Alex. Brown presenters playing key roles in ultrasound ‘revolution.’ – Alex. Brown Health Care Conference
BALTIMORE, Maryland – The average age of ultrasound equipment in the U.S. has increased steadily since 1993 to a present average age of 5.75 years. This has accounted for a relatively flat market for ultrasound since 1991. Nevertheless, there seems to be a revolution under way in ultrasound, and sales of ultrasound systems are expected to increase from $2.3 billion in 1995 to $3 billion in 1999, fueled largely by the advent of ultrasound contrast agents.
ATL Ultrasound (Advanced Technology Laboratories; Redmond, Washington), which was among the more than 180 public and private companies that presented at the Alex. Brown Health Care Conference in May, sells ultrasound products in 100 countries around the world through 14 direct sales subsidiaries and 60 distributors. It is the only company with a PMA for the differentiation of tumor from normal breast tissue. The PMA was granted in December 1996 for the company’s HDI 3000 system. ATL also is the only company with a software upgrade to existing systems for harmonic contrast agent imaging. This upgrade is available for the company’s HDI 1000 system. These two products represent the cornerstone for ATL’s $419 million in revenues for 1996 (51% of which derives from U.S. sales).
The HDI 3000 system, its flagship product, was introduced in October 1994. This product has an installed base of about 3,000 units, a base which doubled over the past year. This is considered a fourth-generation ultrasound system, featuring flexibility, portability, and faster through-put times. The HDI 1000 is a system in which 50% of the hardware was replaced by software, yielding a system whose capabilities are achieved 70% by software and 30% by hardware. This type of architecture dramatically decreases the price-to-performance ratio of the product. A software upgrade for the product, launched during the first quarter of 1997, allows the system to be both adjusted and viewed from a distant site by remote control.
ATL’s recent financial performance has been stellar: earnings-per-share up 95% and net income up 106% between 1995 and 1996.
Another Alex. Brown presenter, Acuson (Mountain View, California), noted that unit growth in the ultrasound market between 1995 and 1996 was 16% for units priced $110,000 and above, but only 1.5% for units priced below $110,000. Growth in the market for high- priced systems was fueled by the increasing use of ultra-sound as a primary diagnostic modality, the emergence of new applications which could only be performed using high-priced systems, and the pricing of new products which were introduced in this time frame.
Technological advances have contributed to the capabilities of high-priced systems. High resolution is especially important in order to use ultrasound for small-part visualization and musculoskeletal diagnosis. Ultrasound systems equipped to be able to use contrast agents enable ultrasound to compete as a modality with CT and MRI scans. Finally, digital image management enables ultrasound to be tied together with other modalities.
The majority of high-priced ultrasound systems are used in either radiology or cardiology. Currently, 15% of stress tests are being performed using ultrasound; the remaining 85% of tests use thallium. Lower-priced systems tend to be sold for use in either vascular diagnosis or high-risk obstetrics and gynecology.
Use of ultrasound for musculo-skeletal diagnosis in orthopedics represents the newest market opporttmity. Acuson introduced two new ultrasound platforms in 1996. The Sequoia was introduced in April of that year, and shipments began in July. This product’s breakthrough is its ability to use both phase and amplitude data from the phased array to reconstruct images. The Sequoia has an average selling price ranging from $150,000 to $350,000, depending on the features with which it is configured. The high-performance Aspen began shipping last November. Its average selling price ranges from $125,000 to $200,000. Both of these new systems have a PC-based architecture which allows the systems to be software-upgradable. In addition, both have DIMAC digital imaging built right in. Shipments of these new systems, along with sales of Acuson’s established 128XP ultrasound system (which has an average selling price ranging from $70,000 to $150,000 and an installed base of 14,000 systems), provided all-time record quarterly revenues for the company in the 3rd and 4th quarters of 1996 and record revenues in excess of $100 million during 1Q 1997. Despite this growth in revenues, gross margins for the company’s products have been depressed for the past few years.
Alex. Brown analyst Jonathan Osgood likes both Acuson and ATL, saying that hospitals increasingly will substitute ultrasound for higher-priced exams.
A private company with technology from Israel, Influence (San Francisco, California), is developing products for the diagnosis and treatment of urinary incontinence, a condition which affects an estimated 10 million women and 1.5 million men (see story on page 128). Although the company’s headquarters are in the U. S., its research and development, as well as its manufacturing, are in Tel Aviv. Influence’s initial portfolio includes two diagnostic products, five female incontinence products, and three male incontinence products.
More specifically, these products are: a Holter monitor for the monitoring of bladder pressures, a small catheter with an internal pump, a wireless biofeedback device, two tissue anchors for the surgical treatment of incontinence, and a remote-control version of the AMS implantable cuff. The In-Probe is an inexpensive, portable, urodynamic monitor whose 510(k) submission to the FDA will be made during the second half of 1997. The In-Flow catheter consists of a catheter containing pump blades which are magnetically coupled to an external motor. The catheter can be placed in the urethra for 30 days. To activate the pump in the catheter, the portable, battery-powered, reusable drive motor is aligned vertically, overlying the skin of the pubic bone. This product replaces the use of cumbersome leg bags or self-catheterization. It was launched in Europe earlier this year, with only five urinary tract infections occurring in more than 200 patient-months of use. Influence began a 200 patient study in the U. S. with the device in May.
The In-Bio is a wireless biofeedback device which is placed in the vagina like a tampon and is used in the treatment of urinary incontinence in women. The company’s two tissue anchors are both made of nitinol. The In-Tac is a tissue anchor which can be applied transvaginally. This product received 510(k) approval for use in the treatment of female urinary incontinence in February and was subsequently launched at the American Urological Association and American College of Obstetricians and Gynecologists meetings. It has been used in more than 100 patients outside of the U.S., with an 83% success rate. The In-Fast is a screw-shaped tissue anchor. This product received 510(k) approval for use in the treatment of urinary incontinence in May.
Influence plans to introduce new products for the management of sleep apnea, including a screw-type tissue anchor for use in attaching the base of the tongue to the inferior mandible.
Argomed (Minneapolis, Minnesota) is another private company that was founded in Israel, in this case by Uzi Eshel, who had previously founded a company with a microwave device for the treatment of benign prostatic hypertrophy (BPH). The company’s headquarters is in Minneapolis, but its R&D activities, as well as its manufacturing, are located in Tel Aviv, Israel. Argomed has a shielded heat-transfer technology which it is using to develop an office-based product for use by urologists in the treatment of BPH. The product consists of a balloon catheter, selected to match the size of the prostate, and a controller unit. The catheter, which is inserted through the urethra, selectively heats the inside of the prostate to 60 [degrees] C, thereby killing diseased tissue. The dead tissue is either resorbed or excreted. The control unit prevents the system from getting out of control (i.e., overheating). The company cites several advantages to its approach when compared to other ways of treating BPH, including: the elimination of rectal probes, the need for only local anesthesia with lidocaine jelly, the cost savings over the annual cost of drug therapy, and the low incidence of urinary tract obstruction. The expected selling price of the catheter is $450 and that of the control unit is $15,000. The company was awarded its first patent during 4Q 1993 and received its first venture capital money during 3Q 1995. It has had several rounds of financing to date.
Argomed received CE Mark approval for its product late last year. Thus far, 150 patients have been treated without sedation; 58 have survived two years. A multi-center clinical trial with the product is under way in Europe. The company plans to file for 510(k) approval of its product sometime during 1998.
Stryker (Kalamazoo, Michigan) remains a powerhouse in the orthopedic product area and has a clear vision of what areas of its business need special attention. Overall, the company holds fourth place in the orthopedics market, with 8% of this $8.4 billion worldwide market ($4.7 billion in the U.S.). It is in fourth place in hip implants and in sixth place in knee implants. Stryker says that these are the two areas which currently need the most work.
The FDA recently approved the company’s new spine implant. It has 33% of the market in orthopedic power tools, Stryker’s most steadily growing business. Earlier this year, at the American Academy of Orthopaedic Surgeons meeting, the company introduced a new line of power tools for small-bone surgery. It also has introduced a new powered instrument for use in sinus surgery, a product derived from experience in arthroscopy products. A new 3-chip color camera for use in arthroscopy was recently introduced by the company. Stryker holds second place in arthroscopy products, maintaining a 14% share of the market.
The company’s medical business consists of a service business in physical therapy and a products business in hospital beds and related products. The physical therapy business consists of 185 centers in 20 states, which provide physical therapy services to patients. In the hospital bed market, Stryker is in second place with 10% of a $1.1 billion domestic market. It maintains 33% of the patient-handling bed portion of this market.
Bone growth is a new market for the company. A five-year clinical study with the company’s bone growth product is under way in the U.S., and Stryker plans to file a PMA with the FDA for the indications of tibial non-union and long-bone salvage in late 1997. The company has begun European marketing of its bone-growth product for repair of fibular defects.
Shift to Minimally Invasive Procedures in Orthopedic Surgery
Problem Traditional Approach Minimally Invasive
Meniscal tear Meniscetomy Meniscus repair
Cartilage defect Debridement Resurfacing
ligament repair Patella graft Soft tissue repair
Source: The BBI Newsletter
Subsequently, the company plans to introduce (in late 1998) a panel of tests for water-borne, diarrhea-causing pathogens – including Giardia lamblia, Entamoeba histolytica, and Cryptosporidium parvum. The latter tests are particularly interesting because the current method of identifying the causative organism for diarrhea from stool samples is quite slow. Finally, scheduled for release in late 1999, Triage Transplant, developed in conjunction with Novartis (Basel, Switzerland), is a 10-minute assay for cyclosporin, an immunosuppressive drug used daily by more than 125,000 transplant patients.
RELATED ARTICLE: Masimo’s technology draws financing and OEM partners
One of the more interesting companies presenting at the Alex. Brown Health Care Conference was Masimo (Mission Viejo, California), a private company with technology for removing motion artifact from a variety of biosignals. That technology has drawn widespread interest from venture capital investors – and a host of OEM partners.
Masimo has been funded by two rounds of venture financing and, after an aborted IPO, received additional financing from a private placement offering. Venture participants include the Vertical Group, Warburg Pincus, and DSV Partners. The company’s initial use of the technology has been to develop a motion artifact-resistant pulse oximetry system which it sells on an OEM basis to manufacturers of integrated patient monitors.
Joe Kiani, Masimo president, said the worldwide market for pulse oximeters and probes lacking the company’s technology, is $500 million in 1997 and should grow to $700 million a year by 2000. With the incorpooximetry market could grow to $1 billion by 2000. Most of that additional growth will occur in the intermediate care areas of hospitals, including fetal oximetry ($200 million) and peripheral venous oximetry ($100 million).
Masco has filed for 20 U.S. patents in the U.S. and 30 patients internationally. In February 1997, the company completed its latest clinical trial, in which the Masimo pulse oximetry technology was compared with pulse oximeters from three major market players and was found to provide greater reduction in motion artifact. The Masimo pulse oximeter provided reliable data at pulse rates as low as 20 beats per minute. Also in February, the company received 510(k) approval for both its disposable and reusable sensors without motion artifact claims. The company projects that more than 70% of its revenues will ultimately derive from sensor sales.
Current OEM customers include Zoll Medical (signed in April), NEC Sanei (signed in January), Datascope (signed in June 1996), Ohmeda (signed in May 1996), Healthdyne (signed in March 1996 for fetal oximetry), and Kontron (signed in December of 1995). Kontron recently introduced the first product to incorporate the Masimo pulse oximetry in Europe.
During the next 18 months, Masimo plans to close more OEM agreements, submit a 510(k) with motion artifact claims, bring sensor manufacturing inside the company, launch its pulse oximetry in the U.S., and pursue additional clinical applications with its technology, such as fetal and peripheral venous oximetry. The company also is developing a non-invasive blood glucose monitor which incorporates its motion artifact resistance technology.
– Alex Gerwer
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