Abbott’s plan to break itself up into two businesses – one for medical products and one for research pharmaceuticals – has suddenly got the analysts’ thinking caps on.

Barely a moment after the surprise news went public, the talk was on the future of both businesses and their chances of survival. Overall, the changes have been welcomed and represent a key moment in the 123 year old company’s history. It’s been there before, on a smaller scale of course, with the formation and successful spin-off of its hospital products business into Hospira in 2007, which has since enjoyed strong growth.

Both of Abbott’s divisions have grown in stature and offer contrasting demands in terms of resources so the split into two businesses is bound to improve clarity amongst the investment community. The medical products business will have 2011 revenues of approximately US$22 billion and the research-based pharma unit will have an estimated US$18 billion sales turnover. However, without the protection of the other, both companies could swiftly find themselves the target of deal makers.

With clarity comes opportunity. Abbott’s upstart research business finds itself just outside of the biggest players of the pharmaceutical market, but with a hot drug on its hands in the form of Humira – an anti-inflammatory drug that posted sales of US$6.5 million in 2010. In a market where the focus is on product pipelines, particularly blockbuster ones, the unnamed Abbott business has a relatively strong pipeline.

Whilst the spin-off is impressively detailed, there’s the nagging doubt that the company, like Johnson & Johnson, continues to find it hard to break up the relationship of medical devices and pharmaceuticals, a model long since ditched by the likes of Bristol-Myers Squibb, Allergan and Pfizer. The medical device business, which is particularly strong in cardiovascular devices and ophthalmic products, sits uneasily amongst the slightly larger divisions of generics, and nutritional products. Whilst Generics enjoys double-digit sales growth, such targets remain elusive in the medical device field for Abbott.

Still, Rome wasn’t built in a day and the spin-off plan is likely to keep investors happy for the moment at least. The company has shown in recent times that it isn’t afraid of ditching certain markets if it feels warranted. The company’s ruthless and swift exit from the spine market when the going got too tough being a classic case in mind.

Whilst this blog is not saying that Abbott’s commitment to medical devices is likely to wane in the short-term – the current spin-off alone will take at least a year to complete at least, but one wonders how long it will take before investors start questioning to rationale of keeping a medical device/pharma mix over the long term. Would an opportunistic offer from Medtronic or an attractive offer from a private equity group change things? One suspects that all the time the company keeps posting sales growth and delivers the financial numbers, Abbott’s investors won’t mind a bit either way.

Thanks to Lawrence Miller for providing this article, Lawrence is Espicom’s medical newsletter team leader and editor of Medical Industry Week

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One step back, two steps forward for Cordis?

Something had to give in the faltering drug-eluting stent (DES) market, but the move by Johnson & Johnson to withdraw from the cardiovascular stent sector by the end of 2011 still raised a few eyebrows at Medical Industry Week. The decision, which will cost the company around US$600 million and the closure of two factories, is a bitter pill to swallow but looks set to be the right decision in the long run. It brings to an abrupt end Cordis’ participation in a market that it had played such a pivotal role in developing.

The DES industry has always suffered to a degree by over expectations. When Cordis won the race to get a DES onto the market in the US back in 2003, it could be forgiven for giving itself a pat on the back and a “well done” to its R&D team. The company could effectively write its own cheque for the technology and the profits rolled in.

In retrospective, this head start was as good as got for Cordis. It didn’t take long for others to notice the profits rolling in and soon enough, Boston Scientific, Medtronic and Abbott responded with their own stent programmes and it didn’t take long for Cordis’ lead at the top to be usurped by Boston Scientific. Chasing the dream led the two to lock horns together in a multi-billion dollar duel for Guidant back in 2004.

Boston Scientific may have won the battle for Guidant, but Cordis didn’t wait too long to hit back and paid US$1.4 billion in February 2007 for a cardiovascular start-up, Conor MedSystems, an astonishing sum considering the relative size of Conor. It would prove to be a costly mistake as barely a year later Conor’s core DES programme – the CoStarr paclitaxel programme – failed to meets its primary endpoint in a pivotal trial, leaving Cordis to focus entirely on sirolimus.

By 2008, however, the signs were clear that the DES market was suffering from a significant downturn in its fortunes. Although not alone in the industry, J&J’s Cypher DES sales, which peaked at the US$2.5 billion mark at one stage have annually declined and reached barely US$627 million in 2010, with sales expected to nearly halve again in 2011.

In truth, the DES market hasn’t helped itself either by failing to adapt quickly to the environmental challenges out there. In a contracting market for healthcare spending, DESs biggest selling point – their cost effectiveness against bare metal alternatives – ultimately proved to be its Achilles heel. When questions were raised over their long-term restenosis rates, the industry struggled to persuade the market not to ditch their use in preference to alternatives. In the UK, National Institute for Clinical Excellence went from recommending the device in 2003 to limiting its use in only 30 per cent of UK patients.

Competition has also hit the industry hard, particularly outside of the US where the regulatory framework is much kinder and it’s easier for the devices to be cleared. However, in all markets, margins are forever being tightened and clearly there is just not enough profit to go round. Worse still, the company is not likely to be in pole position for the next chapter in the story of DES – biodegradeable DESs. Abbott, Boston Scientific and Medtronic are all in advanced stages in development. It’s also noticeable that the company has effectively chosen to shut down its operations rather than attempt to find a buyer for the assets.

It’s not all doom and gloom. Although J&J hates not being number one, J&J’s expensive withdrawal will mean the company will no longer have to spend time answering questions about its faltering DES sales from persistent analysts and allow the focus of attention to turn to its more successful cardiovascular technologies. It will also help reduce the over capacity in the DES market going forward, with Boston Scientific and Abbott the strongest placed to benefit.

Thanks to Lawrence Miller for this article, Lawrence is the medical newsletters team leader and editor of Medical Industry Week

Reva raises A$77.5 million as investors take a bet on the next big thing in stent technology – bioreabsorbable drug-eluting stents

Welcome back to the Medical Technology Blog. This is the last post of the year as I finish today for the Christmas holidays, please read on…

Reva Medical, a start-up company focused on the development and eventual commercialisation of its bioreabsorbable stent products, has successfully raised A$77.5 million (net) from an initial public offering (IPO) through an issue of CHESS depositary interests (CDIs) on the Australian Securities Exchange.

Based in San Diego, CA, the company has received approximately US$100 million in funding to date and attracted the attention of both Boston Scientific and Medtronic, both of which have previously made sizeable investments in the company. Boston Scientific’s participation included an option to acquire Reva at a later date. However, as a result of the share issue, these merger plans have now been terminated – at least for the time being – with Boston Scientific holding onto an option to distribute Reva’s products should they reach the market. Medtronic is also maintaining its support and has invested a further A$10.5 million in the Reva share placement. Reva plans to use A$38.9 million of the proceeds to support development work, with A$31.4 million invested in ReZolve and A$7.5 million other programmes. A further A$10.3 million will be spent on funding the pilot and pivotal CE mark trials, A$24.2 million on working capital and the remaining A$4.2 million on manufacturing. Overall, the proceeds are expected to support Reva’s development over the next three years.

Billed as the “next major advance in coronary stent technology”, Reva’s core technology, known as ReZolve, is a non-permanent implant that combines a “slide and lock” stent design with a polymer. In development for over ten years, the device claims a number of significant advantages as it is designed to provide the same benefits as traditional metal stents, with the additional benefit of being dissolved by the body over time after treatment of the artery. The reabsorption of the stent minimises clotting risk and reduces the need for long-term drug therapy. In addition to cardiovascular disease, this technology could also be applied for the treatment of other conditions, including peripheral artery disease and spinal trauma surgery. With regards to the latter, Reva is currently seeking a partner interested in licensing its side-chain crystallisable  polymer for use as a flowable cement.

Reva has held an exclusive licence since 2004 for its polymer material from Rutgers University in New Jersey for use in stents, stent coating and embolics. In July 2010, Reva entered into a new licence agreement with Rutgers which broadened the company’s exclusive rights to the original polymer group and all new polymer compositions developed to cover all vascular applications. The company also intends to use sirolimus, an anti-restenotic drug used in other DESs. A target dose of 80µg of sirolimus is coated onto the outside surface of the ReZolve stent using a polymer solution containing the drug.

Reva is targeting a competitive coronary stent market that was valued at over US$5.3 billion in 2009, with drug-eluting stents (DESs) taking up US$4.4 million of this total. The company finds itself in potential competition with the likes of Johnson & Johnson (Cordis), Abbott Laboratories, Boston Scientific and Medtronic, which collectively accounted for 95 per cent of all DES sales in 2009.

Primary competition for Reva’s products is expected from both traditional DESs and other bioreabsorbable stents. Whilst a number of companies are working to develop bioreabsorbable or polymer stents, so far only two have reached the clinical trial stage. Abbott Laboratories is developing its Bioresorbable Vascular Scaffold (BVS), which is forecasted to reach the European market before Reva’s Resolve stent, and Biotronik, which is developing its second generation Dreams magnesium-based reabsorbable stent. Biotronik began clinical trials of its device in July 2010.

Reva is now in the process of finalising the design of the ReZolve stent, with a 50-patient pilot human, non-randomised trial scheduled to commence in Brazil and Germany during the second quarter of 2011, with patients followed at one, six and 12 month intervals after implant of the device, and annually thereafter, for a period of up to five years. Positive findings could then led to enrolment in a 350-patient trial at centres in the EU, Brazil, Australia and New Zealand, in the first and second quarters of 2012, with a full to securing marketing approval in Europe by the end of 2013. If successful in generating such sales, Reva anticipates using the revenue to fund the US human clinical trials, as well as other development activities. Highlighting the tough regulatory climate for DES technology in the US and the associated costs incurred, Reva’s proposed US trial programme, in contrast to Europe, would involve at least 2,000 patients.

Thank you to Lawrence Miller for that article, Lawrence is Espicom’s medical newsletters team leader, and editor-in-chief of Medical Industry Week

A big thank you to all my readers, Happy Christmas and a prosperous New Year to one and all.

Paul

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