers the visualization
capabilities and open architecture of STJ’s EnSite mapping system vs. JNJ’s Carto. For BSX,
this physician seemed to imply that the company is a bit late to the game within AF ablation
given an already-large installed base for both STJ and JNJ. At his institution, BSX’s Rhythmia
mapping system was considered for the 3rd
mapping system, but they ultimately purchased a
2nd
Carto due to physician preference and experience. In his view, BSX may have trouble
penetrating the AF ablation market given that he believes their mapping system feature set is
not dramatic enough to prompt switches and the company’s MiFi catheter has shown a
limited incremental benefit at a higher cost. He also discussed other technologies, including:
(1) CardioFocus, a balloon catheter that uses laser energy to ablate pulmonary veins, that
requires a separate energy source relative to cryo but might not be as effective in his view,
(2) ABT’s [MP] Topera, of which he was skeptical based on difficulty replicating clinical trial
results in real-world practice; and, (3) STJ’s MediGuide, which reduces fluoro time and which
he deems “interesting, but not necessary”.
Within cardiac rhythm management (CRM), he views MRI compatibility as the most
motivating factor in device choice as most patients will eventually require an MRI. Because of
this, he’s moved the majority of his cases towards MDT and Biotronik over the last few years,
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as both have been the only manufacturers with MRI-safe technology on the market. He noted
that while STJ will likely continue to donate share in the near-term, he is likely to shift share
back to STJ once the company launches its own MRI compatible systems with a pacer
expected in 2H16 and high power devices expected in early 2017. He also believes that
STJ’s MPP (MultiPoint Pacing) CRT-P technology is an important innovation that could drive
incremental share shift in favor of STJ, but he believes this is a niche patient population
limited to those patients with ejection fractions of 35%-40%. Still, he plans to double his CRT-
P cases in 2016 vs. 2015 based on the availability of this technology.
Intermediate risk indication set to drive dramatic growth in TAVR adoption, TMVR still
early. The interventional cardiology specialist noted that they do ~50 TAVR (Transcatheter
Aortic Valve Replacement) implants per year at his institution, 80% EW’s [OP] Sapien 3 and
20% MDT’s Evolut R given that he is a proctor for EW. With an upcoming intermediate risk
approval – possible in late 3Q16/early 4Q16 according to EW – he believes that TAVR
volumes are poised for 20%-30% growth overall. And ultimately, he thinks TAVR can
penetrate nearly 100% of the intermediate risk patient population, which we believe
represents the size of high risk and inoperable patients combined. He does believe, however,
that ~10%-20% of TAVR patients today are already intermediate risk. From a product
perspective, he noted his preference for Sapien 3 based on ease of delivery. For BSX’s Lotus
– which could launch in the U.S. in late 2017/early 2018 – this physician does not view
recapturability/repositionability as an important or key differentiating feature and thus does
not see meaningful competition for either EW or MDT in the near-term at his practice.
This physician – a key thought leader in mitral surgery – believes that TMVR (Transcatheter
Mitral Valve Replacement) is still over a decade away from becoming a truly viable and
commercializable technology like TAVR though mitral remains a highly underpenetrated and
undertreated disease state. This is due to difficult and non-homogenous anatomy of the mitral
valve, and difficult delivery of the current devices under development – all of which will drive a
more difficult learning curve vs. TAVR. He did note that MDT’s Twelve looks most appealing
to him from an architecture perspective. Lastly, the cardiac surgeon specialist who was also
present discussed LVADs (Left Ventricular Assist Devices) – relevant to both HTWR [OP]
and STJ – expressing enthusiasm for STJ’s next-gen HeartMate 3 now in clinical trials in the
U.S. based on CE Mark trial data presented to-date. However, he also noted that the first
manufacturer that brings a fully implantable system to market that also delivers on outcomes
will be the winner longer-term.
In Neurovascular, interventional radiologist expects Mechanical Therapy (MT) to
increase as a % of a still underpenetrated ischemic stroke intervention mkt
opportunity; though he is cautious about over utilization down the road. The
neurovascular specialist pointed to an increase in stroke interventions in 2015 following the
publication of the MRCLEAN study which showed that endovascular intervention within six
hours was more effective than using TPA alone and challenged the prevailing mindset
resulting from the IMS3 trial conclusions in 2013. As a result, stroke volumes in his institution
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have doubled (50 in 2015, vs. 20-30/year after IMS3 vs. 20-40/year pre-IMS3). In his practice
he uses a combination of stentrievers and aspiration in 40-50% of his cases, with aspiration
in more proximal clot burdens (<25% of cases) and stentrievers alone in distal lesions (the
remaining 25-35%). The specialist noted that cost isn’t a consideration in his device selection
and that he’ll use SYK’s Trevo and MDT’s Solitaire interchangeably, but pricing could
become more of an issue as more competitors eventually enter the space (i.e., PEN and
Phenox). As a reminder, PEN has a stentriever in development (Separator 3D, FDA
submission expected by year end 2016). This device will likely be the only device with an
official on label indication for combined aspiration stentriever therapy – currently the two
devices are used in combination with one another, but off label. Interestingly the specialist
said that he does not expect an on label indication to have an effect on operator willingness
to use the device and does not view it as a competitive advantage. In his practice he thinks
PEN could gain traction with a stentriever and our sense is that it would probably come down
to price.
Looking forward, procedure growth at his institution is likely to be limited but this is due to
localized conditions in the region; there are several neurovascular operators in the SF area,
and the population has a lower stroke risk. However, the specialist sees room for higher
penetration but one that could be capped, given brain vessel physiology, the occult nature of
stroke and the difficulty in diagnosing stroke and current lack of data that demonstrates utility
of MT outside of 6 hours. Still, he thinks MT is clearly the preferred treatment protocol and it
should be the method of treatment when intervention is required and that MT remains
underpenetrated relative to its longer term potential.
He expects utilization both within his practice and within industry at large to increase rapidly
over the next several years. In 2015 we estimate 15K procedures representing 2%
penetration out of ~800K stroke opportunity. And for his part, the specialist thinks that market
could reach 50K interventions going forward.
But, he did caution there might be a point of diminishing returns unless diagnosis of stroke
(i.e. timing/identification of symptoms) can be improved as he thinks intervention may have
limited potential for outcome improvement if too much time has elapsed. He thinks it might
even prove to be outcome negative to intervene in such cases (where it’s “too late”).
Two studies are currently underway to assess how far beyond 6 hours you can go for
successful mechanical intervention. Per clinicaltrials.gov:
DAWN, to evaluate the hypothesis that Trevo thrombectomy plus medical
management leads to superior clinical outcomes at 90 days as compared to medical
management alone in appropriately selected subjects experiencing an acute
ischemic stroke when treatment is initiated within 6-24 hours after last seen well; and
DEFUSE, to evaluate the hypothesis that FDA cleared thrombectomy devices plus
medical management leads to superior clinical outcomes in acute ischemic stroke
patients at 90 days when compared to medical management alone in appropriately
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MEDICAL SUPPLIES AND DEVICES May 12, 2016
selected subjects with the Target mismatch profile and an MCA (M1 segment) or ICA
occlusion who can be randomized and have endovascular treatment initiated
between 6-16 hours after last seen well.
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MEDICAL SUPPLIES AND DEVICES May 12, 2016
MEDICAL SUPPLIES AND DEVICES May 12, 2016
Disclosures AppendixAnalyst CertificationI, Richard Newitter, certify that the views expressed in this report accurately reflect my views and that no part of mycompensation was, is, or will be directly related to the specific recommendation or views contained in this report.
I, Danielle Antalffy, certify that the views expressed in this report accurately reflect my views and that no part of mycompensation was, is, or will be directly related to the specific recommendation or views contained in this report.
Distribution of Ratings/Investment Banking Services (IB) as of 03/31/16IB Serv./Past 12
Mos.Rating Count Percent Count PercentBUY [OP] 156 69.3 55 35.3HOLD [MP] 69 30.7 3 4.3SELL [UP] 0 0.0 0 0.0
Explanation of Ratings
Outperform (Buy): We expect this stock to outperform its benchmark over the next 12 months.
Market Perform (Hold/Neutral): We expect this stock to perform in line with its benchmark over the next 12months.
Underperform (Sell): We expect this stock to underperform its benchmark over the next 12 months.The degreeof outperformance or underperformance required to warrant an Outperform or an Underperform rating shouldbe commensurate with the risk profile of the company.
For the purposes of these definitions the relevant benchmark will be the S&P 600® Health Care Index forissuers with a market capitalization of less than $2 billion and the S&P 500® Health Care Index for issuers witha market capitalization over $2 billion.
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MEDICAL SUPPLIES AND DEVICES May 12, 2016
Important Disclosures
This information (including, but not limited to, prices, quotes and statistics) has been obtained from sourcesthat we believe reliable, but we do not represent that it is accurate or complete and it should not be reliedupon as such. All information is subject to change without notice. This is provided for information purposesonly and should not be regarded as an offer to sell or as a solicitation of an offer to buy any product to whichthis information relates. The Firm, its officers, directors, employees, proprietary accounts and affiliates mayhave a position, long or short, in the securities referred to in this report, and/or other related securities, andfrom time to time may increase or decrease the position or express a view that is contrary to that containedin this report. The Firm's salespeople, traders and other professionals may provide oral or written marketcommentary or trading strategies that are contrary to opinions expressed in this report. The Firm's proprietaryaccounts may make investment decisions that are inconsistent with the opinions expressed in this report.The past performance of securities does not guarantee or predict future performance. Transaction strategiesdescribed herein may not be suitable for all investors. Additional information is available upon request bycontacting the Editorial Department at One Federal Street, 37th Floor, Boston, MA 02110.
Like all Firm employees, analysts receive compensation that is impacted by, among other factors, overall firmprofitability, which includes revenues from, among other business units, Institutional Equities, and InvestmentBanking. Analysts, however, are not compensated for a specific investment banking services transaction orcontributions to the Firm's investment banking activities.
MEDACorp is a network of healthcare professionals, attorneys, physicians, key opinion leaders and otherspecialists accessed by Leerink and it provides information used by its analysts in preparing research.
For price charts, statements of valuation and risk, as well as the specific disclosures for covered companies,client should refer to https://leerink2.bluematrix.com/bluematrix/Disclosure2 or send a request to LeerinkPartners Editorial Department, One Federal Street, 37th Floor, Boston, MA 02110.
Member FINRA/SIPC. ©2016 Leerink Partners LLC. All rights reserved. This document may not be reproducedor circulated without our written authority.
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LEERINK PARTNERS LLC EQUITY RESEARCH
Director of Equity Research John L. Sullivan, CFA (617) 918-4875 [email protected]
Associate Director of Research Alice C. Avanian, CFA (617) 918-4544 [email protected]
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Le-Yi Wang, Ph.D. (617) 918-4568 [email protected] Specialty Pharmaceuticals Jason M. Gerberry, JD (617) 918-4549 [email protected]
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Michael A. Sarcone, CFA (212) 277-6013 [email protected] Medical Devices, Cardiology Danielle Antalffy (212) 277-6044 [email protected]
Puneet Souda (212) 277-6091 [email protected]
Medical Devices, Orthopedics Richard Newitter (212) 277-6088 [email protected]
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Robert Egan [email protected]
Amy N. Sonne [email protected]
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