heart of the mutter

Has Michael West been reading my VCR posts? :-)

It would appear that he has his fingers on VCR's pulse.

This article is in the Margin Call column of today's Australian.


http://www.theaustralian.news.com.au/common/story_page/0,5744,7207000%255E16942,00.html


Margin Call.

Heart Of The Mutter.
Michael West.

September 09, 2003
WHEN a man in his 70s walked out of the Alfred Hospital in Melbourne last month the Ventracor stock price went through the roof.

The man, who had not been expected to live much longer, had been fitted with a VentrAssist heart pump. If he gets well enough to have a drink with his doctors and the crew from Ventracor, it is definitely his shout.

Meanwhile, as Ventracor stock bolted from $2 to $3 in the ensuing days, chairman John Massey wasted no time capitalising on the successful implant.

His brokers ABN Amro promptly hit up the institutional market for $34 million in a placement and a few days later Ventracor put together a one-for-12 rights issue to raise another $33 million.

It will now have about $80 million cash in the tin and a market cap, before diluting for options, of $508 million. The share price is, arguably, way too high.

Twixt Pressure and Payin'.

THERE is a deep abyss between successful science and commercial success. The road to commercialisation is littered with the corpses of once-promising projects.

So, amid the PR frenzy and the gross ramping of Ventracor stock in the internet chatrooms – and at the risk of being an unpatriotic Aussie – it is timely to remind punters that it will be years until Ventracor makes a dollar from its heart pump, if ever.

We did give Ventracor a glowing write-up a couple of years ago when it was called Micromedical. And the stock ran.

But then the market cap was a fraction of what it is now. The premium in today's share price is just too high, despite the predictable biotech rhetoric of a $US7 billion worldwide market for Left Ventricular Assist Systems (LVAS).

For a start, Ventracor is not the only player in the market.

The leader is Thoratec Corporation which has already implanted some 3,000 of its HeartMate devices. Now doing clinical trials on HeartMate II and pre-clinical trials on HeartMate III, Thoratec already has FDA and CE-Mark approval to sell its product.

Unlike the VentrAssist pump, the HeartMate has no wires protruding from a patient's body, lowering risks of infection.

Then there's the non-invasive device from MicroMed Technology Inc's DeBakey VAD, designed to keep the patient alive until a spare heart comes on the market.

Arrow International has its LionHeart LAVD now implanted in 26 patients in Europe but has been waiting three years for regulatory approval.

Bear in mind that once Ventracor concludes its Australian trials, and assuming they are successful, it then moves to Europe to do clinical trials there before going for an FDA licence in the US. It's a long road.

The Texas Heart Institute has its Jarvick 2000 device, which has FDA trials under way and has kept patients alive for more than 200 days. There are others.

Too Little, Too Early.

ANALYSTS in the US reckon that Thoratec is the No. 1 buy in the sector. Unlike Ventracor, it not only has LVADs but a range of other products, is profitable and boasts a market cap of $US847 million ($1.3 billion).

The rub for Ventracor is that even assuming it gets through clinical trials in Europe and the US, it might not get to market until 2008, by which time a whole lot of capital will have to be raised. Cash-burn runs at $1 million a month.

By then the assorted products cited above will have already been superseded. Already, there has been progress in developing devices that slip under the skin in the groin region. Better than virtual open heart surgery where the doc rips you open, then hacks through your breast plate.

Ventracor states that it will begin European trials in early 2004, get CE Mark approval by the end of 2004 and start US trials the same year.

Its timetable is too optimistic. Up to 10 implants are to be performed in the pilot trial in Australia. The second has just been completed and there are eight to go. Then Ventracor has to present to CE Mark before it begins pivotal trials on 30 patients.

That is more likely to begin at the end of 2005 and take up to two years to complete before the European regulator evaluates the data.

Then there's the FDA in the US and a 50-patient trial. Without taking any time into account for re-evaluations of its LVAD when patients die, Ventracor might be eight years away from commercialisation.

The record holder for staying alive on a heart pump implant is Pete Kenyon of Connecticut who was given a Novacor LVAS transplant in January 2002 after 3½ years with the device. No one else has lasted more than three years.

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