HEART MURMUR
Low-Profile Endologix Pockets $15M, Awaits Approval for Aneurysm Device
By VITA REED
Endologix Inc. says it’s OK to be small and specialized. At least for now.
The Irvine-based company makes minimally invasive medical devices to treat blood vessel disorders called abdominal aortic aneurysms.
“It’s a very focused market, so it is one of those environments where a small company can compete very effectively,” said Paul McCormick, Endologix’s chief executive.
But a recent stock sale that netted the company more than $15 million should help it get bigger as it narrows in on getting regulatory approval to commercialize its products. Shares of the company are up 260% in the past year to 5.9 at recent check.
McCormick said some larger device companies targeting heart disease, or the interventional cardiology market, such as Irvine-based Edwards Lifesciences Corp. and Indianapolis-based Guidant Corp., have withdrawn from the market to treat abdominal aortic aneurysm (AAA), a potentially deadly enlarging on the main artery that feeds the heart.
“Just because you’re good in interventional cardiology doesn’t make you necessarily effective in treating AAA disease,” McCormick said.
Endologix makes the PowerLink system, which uses a catheter and stent cage to treat abdominal aortic aneurysms. It has yet to be approved by the Food and Drug Administration.
The company, which became public through a May 2002 merger with Radiance Medical Systems Inc., posted a fourth-quarter operating loss of $1.6 million on revenue of $920,000. A year earlier, Endologix reported a $1.2 million loss on sales of $1.6 million.
The company’s revenue is derived from product sales and licensing.
Although Endologix is publicly traded, it has no analyst coverage,”we are still under everybody’s radar screen,” McCormick said.
Nonetheless, Endologix’s device, which is considered “second generation,” should be able to compete in the AAA market going forward, said Jan Wald, a Minneapolis-based medical device analyst with St. Louis-based brokerage A.G. Edwards & Sons, who follows Minneapolis-based Medtronic Inc., but not Endologix.
The company expects to obtain Food and Drug Administration approval for PowerLink in the second half of the year, McCormick said.
Endologix, which counted a market value of $185.3 million at recent check, completed a previously announced private placement of 3.2 million shares of its common stock in March. Endologix netted $15.3 million in the stock sale, which will be used for working capital, marketing and other general corporate purposes.
The device maker is starting to build out its sales and marketing group in preparation for PowerLink commercialization.
“Our approach will be to have a focused launch in the U.S., having six to eight territories to demonstrate that we can take market share, and also to prove our sales model,” McCormick said.
Vascular surgeons will be the main sales targets, he said.
Endologix is working in a market that does have established players, such as Medtronic and two privately held competitors, Cook Group Inc. of Bloomington, Ind. and Gore Medical, a unit of W.L. Gore & Associates Inc. of Newark, Del.
Natick, Mass.-based Boston Scientific Corp. and Johnson & Johnson, the New Brunswick, N.J. medical and consumer products giant, also are developing AAA devices.
Edwards Lifesciences, on the other hand, dropped out of the AAA market with its decision earlier this month to pull the plug on its Lifepath program, while Guidant left the market last year after a federal lawsuit caused it to abandon its Ancure device.
“If you look at the companies that people usually reference, they’re mostly interventional cardiology companies,” McCormick said of the market, which he pegs at up to $250 million in the U.S. this year. He said that analysts expect it to grow to between $500 million and $800 million by 2008.
Early generation AAA devices have had problems such as wire fractures, something that McCormick said hasn’t occurred in Endologix’s clinical trials.
But he said that perception of the market, including the technological issues, would be something that challenges the company going forward.
Endologix, like many device companies awaiting U.S. regulatory approval, does sell its products in Europe, albeit on a limited basis, McCormick said. The European market is smaller and prices are lower, he said.
McCormick said the average price for a medical device such as Endologix’s is about $12,000.
The company has completed clinical trials in Japan and is looking to obtain the Shonin mark, which allows a device to be sold in that country, in the second half of this year.
That would put Endologix on track to sell what McCormick claims is the “first commercial endoluminal graft system in Japan” sometime in 2005.
Endologix employs 45 people and does all its manufacturing in Irvine.
McCormick said the company expects to add workers this year, as it builds up its sales and marketing force.
