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Admedus Charts An Eclectic Path To A Global Future

By Ashley Yeo
Executive Summary

There are not many companies whose R&D business model combines immunotherapies and a medtech cardio franchise, but for Australia’s Admedus it’s a plan that is working so far. And more original science could be added to the portfolio as the company moves increasingly away from its S&D roots.

• Admedus started life under a different name selling third-party medical devices through which activity it has become the largest infusion product provider in Australia and New Zealand.
• Strong connections with key opinion leaders and original science developers have allowed the company to begin selling its own products, starting with an autologous regeneration scaffold, from its proprietary ADAPT platform.
• More partners are being sought by Australia-headquartered Admedus as it looks to regional markets expansion, including China, and into bioscaffold areas beyond CHD and valves, some of which require a different sales rep model.
• HSV-2 and HPV vaccines are the focus of the immunotherapies division, but Admedus has not ruled out adding more strings to its R&D bow.

“Develop quality science, be commercial and make a difference.” These are offered byAdmedus Ltd. chief operating officer Julian Chick, PhD, as the guiding principles of the ASX-listed (ASX:AHZ), Australia-headquartered health care technology company that decided some years ago to focus more on its own science to build on its original activity of third-party sales and distribution (S&D) and marketing.
The company began in 2003 as Allied Healthcare Group Ltd., an offshoot of Andrew Forrest’s Fortescue Metals Group Ltd. (FMG). It started out selling third parties’ medical devices in the Australian and New Zealand markets. Twelve years later this activity has focused around delivery systems within a core of 20 product groups, and Admedus is said by Chick to have the largest infusion products range in Australia and New Zealand.
Leverage Quality Science…

But two years ago, in 2013, the company dropped its original name in favor of Admedus, and in a major strategic change, the firm started selling products from its own R&D. Chick explains that the company had always aimed to get into its own product development, and had identified two areas – regenerative medicine and immunotherapies – as particularly interesting.
Also in 2013, Admedus began European sales of its bovine pericardium-based bioscaffold,CardioCel, for repairing and reconstructing heart defects. It had acquired the technology in 2011, having targeted the regen med space as an area of interest but rejected the stem cell route, given the lack of efficacy. CardioCel has become Admedus’ flagship R&D product to date. It is the first product from the ADAPT tissue engineering process; both technologies were developed by a team under the guidance of Leon Neethling, MD.
Immunotherapies

The company entered the immunotherapies area via a connection with Gardasil cervical cancer vaccine pioneer Ian Frazer, MD, of the University of Queensland in 2008. He was looking for support to develop his new vaccine technologies in herpes simplex virus (HSV)-2 and human papilloma virus (HPV). Chick says, “We took the technology out of the university and put it into a special vehicle.” As it has hit milestones, Admedus has put in more money, and now has a 72% share of this joint venture.
Interim results of the Phase II HSV-2 study are due by the end of the 2015 calendar year. Phase I safety trials revealed no safety issues. Frazer’s therapeutic vaccine technology uses a combination of intradermal delivery, propriety codon optimization and ubiquitin added in the codon to help stimulate T-cell response; 19 of 20 patients in Phase I showed T-cell response in a course of three vaccinations over nine weeks.
Admedus’ targeted therapeutic HPV vaccine is being developed to address a lack of compliance with vaccinations (the rate is below 35% in the US according to the Centers for Disease Control & Prevention) and the growing roll call of new cases – 14 million new US cases per year, according to CDC data. With “strong” preclinical data in HPV viral clearance and 100% survival in the tumor transfer model, the therapeutic vaccine is now progressing into Phase I trials in 2015.
Frazer is chair and chief scientific officer of the Admedus immunotherapies joint venture, which itself is one of four Admedus divisions. Regen, whose chief technology officer is Neethling, is another, and biomanufacturing and sales and distribution complete the quartet.
CardioCel And ADAPT

The Regen division develops products on the ADAPT platform. The CardioCel regenerative tissue bio-implant used in repairing heart defects, including the repair of heart valves, is the lead product. It is engineered via ADAPT to produce a durable, collagen scaffold with handling properties preferred by surgeons as it avoids calcification, while supporting native cell infiltration, growth and differentiation.
“Competitor technologies originated in the 1980s – and have not moved on.”
– Julian Chick, PhD
“The issue for us was how to adapt the quite old technology that is still being used, and address calcification, scarring and rejection with an ability to allow tissue remodeling post-surgery,” says Chick. “The surgeon wants safety, durability, strength and elasticity of the tissue, so the material feels like native skin tissue,” he adds. CardioCel requires no special storage, and is easy to use, not even requiring washing in saline.
The product has been 10 to 11 years in development, but it needed Admedus’ input to finish off some of the clinical, regulatory and other testing work required to secure approval. It competes with bio-implants from industry heavyweights Sorin Group SPA, Medtronic PLC, St. Jude Medical Inc. and Edwards Lifesciences Corp. But the competitor technologies originated in the 1980s, and have not moved on, Chick observes.
On the contrary, he describes CardioCel as facilitating autologous regeneration. “Because it’s so benign, it doesn’t go through the rejection process and there is no inflammatory response other than what you’d expect to stimulate remodeling.” He adds, “Crucially, we don’t see calcification [in CardioCel], while others may claim that they have anti-calcification technology.”
The data also show remodeling in the formation of endothelial cell layers around the tissue as well as vascular migration into the tissue and migration of smooth cells. Indeed, Chick sees CardioCel as a good vehicle for the delivery of cellular therapies, such as stem cells or endothelial cells.
As to further R&D, Admedus has the ability to actually shape the material, for instance to make a conduit with sutures. Whole vascular materials and "half pipes" could be developed and used to repair vascular and vessel aneurysms, and even be used in the high-pressure area at the top of the aortic arch. The company is also thinking of developing an off-the-shelf vascular replacement for use in CABG surgery.
Beyond CardioCel there is a pipeline of products in the tissue space, and in late September 2015, following a successful preclinical study undertaken with KU Leuven University in Belgium, Admedus started a clinical study into aortic tri-leaflet heart valve reconstructions using CardioCel. The study will address aortic stenosis, or narrowing, which is the most common valvular heart disease in developed countries.
The CardioCel technology involves a three-step production process: removing cellular remnants; putting it through cross-linking, which gives it true 3-D properties while retaining flexibility; and finally, washing. The product is stored in propylene oxide (an IP-protected process). Admedus has experimented with several tissues beside bovine, but settled on bovine pericardium, a known material for surgeons. This is sourced in BSE-free Australia.
CardioCel is in scale-up mode. The first approval was granted in the EU in November 2013. US approval for a broad indication including intramyocardiac and valve vascular repairs and suture buttressing followed in February 2014.
The product’s original dimensions were 4 cm x 4 cm, but there is now a variety of sizes and thicknesses available. Feedback from surgeons has helped to determine these additional sizes, including in June 2015, a 2 cm x 8 cm variant. CardioCel is now used in around 50 US centers and over 110 worldwide, and the product is approved in Hong Kong, Singapore and several other global markets beside the EU and US and its home market.
Admedus has struck an agreement with GenPharm International Inc. (a unit ofMedarex Inc.) for CardioCel in the North African and Middle East markets. “We’re also looking at markets like China, Korea, Taiwan, South America and Malaysia,” Chick says.
Selected Data And Addressable Markets

• Over 2,500 patients are implanted with CardioCel worldwide.
• The addressable market in the US includes CHD (62,500 procedures) and pediatrics and all heart valve repairs (360,000 procedures), of which the mitral market accounts for 180,000 procedures in a total US addressable market of 2.4 to 2.6 million procedures.
• In China, CHD alone is 150,000 to 200,000 procedures per year (against 62,500 in the US and 58,000 in the EU).
• Top new target markets are Brazil/South America, China and Japan.
• The immunotherapy addressable markets are worth over $6 billion (HSVII) and over $1 billion (HPV).

…Be Commercial…

As the business has grown, Admedus has been building up its sales staff, and now has 12 reps in Europe and 14 in the US, where Minnesota is the hub of a four-region US plus Canada system.
But with the decision to chart an R&D future, the company dropped into a loss of A$26.8 million ($19.3 million) in fiscal year 2015, on sales of A$9.9 million, A$2.57 million of which was driven by CardioCel, and the balance came from the infusion business. The FY 2015 loss included a one-off income tax adjustment. “The burn was realistically A$21.8 million,” says Chick. Cash balance at the year-end was A$24.2 million. He adds, “We have a strong cash balance and there is no need as of today to raise capital.”
An FY 2016 loss of A$18.2 million is predicted by the broker Morgans, but Admedus targets a profit in 2017.
Growth of the CardioCel franchise and the progress toward interim HSV-2 trial results are the key determinants of the share price, which is currently (end of September 2015) at a 52-week low of A$0.060, from a high of A$0.158. Morgans has set a target price of A$0.18. And from an investor perspective, Admedus believes it has a balance of revenues between established and innovative technologies. The current market capitalization is A$116 million.
Gross R&D expenditure is put by Chick at A$7 million, with A$3.8 million being pure R&D. Some tissue R&D is done at the Perth biomanufacturing facility site that Admedus bought fromSanofi in 2014. The 2,000 square-meter site has the capacity to produce over 100,000 units of CardioCel, and the potential to generate $120 to $150 million in revenues. Gaining the plant was a stroke of luck, and cost Admedus merely a nominal sum when Sanofi’s knee chondrocyte harvesting project hit commercial problems.
Being able to move into a fully fitted-out unit saved Admedus time – some six to nine months in scale-up – and millions of dollars. In addition, some GMP-experienced staff stayed on under the new owners.
Within the immunotherapies portfolio, the clinical testing is being done in Australia, as Phase I and II studies are less costly than in the US and there is no need to file the IND, as there is in the US. But having two regulatory systems does not faze Admedus “The costs are not so brutal in medtech. We used the US 510(k), while the Class III CE marking is probably a little more costly,” says Chick. Having said that, there are not many companies that balance immunotherapy and medtech.
…And Make A Difference

From a medical perspective, Chick says that Admedus has new technologies and a pot of cash with which to make a meaningful difference. He notes that, “'Me-toos’ are not something we go after,” and adds, “we like the genuine impact of unique science.”
Much of Admedus’ progress to date has been down to its skill in developing connections and its ability to spot opportunities. For instance, it leverages the infrastructure of the Translational Research Institute in Brisbane, and even has its own staff there.
Its two R&D-based programs are both acquired technologies, and in fact Admedus has a track record of making M&A transactions every 18 to 24 months.
Its work with surgeons in Australia has given it very strong advocates. Christian Brizard, MD, of the Royal Children’s Hospital in Melbourne, is one. He was among the first clinicians to use CardioCel, and Admedus is able to benefit from his peer-to-peer networking. Another is Tom Karl, MD, formerly at the Mater Hospital, Brisbane, now at the All Children's Hospital, Johns Hopkins, St. Petersburg, FL, who was the first surgeon to get special access.
Other advocates include T. Sloane Guy, MD, from Temple University, Philadelphia, PA, who is a strong advocate for the use of CardioCel in valves; Domenico Mazzitelli, MD, from the Berlin Heart Institute, who is a thought leader in the TAVR market; and the likes of J. Scott Rankin, MD, at Vanderbilt University. Peer-to-peer contact is very important, as surgeons are a cautious and conservative group as a rule.
Commercial partnerships are also very important for evolving, growing, specialist health care companies. “For instance, as part of our relationship with GenPharm, they’ll do regional training days with surgeons,” says Chick.
Admedus is looking to expand beyond the cardiovascular area, and has done work in dura mater, hernia, pelvic floor and neuro repair. It is on the hunt for partners in hernia and pelvic floor, where the sales model is different to that in CV/CHD, where procedures are done in centers of excellence. These centers are relatively few in number, with say only eight or nine in the UK, so there is no need for a huge sales force, whereas in the hernia area, for instance, there are a lot of general surgeons.
Cardiothoracic pediatricians are another good example. There are just 126 in the US, so it’s a very direct market needing a sales staff of around 20 to service it. But the sales model varies depending on the product and the market.
Admedus had learned invaluable advice from the experiences of sleep apnea company ResMed Inc. when broaching EU and US market entry with CardioCel. The US company had used a distributor model, which did not function, and so was halted, and distributors were acquired as the company built its own sales teams. But that error cost it three years in poor sales.
In the major markets, Admedus is keen to use a go-direct policy, although in the smaller markets or where specialist local knowledge is needed, it would look for partners. The company is targeting Chinese market entry in three years’ time and will be looking for a distribution partner there. Chick observes that it’s better to have someone on the ground, given the language barrier and the regulatory changes made in 2014. Korea and Taiwan – other targets for Admedus – would also require the enlistment of a local sponsor.
As to the future, the drivers of most of Admedus’ growth will be the CardioCel and immunotherapy lines. And for CardioCel, it takes time for surgeons to feel comfortable with it. Nevertheless, some European centers are said to be using Admedus’ tissue exclusively. “We believe we have a superior product to what’s out there in the bioscaffold space,” says Chick.
Admedus will be looking to take market share in heart valve repair from the big four – Medtronic, Sorin, Edwards and St. Jude Medical – and will keep an eye on Abbott Laboratories Inc., which is moving into the mitral space, where there is a lot of action in a market that’s twice the size of TAVR.
“We hope to take more share in the valve space, for instance being used instead of bioprosthetics, and we’re not trying directly to rob the TAVR of market share – TAVR is used mainly for non-operative elderly patients, although the technology providers are trying to move down the age scale,” explains Chick. The idea, he says, is to compete against bioprosthetic valve manufacturers. “Admedus can do mitral, pulmonary and aortic valves and provide the patients with a better long-term option.”
“Just consider what’s better for the patient: now we have a tissue – a native valve – that has advantages over older technologies and does not reduce blood pressure, provides no regurgitation in the annulus and facilitates proper hemodynamics. Whereas using a bioprosthetic removes the function of the annulus, depleting blood pressure over time, and decreasing overall wellness,” adds Chick.
It’s all part of Admedus’ plans to build a profitable and global company. To date, the firm has local businesses in Australia/New Zealand, Europe and the US, and has a growing footprint in Asia. Under CEO Lee Rodne, it has also built internal R&D capacity and a manufacturing capability, and has leveraged clinical expertise as it looks to its next development stages in CardioCel, new tissue treatments, immunotherapies and possibly other acquired technologies given Chick’s assertion that, “We’re not afraid to add other strings in say five years’ time.”