calzada's npt dressing - immediate opportunity

Calzada is now standing at the threshold of a new era of profitability. This may be realized much sooner than any of us expect, based on Negative Pressure Therapy dressings, and I want to explain why I think this may be the case.

I declare that the opinions expressed are my own and more, that I have relied only on information in the public domain and my own reasoning in the connecting up of information gleaned from disparate sources.

History of the Negative Pressure Therapy (NPT) IP and its Commercialization

Negative Pressure Therapy (NPT) or as it is sometimes known, Vacuum Assisted Closure (VAC), has been around for years. It’s use in the United States dates from the late 1980’s when Louis Argenta, a surgeon at Wake Forest Baptist Medical Center in North Carolina began experimenting on pigs. By 1991, the equipment and processes had been developed sufficiently for Wake Forest to apply for patents and move to commercialize the therapy.

In 1993 Wake Forest Medical Center granted an exclusive license to Kinetic Concepts (KCI), a small Texas company that grew the business slowly in the first years, earning $50 million by 1999. The years since then have been very good, and KCI revenues have now reached about $1.4 billion annually, essentially all derived from NPT equipment and supplies.

This kind of growth and revenue was certain to attract attention, and in 2006, a small company called Blue Sky received FDA approval to sell an NPT system that relied on gauze rather than foam dressings. Soon after, Smith and Nephew bought Blue Sky. Smith and Nephew didn’t want to be restricted to using gauze dressings, so they set about looking for a chink in KCI’s patent armor that might allow them to offer foam dressings, still protected by Wake Forest’s patents.

S&N soon discovered one Dr. Nail Bagaoutdinov, a Soviet physician who had been using negative pressure therapy since about 1985 in the former Soviet Union. In 2010, using Dr. Dr. Bagaoutdinov’s research, and arguments of “obviousness,” Smith and Nephew, after losing at trial, won an appeal which overturned KCI’s patents and opened up NPT therapy to real competition.

After losing patent protection, KCI has managed to maintain it leading position, but is under constant and increasing competitive pressure. Smith and Nephew, and another entrant, Innovative Technologies, have been quite effective in elbowing their way into KCI’s formerly protected markets.

In 2011, Kinetic Concepts was purchased by an investor group led by Apax Partners. Apax brought in a new management team led by Joe Woody, a former Smith and Nephew executive in charge of advanced wound management, and one of the leaders of S&N’s foray into Negative Pressure Therapy.

Woody now says about KCI, "The competitive environment is much like any other medical device company would face now that we have patents that are invalidated and we are in a different market position."

Meanwhile, the patent situation remains muddied with contradictory rulings, but the facts on the ground are that the patent wall has been broken, the companies are all continuing in business, and KCI no longer considers itself bound by to pay royalties to Wake Forest.

All the relevant US patents will expire in 2014 in any case.

Problems with NPT therapy and the FDA Response:

Meanwhile, problems with VAC/NPT therapy have continued to attract the attention of the US Food and Drug Administration.

In 2009, the FDA issued a Preliminary Public Health Notification advising of serious complications associated with negative pressure wound therapy systems. These complications included bleeding, infection, and retention of foam dressing pieces.

The complications reported in 2009 included six deaths and 17 injuries resulting from bleeding, and 32 injuries resulting from infection.

Follow up FDA Notifications were issued in 2011 and most recently in November 2012 when a further death was reported.

It is clear from these reports that the foam dressing material is largely to blame for the majority of the reported injuries and infections.

PolyNovo’s involvement with NPT Dressings

In February 2010, the company reports progress: “…the most exciting of these is a joint feasibility study with a major US based medical device company, which is a leader in its field. The first phase of this study has been successfully completed with the second phase underway and due for completion in the last quarter of calendar 2010. The feasibility study allows for the parties to move to a license agreement should the study be completed successfully.”

On January 7, 2011 the company announced that the feasibility study had been extended for 12 months during which time animal and other studies would be undertaken to “further prove both safety and efficacy”.

On February 1, 2012 the company announced that the feasibility study undertaken for the unnamed US based medical device company had been completed and that a further extension of the exclusivity period would not be granted. The company also said that “…due to the forthcoming commencement of the previously announced NovoSorbTM human clinical trials that the Company will be in a stronger position to negotiate a better commercialisation outcome for NovoSorbTM after results from those trials become available”.

Five days later. February 6, 2012, the company announced plans for a human trial of a NovoSorb based dressing for use in NPT therapy.

The US based medical device company referred to has never been identified by Calzada, nor has the product under development, but it has been widely accepted that the joint feasibility study related to the NPT dressing.

These human trials have now been completed. The trials have shown to have significant advantages over the widely used GranuFoam dressing and successfully addresses several of the concerns as notified by the FDA.

The focus of the company has now shifted to commercialization.

From the company announcement of April 17, 2013:

“PolyNovo can rely on the known biocompatibility of its NovoSorbTM polymers to demonstrate the reduction of risk of serious adverse events due to foam retention in the wound. This was not only validated in this clinical trial but also documented in numerous studies undertaken during the development of the NovoSorbTM burns device.

“Calzada’s strategy is for PolyNovo to manufacture the NovoSorbTM TNP dressings and to seek a partner to market and distribute the product. The Company is currently progressing these commercialisation activities.”

We can only assume that the advantages of the PolySorb TNP dressing material will not be lost on men like Joe Woody, who are seeking to solidify market position in the “competitive market.”

And among these advantages is the fact that the PolySorb material is indeed patent protected.

Immediate Future:

It is likely that any partner would adopt the NovoSorb foam alongside its existing products, however it is not unthinkable that it could be adopted as a global replacement for existing foam dressings, especially in view of FDA concerns.

If the company were to reach an agreement with KCI, for example, to replace GranuFoam entirely, the implications for the company would be enormous, as there would be no prolonged period of building market share. For KCI, the advantages of such a deal are equally obvious: KCI would once again have a central part of their NPT system patent protected, and would also be in a position to reassure users of significant improvements to patient safety and comfort.

We know that the company intends making a Q3 submittal to the FDA under section 510 (k) which offers a very rapid and straightforward route to marketing approval. The process normally takes less than six months. The NovoSorb dressing ought to be cleared for marketing in the US by year’s end.

It would be advantageous that a commercial deal be struck in advance of FDA marketing approval, both to provide additional support for the FDA approval process and to allow the marketing partner time to adjust their sales, physician education, distribution support staff and systems to the new product.

I have done some revenue calculations, which I will not divulge as part of this post. I will however note that KCI’s share of the NPT dressing market amounts to more than $300 million per year. Imagine if even 10% of that were to flow annually to Calzada.

The next few weeks may bring some extraordinary news to CZD holders.

Links to references and recommended reading:

http://management.fortune.cnn.com/2012/10/30/kci-vac-patent-fight/

http://www.fda.gov/MedicalDevices/Safety/AlertsandNotices/PublicHealthNotifications/ucm190658.htm

http://www.fda.gov/MedicalDevices/Safety/AlertsandNotices/ucm244211.htm

http://www.fda.gov/MedicalDevices/Safety/AlertsandNotices/TipsandArticlesonDeviceSafety/ucm225038.htm

http://hotcopper.com.au/announcements.asp?id=151789

http://hotcopper.com.au/announcements.asp?id=257385

http://hotcopper.com.au/announcements.asp?id=390903

http://hotcopper.com.au/announcements.asp?id=392224

http://hotcopper.com.au/announcements.asp?id=550489

http://www.kci1.com/KCI1/negativepressuretechnologyplatform

http://www.smith-nephew.com/uk/products/product-search/renasys-/