In a sign of the emergence of Axonics Modulation Technologies Inc., which is expected to explode in revenue next year, mega medical device maker Medtronic PLC sued the small Irvine-based company for patent infringement. And Axonics’ stock swing over the past few weeks that followed the lawsuit wasn’t even the biggest news.
The 7-year-old firm (Nasdaq: AXNX), which makes implantable electrical stimulation devices designed to treat overactive bladders and other urinary conditions, saw its shares on a roller coaster ride in the past four weeks.
Its shares dropped 16% to about $21 after it was revealed on Nov. 4 that Medtronic, the only company with a similar product on the market, slapped Axonics with a series of patent lawsuits.
Then on Nov. 14, its shares jumped as much as 19% to $30.33 in intraday trading following an announcement about the approval for its key product from the Food and Drug Administration.
The mid-November surge marked the highest point for the stock in about two months for Axonics, which went public a year ago at $15 a share. Its shares in July briefly topped $40 for a $1 billion valuation mark before falling over the course of the summer.
Last week, the company announced a $100 million stock offering at $22 each to support the launch of its newest system in the U.S., Europe and Canada. Its shares ended last week around $22 for a $630 million valuation.
FDA OK
Chief Executive Ray Cohen sees a bright future for the firm after the FDA this month gave Axonics approval the right to market its product in the U.S. to treat overactive bladder issues. It got approval to market the product for fecal incontinence issues in September.
The company’s implantable Axonics r-SNM System is a USB stick-sized neurostimulator designed to last at least 15 years in the body. The SNM device works by stimulating electrical impulses in the pelvis area to correct faulty nerve activity. The pulses correct erroneous nerve messages that trigger a frequent and urgent need to urinate, and are sometimes associated with leakage.
The device has been shown to decrease overactive bladder activity by 50% in two-thirds of the patients enrolled in the company’s studies to date. One-third of patients saw a complete reduction in incontinence.
“If we consider the millions of women who have tried and discontinued OAB pharmaceuticals, the market opportunity for Axonics goes well beyond the approximate $700 million of revenue that is currently being generated by the incumbent’s non-rechargeable SNM device,” Cohen said after the FDA announcement.
Axonics has generated about $3.9 million so far this year, largely from sales overseas. It reported less than a quarter million dollars in the first nine months of 2018.
Axonics’ sales are expected to explode tenfold from $8.2 million this year to $80.8 million in 2020, according to the average estimate of six analysts.
Medtronic, which has its U.S. headquarters in Minneapolis and has a large base of operations in Irvine for a number of business lines, is the incumbent that Cohen was referring to, and is the only other company with a similar device on the market.
Its InterStim II device has treated more than 300,000 patients, the company said. Versions of the Medtronic product have been on the market for about 22 years.
The battery life for those products is significantly shorter than Axonics’ r-SNM device, and the product is about three times the size of the Irvine firm’s offering.
The $150 billion-valued firm is looking to keep a stranglehold on the sector. On Nov. 4, it filed a patent infringement lawsuit against Axonics in the Central District of California.
The timing of the lawsuit was by design, sources close to the litigation tell the Business Journal; Medtronic wanted to wait until Axonics reached commercialization before pursuing action.
“We aren’t particularly surprised that [Medtronic] has filed a patent lawsuit since it has had a monopoly in the sacral neuromodulation market and is likely attempting to protect its position in the market,” said Mike Matson, an analyst at Needham & Co.
Fighting Back
Cohen called Medtronic’s lawsuit “an attempt to use legal tactics to slow down competition and deny patients and physicians the innovative new technology that they desire.”
The Irvine-based company said it counts 146 territory managers, clinical support specialists and sales managers, most of whom have been hired the past year to support the U.S. launch of the r-SNM technology.
Medtronic vice president and general manager of the Pelvic Health and Gastric therapies business Brooke Story said in a statement that “Medtronic welcomes competitors and we believe competition drives innovation and broader market awareness, which is good for the industry and for patients.”
That said, “We are committed to protecting our proprietary technology and intellectual property, which drives our continued innovation,” the company said.
Medtronic also late last month filed plans for an updated version of its product, one with a 15-year battery life, comparable to the Axonics product.
Cohen took a shot at Medtronic’s March 2020 stated goal of getting FDA approval for its new product, saying during a call with analysts this month it was likely an overly ambitious projection.
“What’s changed is that clearly we’ve gotten under the skin of the folks in Minneapolis, right? They have decided that they’re going to put out a news release about a new product that they’re going to get approved in record time with the FDA, and then they decided to file what we think is a frivolous lawsuit against us.
“It’s clear that from a corporate standpoint that we’ve got their attention and they don’t want to give up this monopoly easily.”
Axonics Chief Financial Officer Dan Dearen said during the call that the company has plenty of funds to cover the costs of litigation.
Axonics ended the quarter with about $102 million in cash and short-term investments, regulatory filings indicate.
Competition Upsides
Aside from Axonics, the device market for OAB issues hasn’t seen much innovation of late, according to Needham’s Matson, who noted in a recent research report “a surprisingly high level of frustration” from patients and doctors alike with Medtronic’s product line of late, in terms of improvements.
“It is ironic that the largest medical device company in the world, with over a 20-year long monopoly in the SNM market, failed to introduce any meaningful innovation,” Cohen said in response to this month’s patent lawsuit.
An updated product line from Medtronic, if and when it does make it to market, will be good for all involved, Cohen told analysts this month.
“More choice, more competition, more advertising, [and] more awareness is going to float all boats, and we’re perfectly okay with that.”
Based on feedback from doctors that treat OEM, “We believe the SNM market is poised to dramatically expand over the next few years,” he said.
