BB&T European Editor and BB&T Staff Reports

PARIS – “In 10 years we will look back and laugh at the time we left pieces of metal in people's arteries!“ John Ormiston, MD, of Auckland City Hospital (Auckland, New Zealand) said to attendees at EuroPCR 2011 in May.

It seems a strange comment to be promoted by the organizers of EuroPCR, Europe's largest congress for interventional cardiologists. For the past 10 years this congress of 13,000 quasi-surgeons has helped drive metal stents to a multi-billion dollar industry such that 10 years from now there will be an uncountable number of people walking around with the metal sleeves still implanted in their arteries.

Over the past decade the practice has moved on with the evolution in technology from bare metal stents (BMS) to drug-eluting stents (DES) and are now poised to embrace a generation of bioabsorbable stents (BAS) that dissolve after, hopefully, repairing an arterial lesion. Ormiston is on the leading edge of this change, chairing a session titled “Bioresorbable Scaffolds: A New Era in Clinical Interventional Cardiology.“

Even while DES continues to dominate percutaneous coronary interventions, the organizers of EuroPCR seemed to be distancing themselves from this current generation in a forward-looking statement describing presentations at this congress of the new generation. “Second generation DES with durable polymers are arguably difficult to improve upon. . . [and] could be considered the gold standard due to excellent biocompatibility of the permanent polymers,“ the statement reads, adding that “bioresorbable polymer DES do seem to reduce mortality in randomized trials compared with first generation DES. Bioresorbable stents represent a disruptive technology and may be the only route to yet further improvement in outcomes,“ as well, the statement notes.

Designers of the new generation stents approach the challenge differently, offering bioresorbable polymers, non-polymer drug delivery and fully bioresorbable drug-eluting scaffolds. Cardiologists are studying the trial results to the last decimal point of every reported p-value to identify the most promising candidate and their next champion.

'Perseverance is rewarded'

Patrick Serruys, MD, is a leading figure at EuroPCR and the editor of EuroIntervention Journal, and in April, 2011 was recognized by the American College of Cardiology (Dallas) with its Lifetime Achievement Award. So when Serruys, professor of interventional cardiology at the Thoraxcentre at Erasmus University Hospital (Rotterdam, the Netherlands), steps forward as the commentator on a clinical trial for a new-generation stent, people perk up during an otherwise dreary session to hear his perspectives.

Serruys was unabashed in his praise for the CRE8 stent from Carbostent & Implantable Devices (CID; Saluggia, Italy), a former business unit of the Sorin Group (Milan). A polymer-free stent platform loaded with nano surprises, the novel CRE8 was compared to the first-generation DES, Boston Scientific's (Natick, Massachusetts) Taxus Liberté, in a prospective, multicenter and randomized first-in-man study. Didier Carrié, MD, from the Hopital de Rangueil (Toulouse, France) presented six-month results where CRE8 clobbered the all-but-extinct Taxus stent for the clinical endpoint of late lumen loss.

At 11 European centers a total of 323 patients were enrolled with 162 assigned to the CRE8 stent and 161 to Taxus Liberté. While the test was designed for non-inferiority, Carrié showed the statistical results placed CRE8 squarely in “superiority“ territory with what he called a “highly significant“ 0.14 mm of lumen difference compared to 0.34 mm for Taxus. In addition to eliminating the polymers that irritate lumen and stimulate tissue regrowth within the stent, the stent's design also includes a bio-inducer surface of second generation pure carbon coating to enhance optimal hemocompatibility vs. lumen blood flow.

CRE8 also features an amphilimus formulation of sirolimus with an organic acid that Carrié declined to specify despite a direct question from Serruys. This carrier enhances the availability of sirolimus and regulates the drug's elution. Most notable is the abluminal reservoir technology of CRE8 that Serruys singled out in his critique of the study. “Perseverance is rewarded here,“ he said, reminding the audience that CRE8 developer CID is an investment group directed by the former Sorin development team led by Franco Vallana, who is now CEO in CID.

The underlying design of the stent links directly back to the 2005 Jupiter II trial with Sorin's Janus stent technology, he reminded the audience at EuroPCR. “I like the perseverance of one of the captains of our industry, and I like the concept of the abluminal reservoir in a strut with a thickness of 80 microns,“ he said. The reservoirs holding the drug with a carbo-coating of the struts are “one of Europe's oldest nano-technologies.“

“What I would like to see next for the NEXT study is an all-comers trial powered for patient-oriented composite endpoints and five-years results,“ Serruys concluded.

Biotronik (Berlin) has taken a deep dive into biomaterials to come up with two promising candidates for a third-generation stent. Trial results for both the DREAMS (Drug Eluting Absorbable Metal Scaffold) platform and the Orsiro Hybrid Drug Eluting Stent platform were presented at EuroPCR 2011. DREAMS follows the plaster cast approach for the repair of a diseased vessel where only a temporary mechanical scaffold is needed. Meanwhile the Orsiro stent approaches the challenge by re-engineering polymer carriers as well as drug selection.

Biotronik calls the Orsiro DES a hybrid for combining a “passive“ PROBIO coating of the stent that minimizes interaction between the metal stent and surrounding tissue with the “active“ BIOlute amorphous silicon carbide coating that delivers a limus drug through a biodegradable matrix. An advanced thin-strut stent design also lends itself to superior deliver and placement, according to BIOFLOW-I presenter Martial Hamon, MD, of the University Hospital of Caen, France.

The aim of the BIOFLOW-I study was to evaluate the safety and efficacy of the Orsiro DES in 30 patients with a single de novo lesion in a native coronary artery. Beyond meeting the endpoint, a significant finding from the trial, Hamon said is that in FIM trials, the market leading Xience V from Abbott Vascular (Abbott Park, Illinois) reported late lumen loss at 0.10 mm, while Resolute from Medtronic (Minneapolis) returned results of 0.22 mm. In the BIOFLOW-I study, he said, the Orsiro Hybrid reported late lumen loss at a mere 0.05 mm.

The BIOflow II study that is already underway will enroll 440 patient for a multi-center, non-inferiority, randomized trial pitting it against the Xience Prime stent. The DREAMS stent platform is Biotronik's second attempt at an absorbable metal stent, according to Michael Haude, MD from Lukas Hospital (Neuss, Germany) who presented the BIO-Solve trial results. The first absorbable stent, called PROGRESS, delivered a heavy handed late lumen loss result of 1.08 mm. The new scaffold returned a more favorable 37% improvement of 0.68 mm. While far heavier for lumen loss than its cousin Orsiro, the DREAMS stent holds a key advantage that it dissolves completely.

Leaving no permanent scaffolding structures in the vessel wall and allowing the vessel to restore its natural physiology is an outcome Biotronik calls vascular restoration therapy. In the first three months, the stent continues to hold up and release paclitaxel to suppress restenosis. DREAMS provides scaffolding and paclitaxel release up to three months, Haude explained. He said that at six months the drug release is complete and the absorption of polymer is underway. After one year the body has completely absorbed the drug carrier layer and the structural disintegration and bioabsorption are underway, he said. In the FIM BIOSOLVE study, DREAMS demonstrated safety with no death, myocardial infarction or scaffold thrombosis at six months. A second cohort of patients is enrolled in a 12-month follow up.

SVB study debunks myths about life science investing

Everything life science investors thought they knew about backing biotech and medical device companies might have just been tossed out the window.

A new study that examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies has debunked several of the basic assumptions upon which investors base their decisions. The report, from Silicon Valley Bank (SVB; Santa Clara, California), a financial partner to technology and life science companies worldwide, was based on an analysis of private mergers or acquisitions of U.S. venture-capital backed companies (60 biotech and 58 medical device) since 2005. SVB drew several conclusions about investments in life science companies that counter conventional wisdom. The study included private life science M&A activity in excess of $50 million for device companies and $100 million for biotech companies.

“We feel like we are myth busters,“ said Jonathan Norris, managing director with SVB Capital's venture capital relationship management team. “Our research shows that many of the basic assumptions upon which life science investors base their decisions do not hold true in the current market. We wanted to look at the big deals – the winners – and learn from their common characteristics. We were definitely surprised by the results and think this report will have an impact on some firms' life science investment philosophies.“

Having reviewed M&A exits over a six year period, SVB's report shows biotech companies overall have quicker exits and lower multiples vs. medical device companies, which tend to have longer exits and higher multiples. The research also revealed that biotech companies that received Series A venture capital investments at the pre-clinical stage made up the majority of the biotech exits over the past six years.

Additionally, the study shows a shift among biotech exits to predominantly structured deals that pay a portion up front with the remaining payment coming when the company achieves its future milestones. This is contrary to the previously established trend of paying the entire transaction amount up front, which was how nearly 80% of significant life science M&A transactions were handled just three years ago.

The report also shows a rise in M&A activity and the dollar amount of exits among medical device companies as well as a trend toward later stage exits. A quick look at recent device deals confirms this trend. Thermo Fisher Scientific (Waltham, Massachusetts) plans to acquire Phadia (Uppsala, Sweden), an allergy and autoimmunity diagnostics company, for €2.47 billion (or roughly $3.5 billion) in cash. Also in May, Thermo Fisher reported its acquisition of Sterlin (South Wales, UK), a company that offers disposable plastic products used in sample collection, preservation and processing. The financial terms of that deal were not disclosed, however. The company also recently wrapped up its offer for Dionex (Sunnyvale, California).

Other companies that have recently reported large deals include Varian Medical Systems (Palo Alto, California), which agreed to make a $15 million investment in Augmenix (Waltham, Massachusetts), with the exclusive option to acquire the rest of the company if and when certain milestones have been met; Stryker (Kalamazoo, Michigan), which is set to acquire Orthovita for about $316 million in cash ; PositiveID (Delray Beach, Florida), which has agreed to acquire MicroFluidic Systems (Freeport, California) for up to $8.2 million; and Shire Pharmaceuticals (Basingstoke, UK) plans to acquire Advance BioHealing for $750 million in cash.

A closer look at the SVB study shows that over the last six years the life science industry averaged about 20 big exits a year – 10 each in device and biotech – totaling 118 big exits. Results over the last six years have been fairly consistent, though in 2010, devices had a banner year, the report noted, with 14 big exits, while biotech was slightly lower than its average at seven. Biotech achieved more overall 2011 M&A value in private big exits than devices in the first four years of the analysis.

However, the report notes that devices exceeded biotech in value in 2009, even though there were more big exits in biotech than devices. The trend continued in 2010, although much easier to understand as device big exits were double that of biotech, the SVB report noted.

Structured vs. all-in device deals are more mixed in 2005-2008, with structured deals averaging 26% of all big exits. Similar to biotech, 2009 through 2010 was dominated by structured deals, doubling to 58% of all device big exits. “I believe that structured deals in devices will continue to increase. With the smaller (albeit growing) number of device acquirers and a very difficult IPO market, there is less pressure in the form of competition to provide all-in M&A deal structures, or, frankly, early exits,“ the report's author wrote.

Many of these device exits were later-stage with FDA approval or CE mark clearance and revenue, so it is more likely that revenue performance metrics will be a part of deal structures, the analyst suggests. Device acquirers will seek to push these new additions into cash flow positive or ramped revenue as soon as possible to prevent any drag on the critical growth expected by the street. Importantly for the device industry, private big exits on this side averaged $218 million all-in/upfront over the last six years and $265 million in total deal value, including milestones. In devices, there has been significant upward movement in big-exit deal value over the last few years.

Year 2009 through 2010 shows significant increases in both all-in/upfront deal size and total deal size vs. the previous four years. All-in/upfront deals averaged $291 million ($120 million more per deal) with total deal size averaging $412 million ($228 million more). This yields a 71% increase in upfront payments and 124% increase in total deal value versus the six-year average, according to the SVB report.

The analysis also shows a significantly higher number of “super-sized“ device exits in the last two years. Overall, 2009 through 2010 showed a 2.5-fold increase in big exit deal activity in all-in/upfront deals larger than $300 million vs. the previous four years combined. Supplemental analysis comparing these larger deals with $50 million to $100 million device big exits shows that the average multiple for the larger than $300 million deals was more than twice the $50 million to $100 million exits (by a factor of 9.6 vs. 3.8). Not surprisingly, the average capital raised for those super-sized deals was larger at about double ($63 million vs. $30 million), the report notes, but the time to exit for each category was about the same.

According to the analysis, this bifurcation between bigger and smaller exit values in devices over the last two years shows: 1) the lack of the IPO market and the potential shortage of venture equity needed to commercialize/ramp revenue has led to smaller exits in the $50 million to $100 million range; and 2) when a company can gather a private commercialization round and show significant European or U.S. uptake or revenue, companies are rewarded with substantial exits.

Looking at total deal value exceeding $300 million, these outsized returns represented almost 60% of all device big exits during the last two years, and was 3.5 times the number of super-sized deals over the previous four years, according to the SVB report.

The report suggested possible explanations for the recent increase in super-sized deals, including: 1) cash-rich public companies that were scared off the acquisition track in 2008 and the first half of 2009 are now catching up; 2) the very best companies did not have access to the public market, and combined with reason number one, quickly grew to significant scale in the U.S./Europe, leading to outsized returns, but longer time to get there; and 3) a simple anomaly over a short amount of time.

Of the last six years, 2010 was the strongest device big exit year, the report found. Later-stage exits predominated, as 88% of the 2010 deals were for companies that had taken FDA or CE mark approval risk off the table. Overall, 71% of all device big exits over the last six years were companies with FDA approval. Only 17% could be classified as development stage.

Non-approved big exits had the smallest upfront dollar exit value but the biggest multiple, due to the small average capital investment in them.