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The Opportunity For Medical Devices In The Brain Comes Of Age We Believe This Rapidly Growing Sector Has An Enormous Future
August 10, 2000 Andrew T. Jay, D.M.D / (617) 757-5301 Jason S. Robins / (617) 757-5302
The opportunity for interventional devices to treat stroke and stroke-related conditions of the brain exceeds $3.0 billion and is vastly underpenetrated. With a host of new therapies on the horizon, stroke should be a commonly treated condition in ten years, much like myocardial infarction is today. The $260 million interventional neuro device market is growing 2025% annually and should continue to do so for the foreseeable future, in our view. Two factors are driving the growth: new technology and infrastructure. The technology includes new diagnostic, therapeutic, and preventive devices. Infrastructure development includes increasing the meager population of interventional neuroradiologists and stroke treatment centers. Stroke treatment devices dramatically improve the patients quality of life in a cost-effective manner. The costsaving opportunity is enormous. Every year, the United States spends $16 billion providing care for stroke survivors alone. This market can be very profitable, in our opinion. We believe 70% gross margins and 30% operating margins are achievable. The business has very high barriers to entry due to lengthy and expensive clinical trials. The customers are less price sensitive because these devices save lives. While the market opportunity is enormous, there are relatively few public investment opportunities. In the largecap arena, we like Boston Scientific for its Target Therapeutics franchise. In the small-cap area, Micro Therapeutics is the most promising, in our opinion. Possis Medical is pioneering the enormous ischemic stroke opportunity. For those with venture stage investing capability, there are a plethora of options.
TABLE OF CONTENTS Page Introduction .............................................................................................. 5 U.S. Stroke Breakdown Table ....................................................... 5 Ischemic Stroke ............................................................................. 6 Hemorrhagic Stroke....................................................................... 9 Challenges of Stroke Treatment ............................................................ 11 Access Sites for Interventional Procedures ................................. 12 The Stroke Opportunity .......................................................................... 13 Market Opportunity For Ischemic Stroke ................................................ 14 Market Opportunity For Hemorrhagic Stroke ......................................... 14 Market Opportunity For Carotid And Intracranial Stenting...................... 14 Market Opportunity for Brain Tumors ..................................................... 15 Worldwide Interventional Neuroradiology Market Projections ................ 15 Interventional Neuroradiolgy Projected Device Sales ............................ 16 Interventional Neuroradiology Geographic Sales Breakdown ................ 16 Confluence of Factors Will Drive Market Growth ................................... 17 Public Awareness ........................................................................ 17 Diagnostics .................................................................................. 17 Treatment Tools .......................................................................... 18 Companies Active In Stroke Prevention And Treatment ...... 19 Preventive Therapies ........................................................ 19 Coils ................................................................................. 19 Evolution of Devices for Filling Aneurysms ....................... 21 Embolic Agents ................................................................. 22 Neuro Stents ..................................................................... 23 Atrial Septal Defect Closure.............................................. 24 Treating Ischemic Stroke .................................................. 24 Carotid Stenting ................................................................ 27 Carotid Stenting & Distal Protection ................................. 29 Hospitals ...................................................................................... 29 Physicians .................................................................................... 30 Devices Improve Quality of Life While Reducing Costs ......................... 31 Companies In This Area Can Be Quite Profitable .................................. 31 Investment Ideas .................................................................................... 32 Company Device Portfolios .................................................................... 34
Company Descriptions AGA Medical .......................................................................................... 73 Alsius ...................................................................................................... 73 Angiosonics ............................................................................................ 73 Balt ......................................................................................................... 73 Biosite, Inc. ............................................................................................. 70 Biosphere Medical .................................................................................. 71 Boston Scientific ..................................................................................... 35 Cogent Neurosciences, Inc. ................................................................... 73 Concentric Medical ................................................................................. 74 Cook ....................................................................................................... 74 Ekos Corporation ................................................................................... 74 Embolic Protection, Inc. ......................................................................... 74 Embol-X ................................................................................................. 74 Endotex .................................................................................................. 75 Endovasix, Inc. ....................................................................................... 75 Guidant ................................................................................................... 42 Innercool Therapeutics ........................................................................... 75 Intra Therapeutics .................................................................................. 75 J&J ......................................................................................................... 69 Medtronic. .............................................................................................. 50 Micro Therapeutics ................................................................................. 56 Medivance, Inc. ...................................................................................... 75 MedNova ................................................................................................ 76 Micrus Corporation ................................................................................. 76 MV Medical Devices ............................................................................... 76 Neuro Vasx ............................................................................................ 76 Neurocontrol Corporation ....................................................................... 77 Neuron Therapeutics .............................................................................. 77 NMT Medical, Inc. .................................................................................. 72 Percusurge ............................................................................................. 77 Possis Medical ....................................................................................... 62 Prohold Medical Corporation .................................................................. 77 Radiant Medical, Inc. .............................................................................. 78 Scion ...................................................................................................... 78 Syn-X Pharma, Inc. ................................................................................ 78 Terumo ................................................................................................... 78 Therox .................................................................................................... 79 Therus .................................................................................................... 79 Twin Star Medical ................................................................................... 79 W.L. Gore ............................................................................................... 79 Anatomical & Pathological Glossary ...................................................... 80
INTRODUCTION
Treating stroke-related circulatory problems with interventional devices is one of the most promising emerging medical device markets. In ten years, stroke likely will be a treatable condition in the same way that myocardial infarction is today. Many will still suffer and die, but a significant number of patients receiving treatment will have what we now consider to be miraculous recoveries. The brain is of obvious importance as the control center for the body. It receives 20% of the blood flow despite being less than 3% of the bodys total mass. It directly controls or influences almost every body function. A stroke is defined as localized damage to brain tissues caused by loss of oxygen or internal bleeding. Depending upon the location of the damaged area, patients can lose sensory, motor, or reasoning ability. In many cases, strokes are fatal. According to the National Stroke Association, approximately 732,000 Americans suffer a stroke each year and 160,000 die. Approximately 250 per 100,000 people are affected by this condition each year. Japanese, Hispanics, and African Americans are more likely to have a stroke than Caucasians. The average age of a stroke sufferer is 70; however, people can be affected as young as 30 years of age.
ISCHEMIC
(607,000)
HEMORRHAGIC
(125,000)
CLOT
(515,000)
FAT
(92,000)
SUBARACHNOID
(55,000)
INTRACEREBRAL
(70,000)
Source: National Stroke Association and First Union Securities, Inc. estimates
A stroke is classified as either hemorrhagic or ischemic. Approximately 83% of strokes are ischemic, resulting from a blockage in a cranial artery. The remaining 17% are hemorrhagic strokes in which a cranial blood vessel has burst.
Ischemic 83%
Ischemic Stroke Ischemic strokes occur when a blood clot or a free-floating piece of atherosclerotic plaque lodges in an artery, reducing or totally occluding blood flow. The tissues downstream from the blockage are deprived of oxygen (ischemia) and begin to die. If treatment is not administered within a three-hour window, irreparable damage occurs. The damage first begins at a focal point, but then the surrounding tissue is affected. The damage in this penumbra area may be reversible. The size and extent of penumbra damage may be limited by reestablishing blood flow, cooling the brain, or relieving pressure from swelling. Medical science is still evaluating the effectiveness of these approaches, but there is little doubt that intervention can dramatically reduce, and possibly eliminate, penumbral damage.
Left Hemisphere
Right Side Paralysis Impaired Language Impaired Logic Confusion Between Left and Right Loss Of Right Visual Field
Cerebellum
Abnormal Reflexes Imbalance Dizziness, nausea, and vomiting
Brainstem
Bilateral Paralysis Semi conciousness/Coma Ataxia (loss of coordinated movement) Diplopia (double vision)
Depending upon the location of the damage, patients can lose sensory, motor, or reasoning abilities. In the most drastic cases, the patient is severely disabled; incapable of performing common, everyday tasks. Ischemic strokes frequently occur in the largest intracranial arteries, which carry blood flow to more than 30% of the brain. These include the middle cerebral, anterior communicating, and internal carotid arteries. A major blockage in one of the arteries is a significant, life-threatening event.
Ischemic Strokes In The Middle Cerebral Artery Affect A Significant Portion Of The Brain
Affected Area
Vaso-oclusive clots that lodge in this area may originate in other parts of the body and travel to the brain. One common source of these clots is the heart, particularly in patients with atrial fibrillation (Afib), an erratic, or uncontrolled beating of the upper chambers of the heart. Afib is the root cause of an estimated 5% of strokes in the general population. According to the Framingham Study, 23% of strokes in patients 8089 years old are linked to atrial fibrillation. Several companies are seeking to solve the Afib dilemma, including Medtronic, Guidant, St. Jude, Boston Scientific, and a host of others. Also, there is increasing evidence that defects in the septum, which divides the two atria or upper chambers of the heart, can be a source of clots. These defects are called Patent Femoral Ovales (PFOs). In patients with a PFO, clots can pass from the venous circulation in the right side of the heart through the septal defect into the left-sided arterial circulation that leads to the brain. This route bypasses filtration in the lungs that normally capture clots as the venous blood as is oxygenated. An estimated 810% of all ischemic strokes may be linked to a PFO. Bits of fatty plaques can flake off arteries in the neck, travel into the brain, and lodge in a narrow cranial artery, causing a stroke. A common source of these fat particles, or emboli, are the carotid arteries, which carry a portion of the brains blood supply. The NASCET study demonstrated that patients with 50% or greater occlusion of the carotid artery can benefit from a carotid endarterectomy procedure that removes the fatty layer lining the artery.
Aorta
Source: First Union Securities, Inc. and LifeArt
When treating an ischemic stroke, identifying and opening the occluded vessel during a limited-time window is a significant challenge. Current treatment options have drawbacks. Available therapies include highly invasive craniotomy procedures and slow-acting drug therapy, such as Tissue Plasminogen Activator (TPA). The National Institute of Neurological Disorders and Stroke (NINDS) Tissue Plasminogen Activator for Acute Ischemic Stroke study revealed a 30% reduction in severe disability when TPA was administered within a three-hour window. Faster-acting interventional therapies, such as using ultrasound to enhance the effectiveness of TPA or mechanical clot removal, could dramatically reduce the extent of the damage. There are a number of devices in development designed to clear the clot. A device that can pass the carotid siphon and clear these clots could shift the paradigm of stroke treatment.
A Device That Can Pass The Siphon And Clear An Obstruction Could Be A Winner
Siphon
After clearing the blockage, the physician can face the challenge of reperfusion deficit (RPD). RPD is the inability to adequately oxygenate brain tissue following the restoration of blood flow. If the patient has RPD, he could continue to suffer the strokes destructive effects. Drugs, such as nicardipine, are showing potential for lessening RPD. Hemorrhagic Stroke Hemorrhagic strokes are caused by ruptured blood vessels in the brain. These strokes occur when an arterio venous malformation (AVM), aneurysm, or blood vessel bursts, causing uncontrolled bleeding in the brain. This bleeding has two morbid consequences. First, brain tissue downstream from the burst can be deprived of oxygenated blood. Second, free blood in the brain tissue triggers a biochemical reaction that can cause permanent damage. The patient can suffer temporary or permanent mental impairment or, if life-sustaining functions such as breathing are involved, death. Hemorrhagic strokes are very difficult to treat and are more likely to be fatal. Hemorrhagic strokes account for 17% of all strokes in the United States and they strike more than 400,000 people worldwide each year. Vasospasm is the most-feared complication resulting from a hemorrhagic stroke. When a vessel ruptures, the downstream portion of the vessel and vessels feeding off of it can begin to constrict and spasm. This constriction prevents tissue from being properly oxygenated, and the patients will suffer ischemic stroke-like symptoms. In the most severe cases, the vessel completely closes, occluding blood flow; generating a secondary ischemic stroke. According to the Cerebral Vasospasm: Current Thinking and Future Trends paper, 4070% of all patients suffering an aneurysmal subarachnoid hemorrhage will experience arterial narrowing, but only 2030% will develop severe vasospasm that results in marked neurological impairment. Since hemorrhagic strokes are very difficult to treat, the focus is on diagnosing those at risk and taking preventive measures. These measures once were centered around surgical correction, dissecting out the vessel anomaly (AVM, aneurysm) and placing a clip on it. Increasingly, treatment is shifting to less-traumatic interventional approaches. Aneurysms. An aneurysm is a ballooning of the arterial wall. As the aneurysm expands, the vessel wall stretches to become significantly thinner and weaker than the normal arterial wall. Just like an over-inflated balloon, large aneurysms can rupture from pressure. Once aneurysms in the brain exceed 5 mm in diameter, the rupture risk substantially increases and intervention becomes necessary. Aneurysms cause 50% of hemorrhagic strokes.
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Aneurysm
Most intra-cranial aneurysms develop deep within the brain beyond the carotid siphon. These malformations frequently form where a major artery branches off into smaller vessels, as changing the direction of the flowing blood puts pressure on the surrounding vessel walls. Surgical intervention in many regions is not an option at all. Interventional therapies offer the best treatment option in most cases.
Siphon
Distribution of Aneurysms
1. 30% Anterior Communicating 2. 30% Middle Cerebral
Source: First Union Securities, Inc. and LifeArt
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AVMs. An AVM is an abnormal circulatory pattern where an artery connects directly to a vein. In normal vascular anatomy, blood flows through a bed of tiny capillaries to reduce pressure before entering the vein. When there is a direct connection, the vein is exposed to the greater, fluctuating pressure of the artery. Over time, this turbulent blood flow will weaken the walls of the vein and it can burst. AVMs account for 10% of all hemorrhagic strokes.
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diagnosing a stroke, and it should be readily available near the emergency room. The second piece of the puzzle that is missing at many hospitals is an interventional neuro radiologist (INR). There are only 240 INRs in the United States. This meager population is growing by 20-25 physicians each year. Thus, if case treatment requires an interventional approach, many of these hospitals do not have the manpower to effectively respond. Interventional neuro therapies can dramatically improve patient outcomes because they are less invasive and faster. Conventional surgical treatments involve opening the skull. Drug therapy generally is slow-acting. Boston Scientific/Target Therapeutics pioneered the interventional neuro field and continues to be highly successful. Many companies are striving to emulate Boston Scientifics success in this underpenetrated and littleunderstood market.
In interventional procedures, physicians can access the brain or carotid arteries through the internal jugular, subclavian, brachial, or femoral arteries. Using the blood vessels as a natural highway, the physician threads a guidewire through these access sites to the desired location. He then runs a catheter over the guide wire. The physician will then deliver the appropriate therapy through the catheter: stenting, coils, or embolics. The most common access sites for interventional neuro procedures are through the femoral artery in the leg or the brachial artery in the arm, minimizing physicians exposure to harmful radiation. High-powered imaging machines are required in interventional neuroradiology procedures to penetrate the thick bones of the skull and visualize a relatively small volume contrast agent in narrow coronary arteries. These machines emit significantly more radiation than similar machines used by intervention cardiologists. While the subclavian and internal jugular approaches provide a relatively straight shot to the carotid siphon, physicians avoid these approaches to avoid receiving radiation burns on their hands.
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The opportunity for interventional devices to treat stroke and stroke-related conditions of the brain exceeds $3.0 billion and is vastly underpenetrated. With a host of new therapies on the horizon, stroke will be a commonly treated condition in ten years, much like myocardial infarction is today. The $260 million interventional neuro device market is growing 2025% annually and should continue to do so for the foreseeable future.
50 50 100
30%
15 15 30
$4,000
85%
296 80 376
$2,000
Total Ischemic Stroke Opportunity: HEMORRHAGIC STROKE TREATMENTS Aneurysms United States International Total AVMs United States International Total Brain Tumors United States International Total 170 150 320 75% 128 112 240 $4,500
25 25 50
65%
16 16 32
$3,100
40 35 75
15%
6 5 11
$3,400
14
15
1998E Interventional Neuro Devices Guidewires Micro Catheters Coils Embolic Agents Neuro Stents Thrombectomy Devices Total Interventional Neuro
Carotid Endarotoectomy Carotid Stents Distal Protection Devices Total Carotid Endarterectomy Total Boston Scientific/Target Therapeutics Micro Therapeutics Possis J&J Cordis / AngioGuard Guidant Medtronic Cook Micrus Corporation Other Total
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$600.0
$500.0
$400.0
($ million)
$300.0
$200.0
$100.0
The interventional neuroradiology device market is well developed outside the United States. Europe represents almost half of the worldwide market; Japan and the United States account for 28% and 23%, respectively. In Europe, a receptive physician base, broader suite of approved therapies, and earlier technology availability drove market growth. Two factors accelerated market development in Japan. First, there is a high incidence of stroke in the Japanese population. Second, neurosurgeons are cross-trained to perform neurointerventional procedures in Japan; eliminating a step in the referral pathway drove faster adoption.
Europe 49%
Japan 28%
Source: First Union Securities, Inc. estimates and company reports
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Two factors are driving growth: new technology and infrastructure. The technologies include new diagnostic, therapeutic, and preventive devices. Infrastructure development includes increasing the meager population of interventional neuroradiologists and stroke treatment centers.
PUBLIC AWARENESS
Public awareness of stroke is growing as organizations such as the American Heart Association add the mantle of stroke to their charters. Educational campaigns are raising the awareness of stroke signs and symptoms and training patients to get to a hospital as soon as possible. Unfortunately, as we will discuss later, this has not yet been translated into the allocation of reimbursement dollars to the health care system. It is critical that the economic incentives be structured to match the therapeutic need.
DIAGNOSTICS
Tools for diagnosing stroke continue to improve and could potentially take a quantum leap forward if a quick diagnostic panel from Biosite or Canadian-based SYN X Pharma becomes a reality. These test panels could be widely available as early as 2003. These panels are card-sized devices containing proteins that bind with molecules in the patients blood that are only present when a stroke occurs. When the binding agent joins with the marker protein, a chemical reaction changes the indicators color. Biosites stroke panel could provide a quantitative readout, much like the companys Triage BNP. These indicators can identify and distinguish between ischemic and hemorrhagic strokes. More importantly, they may be able to identify stroke faster than other diagnostic modalities. Biosite is commercializing a test panel for correctly identifying acute myocardial infarctions (AMI), a type of heart attack. The building momentum around the AMI product has validated both physician interest in diagnostic test panels and the attractiveness of this business model. The companys effort to identify the proper stroke markers is well underway, and a finished test could be available in three years.
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SYN X Pharma, a Canadian company, developed and licensed a test to Genzyme Diagnostics. This system is not yet on the market. Currently the definitive diagnostic tool for stroke is a computer tomographic (CT) scan. This scan indicates whether a stroke is ischemic or hemorrhagic and where it has occurred within the brain. This test is essential as the pharmacologic treatment for a clot-based ischemic stroke, TPA, will worsen a hemorrhagic stroke. There are 4,618 hospitals with CT scanning machines in the United States, according to a survey by the Technology Marketing Group. This is an impressive penetration of the nations 5,500 hospitals. Unfortunately, these CTs are often underutilized for three reasons. First, many CTs are located far away from the E.R., where most stroke patients are admitted. Second, at night, most CT machines are shut down, and it takes 30 minutes to warm up the machine. Finally, many hospitals only have a CT technologist available to run the machine, or a neurologist on hand to read the scan, during normal business hours. These factors are critical because they lengthen the time to treatment. Stroke should be treated within 3 hours for optimal patient recovery without permanent neurological damage. In 3-6 hours, the area of the penumbra grows. These factors are being resolved, albeit at a pace that is not fast enough for the thousands of patients who could benefit. The more forward-thinking centers, such as the Stroke Center at Saint Lukes Hospital in Kansas City, are streamlining the process. They have moved a CT machine adjacent to the E.R. and have it ready to run 24 hours a day. This reduces the CT turnaround time to five minutes! The availability of neurologists to interpret the CT scan is a systematic problem. Neurologists usually practice in an office-based setting, not in the hospital. Their compensation for traveling to the hospital to make a life-affecting decision by reading a CT study is approximately half the amount they receive for an in-office exam. We believe this situation will be resolved through increased compensation for the neurologist, or the assumption of CT interpretation by a hospital-based physician. That physician could be a radiologist, or even an emergency medicine physician with special training. Streamlining the diagnostic process can make a dramatic difference. Saint Lukes streamlined approach reduced the time from admittance to treatment to 115 minutes from 219 minutes. (Note that the initial 219-minute treatment time exceeds three hours and does not include the time required for a patient to get to the hospital.) Making the necessary changes is not rocket science, but it does require a concerted effort among the hospital, physicians, and even into the emergency medical response teams.
TREATMENT TOOLS
There are three treatment modalities emerging in the interventional neuroradiology/ stroke prevention arena. First, new catheter-based therapies to treat vessel malformations provide physicians with a preventive approach for treating AVMs and aneurysms, potential time bombs within the brain. Second, ischemic stroke treatment devices could rapidly clear obstructed vessels or protect surrounding tissue from further damage. Finally, neuro and carotid artery stenting could aid in ischemic stroke prevention.
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PREVENTIVE THERAPIES
Several companies are developing catheter-based technologies for treating vessel malformations within the brain. The $1.1 billion opportunity for treating aneurysms and AVMs is vastly underpenetrated. Currently, fewer than 20% of aneurysms are treated by interventional neuroradiologists (INRs). With better technology and continued growth of the United States meager population of 240 INRs, procedure penetration could reach 80% or more. Physicians continue their movement toward less invasive, interventional procedures from traumatic, open-skulled surgical treatment methods. Conventional surgical treatment of aneurysms and AVMs is a highly invasive procedure in which the skull is opened, the vessel is accessed, and the surgeon clamps off the aneurysm with a titanium clip to stop blood flow or surgically resects the AVM. These conventional procedures require neurosurgeons to cut into the brain, causing varying degrees of damage. The resulting trauma necessitates a lengthy recovery period. Radiosurgery is a nonsurgical alternative for AVMs that attempts to obliterate the AVM by directing a concentrated beam of radiation through the skull and brain tissue. Physicians can use an interventional approach with catheter-based coils and embolic agents to occlude these vessel malformations without the trauma that accompanies conventional procedures and avoid exposing the patient to very high radiation doses. Importantly, these catheter-based therapies allow interventional neuroradiologists to treat vessels deep within the brain that are not accessible with traditional surgical methods. Coils Coils are the predominant interventional treatment device for aneurysms. Coils are small, platinum wire filaments deployed within an aneurysm to slow the swirling blood and provide a framework for blood clots to form. This clot, or thrombus, permits endothelization, or tissue regrowth, over the aneurysm neck. This effectively occludes the aneurysm, restores the blood vessels normal arterial channel, and reduces the risk of future rupture.
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Source: First Union Securities, Inc. and Thomas Jefferson University Hospital
Today, the worldwide market for coils is $115 million and is less than 15% penetrated. Coils are used to treat 25,000 aneurysm cases annually. There are four companies developing coil-based systems: Boston Scientific/Target, J&J, Cook Endovascular, and Micrus corporation.
Thus far, coils have been most effective in treating small aneurysms with smaller necks that look like hanging baskets. Current coil systems have difficulty bridging large-neck aneurysms and can fall out into the parent vessel. Large and giant aneurysms are difficult to treat due their unstable, shifting shapes. One key to expanding the coil market will be a system for treating wide-neck, large, and giant aneurysms. Boston Scientific/Target Therapeutics is making great progress on this front, in our view.
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Detachable Coils
Electrostatic charge detaches coil from singlewire filament once placed in aneurysm
3D Coils
Detachable coils that fold in multiple planes when deployed to form a basket in the aneurysm June 2000--
Soft Coils
3D coils made with less platinum to pack more densely than the original 3D coils Looped design helps bridge wide-neck aneurysms 2002-3D coils coated with material that promotes endothelization Sack deployed within aneurysm to house and prevent coils from slipping into parent vessel Embolic materials deployed with coils to form solid mass and completely occlude vessel
Coils + Embolics
Liquid Embolics
Liquid material that solidifies into a semi-spongy mass when deployed to completely fill the aneurysm
Target Therapeutics has been driving innovation in the coil market since the development of pushable coils in the early 1990s. Pushable coils are single platinum wire filaments individually pushed through a catheter to fill the aneurysm. Pushable coils did not offer the surgeon a great deal of control. Once the coil was deployed in the vessel, there was no way to retract or reposition the coil. Gugliemi Detachable Coils (GDCs) overcame the retraction shortcoming. GDCs feature a single wire with a coil at the end. The physician would extend this wire to the desired location within the aneurysm and activate an electrostatic charge to discharge the coil. As long as the physician did not fire the electrostatic charge, the coils could be retracted or repositioned.
Pushable Coils with mechanical interlock for partial delivery and retraction
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3D coils are the next iteration of detachable coils. These coils curl up in a multidimensional shape when deployed from the catheter. 3D coils more tightly pack the aneurysm to provide a better scaffolding for thrombus formation and subsequent tissue growth over the neck of the aneurysm. Like the GDC, they can be retracted and repositioned. Boston Scientific dominates this market segment, but Micrus Corporation recently received CE Mark approval to sell its ACT MircoCoil system in Europe. Soft coils are 3D coils made with less titanium to be more compactable and densely pack the aneurysm. This provides a larger scaffolding for thrombus formation and further reduces blood flow through the aneurysm. Soft coils could further reduce recanalization and promote faster endothelization. Wide-neck, large, and giant aneurysms are the next frontier. Conventional coils have difficulty bridging the broad openings of these aneurysms and can slip into the parent vessel. Boston Scientific is pioneering this market with its Tri Span coil, which features a three-loop design to bridge the aneurysm neck and provide a scaffolding for conventional coils. Another experimental approach is lining the aneurysm with a sack to hold coils. Surface-coated coils could be another major advance in the coil market. The coating on these coils promotes clot formation and tissue growth over the neck of the aneurysm. Initial animal studies of Boston Scientific/Targets surface-coated coils have shown a significant acceleration in tissue growth after two weeks. Surface-coated coils are still two to three years away from the market. The technology trend is towards greater filling density. Ultimately coils with embolics, or embolics alone, could provide a definitive solution in both standard and large-neck aneurysms. Embolic Agents Embolic agents are designed to occlude aneurysms or vessel malformations to prevent a rupture and an ensuing hemorrhagic stroke. Physicians simply deploy the embolic material into the afflicted space via catheter. There are three types of embolic materials: glues, particles, and liquid embolics. Glues The FDA Neuro device panel recently recommended the approval of J&Js cyanoacrylate glue for the presurgical embolization of AVMs. For many years, a form of this glue has been used on an off-label basis. Glue is injected via catheter to fill the affected vessel and occlude blood flow prior to surgical resection. Glue is difficult to deploy as it begins to harden three to four minutes after mixing. Physicians must feed the thick glue through a narrow catheter in this short amount of time. If the catheter tip sticks to the hardening glue, it must be cut off and left in the patient. Due to this handling challenge, glue is not widely used. Embolic Particles There are two main types of embolic particles: polyvinyl alcohol (PVA) particles and Biosphere Medicals Embospheres. Both are delivered via catheter to occlude a tumor or AVM. One weakness of PVA particles is that these irregularly shaped particles can agglomerate and not reach the desired locations. PVA must be handled carefully to prevent embolization of healthy tissue in the adjacent region. Last year, only a few thousand neuro procedures were performed with PVA at an approximate cost of $1,500 per procedure. Both Cook and J&J sell PVA particles.
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Biosphere Medicals Embosphere particles are approved for treating both tumors and AVMs. Embospheres could be a major advance beyond PVA because they are uniformly shaped, round balls. Their uniform shape allows them to travel easily to the afflicted vessel and effectively occlude it. This improved handling ability could reduce the amount of material required to occlude an AVM or tumor. Liquid Embolics Micro Therapeutics is pioneering this field with the Onyx Liquid Embolic System for filling aneurysm spaces, or occluding malformed vessels. Onyx could be the most significant advance in interventional neuroradiology since the Gugliemi Detachable Coil. Onyx is a liquid that transforms into a semi-spongy mass once deployed, effectively filling the aneurysm or AVM. Onyx is visible under fluoroscopy, unlike glues, PVA or Embosphere. This is the most promising embolic therapy in development, in our view, for two reasons. First, it can be deployed in a controlled manner. Second, completely filling the aneurysm with an embolic agent could dramatically reduce the incidence of recanalization or recurrence.
Neuro Stents Neuro stents may play a role in aneurysm treatment as well as ischemic stroke prevention. There has been at least one documented case in which a stent has successfully occluded an aneurysm by itself, however they offer the greatest benefit as a combination therapy. Stents provide an effective scaffolding for coils or embolics in treating wide neck aneurysms. A stent is deployed in the parent vessel below the aneurysm, and a microcatheter is inserted through the interstices of the stent to deliver the appropriate therapy. The stent prevents the embolic from slipping into the parent vessel. Stent size limits their usefulness. Current stent designs are only able to reach 10-15% of the vessels in the brain. The very narrow, fragile cranial arteries and the tight curve of the carotid siphon prevent the use of most coronary stents in the brain.
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Atrial Septal Defect Closure Patent Foramen Ovale (PFO) affects 10% of the population. PFOs are defects in the heart wall between the left and right atrium. Approximately 12% of patients with a PFO defect eventually go on to have an ischemic stroke. Venous blood passing through the right atrium to be filtered by the lungs contains small clots that could cause an ischemic stroke. In PFO patients, these clots can pass across the central septum from the right atrium directly into the left, bypassing filtration in the lungs. The left ventricle then pumps these clots into the general circulation. With over 20% of the blood leaving the heart being pumped directly to the brain, these clots can easily cause strokes. Three companies are developing interventional devices used for closing these septal defects. These devices are delivered into the heart via catheter and positioned over the septal defect under fluoroscopic and transesophagial echocardiographic guidance. NMT Medical is the best positioned in this space, in our view, with the CardioSeal septal occluder. CardioSeal appears to offer a more versatile design than competing technologies from AGA Medical and W.L. Gore.
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Thrombus, or clots, cause approximately 85% of ischemic strokes. There are two treatments for clearing thrombolitic occlusions. The first treatment is the introduction of the pharmaceutical agent either systematically or directly to the clot through an infusion catheter. The second treatment involves the breakup of the clot through mechanical thrombolysis. The challenge of mechanical thrombectomy is reaching the clot. Pharmacological agents such as Tissue Plasminogen Activator (TPA) can dissolve the clot and open the occluded vessel. The National Institute of Neurological Disorders and Stroke (NINDS) Tissue Plasminogen Activator for Acute Ischemic Stroke study demonstrated a 30% reduction in severe disability when TPA was administered within a threehour window. Systematically infused pharmacological agents are slow acting, as they must flow through the blood stream to reach the clot. The effectiveness of drug therapy can be enhanced through direct delivery of high concentrations of the drug into the clot using an infusion catheter, or possibly using ultrasound energy to accelerate its action. Device-based therapies offer the potential to improve outcomes by immediately removing and extracting the clot. Several companies are pursuing this avenue. Possis Medical is adapting its Angiojet thrombectomy system for use in the cranial arteries. This device uses water jet suction to break apart and extract the clot obstructing the vessel. The company has begun the 30-patient Thrombectomy in Middle Cerebral Artery Embolism (TIME) trial to evaluate the effectiveness of the Neurojet catheter. Approximately 30% of strokes occur in the Middle Cerebral Artery. Physicians have successfully cleared obstructions in the dural and sagittal sinuses using Possis technology. The Rheolytic Endovascular Therapy of Dural Sinus Thrombosis study found Angiojet to be more effective in clearing these clots than drugs, which are harder to deliver to this complex anatomy. Other mechanical thrombectomy devices could be adapted for treating ischemic stroke, or an ultrasonic catheter could potentially break apart thrombus. A few physicians also foresee the development of corkscrew-like devices to capture and remove thrombus from the occluded vessels, much like uncorking a wine bottle. Removing the clot could prove superior to breaking it apart, because it eliminates the risk of particles floating downstream and causing secondary strokes. For strokes caused by an embolic particle of atherosclerotic plaque, treatment is more difficult. Several companies are working on technologies targeted at this opportunity. Approaches include cooling the brain and providing metabolites on an interim basis. Both approaches could sustain the brain until it develops collateral circulation.
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Cooling has been shown to protect the brain in many cases of hypothermia, where patients have fallen through the ice in winter. Cooling slows the brains metabolic rate, reducing oxygen and nutritional needs until blood flow can be restored. A study at the Cleveland Clinic cooled five severe stroke patients for two days. Two of the five completely recovered. Normally 80% of stroke patients will die or be seriously disabled. There are two methods of cooling the brain. Physicians can either cool the entire body using air-cooled blankets, ice, and rubbing alcohol or cool specific portions of the brain using catheters. Innercool Therapeutics, Radiant Medical, and possibly Alsius Corporation are developing cold-tipped catheters, which are inserted into the brain and cool the blood flowing over them in order to lower a patients brain temperature.
Neuron Therapeutics is developing a system for delivering an artificial cerebrospinal fluid, which is fluorocarbon emulsion that oxygenates the brain and delivers nutrients to the injured tissue. The drug mixture is deployed via catheter into the lateral ventricle where it diffuses into the spongy brain tissue and drains out the lumbar spine. Physicians continue perfusion until collateral circulation has formed. The development of collateral circulation can take less than one day.
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CAROTID STENTING
Stenting carotid arteries in the neck represents a $752 million opportunity. Like the coronary arteries in the heart, fatty deposits can collect on the inside walls of the carotid arteries, which carry blood up through the neck and eventually to the brain. As these fatty deposits become excessively large, they can have two detrimental effects upon the brain. First, small bits of atherosclerotic plaque or fatty deposits can break off and travel to the brain. The classic presentation of a mild form of this is amaurosis fujax, a condition in which the patients visual field constricts as if a window shade is being drawn across it. The second detrimental effect from fatty deposits on the lining of the carotid arteries is that those deposits can restrict blood flow into the brain. The most common treatment for atherosclerosis of the carotid arteries is the surgical carotid endarterectomy (CEA) procedure. In an endarterectomy, a physician cuts into the neck and dissects out the carotid artery. Once the artery has been exposed, it is clamped at the upper and lower ends to prevent blood flow. Then, the physician uses a scalpel to split the artery lengthwise and fold it open. The inside lining containing the atherosclerotic plaque is peeled out and the artery is sewn closed. The physician next removes the clamps and closes the surgical site. The carotid endarterectomy procedure was believed to work fairly well until neurologists began to examine and follow-up these patients closely. Closer examination revealed that 5% of the cases had some damage to the nerves of the neck and throat. In many cases, the damage was mild, but in some cases it was significant. Unilateral damage to one of the nerves of the neck may not have a major effect, but bilateral damage could be a problem. The nerves at risk supply muscle tone to the vocal cords and throat. If the branch on one side of the neck is damaged, then the patient has a slightly deeper or huskier voice. However, if that nerve is damaged bilaterally, then patients may have severe problems speaking and eating. In the long term, stenting using an interventional approach likely will replace the surgical procedure for three reasons. First, a stent-based procedure would eliminate a surgical incision in the neck. Patients favor smaller incisions, and, if an incision in the neck can be eliminated through catheter-based interventional techniques, this is preferred. Given the alternatives, patients likely will opt for the interventional approach. Second, a catheter-based approach should provide superior outcomes because there is a lower probability of damage to the nerves in the neck. Third, the physician will treat the patient or guide him or her to the proper care. The interventional specialists who diagnose carotid blockages likely will increasingly self-refer for the interventional procedure rather than send the patient to a surgeon. There are three physician groups vying for control of the carotid stent procedure: the interventional cardiologists, the interventional neuroradiologists (INRs), and the interventional radiologists. Two of these groups will have an advantage: the interventional cardiologists and the interventional neuroradiologists. The interventional cardiologists already treat patients for atherosclerosis in the heart. It will be easy for the cardiologist to thread the guidewire up into the neck off of the arch of the aorta in order to reach the carotids after using the same guidewires and catheters to treat cardiovascular disease in the heart. This additional step can be performed in the same procedure as the treatment of the coronary arteries. Most patients who have fatty plaque in the heart also have it in the carotids.
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The second group that could capture a portion of these procedures is the interventional neuroradiologists (INR). We believe that a segment of the market will accrue to these physicians because the carotid stenting procedure is related to the protection of the brain. This group has already accrued significant experience delivering catheters through the carotids into the brain. The interventional radiologists are at a disadvantage because they only see these patients as referrals and do not directly control the patient. Ultimately, the interventional cardiologists likely will capture the greatest portion of carotid stent procedures for three reasons: interventional cardiologists control the patient, carotid disease overlaps with cardiac disease, and there are many interventional cardiologists in the work force. There are approximately 2,000 interventional cardiologists and only 240 interventional radiologists. Many interventional cardiologists are looking for new procedures to expand their practices, so they are unlikely to refer the procedure out to others. Several of the cutting-edge interventional cardiology groups are hiring interventional radiologists to bring noncardiac expertise into their practices. Carotid stents will need to have different properties than coronary stents. The carotid arteries are embedded in soft tissue in the neck, and the jawbone can impinge upon these arteries. The stent that is placed in the carotid artery must have the resilience to spring back after being pressed closed by the jaw. Early attempts with rigid, stainless steel, balloon-expandable stents generated unacceptable results with certain patients. In some cases, movement of the jaw crushed the stent and obliterated the lumen carrying blood flow. A second desirable property in carotid stents is extensive wall coverage to hold plaque against the artery wall. If the stent does not firmly hold the fatty material in place, or if it causes that material to dislodge, the stent could cause the stroke that it is intended to prevent. Over time, certain stent designs with greater wall coverage, possibly stents covered with graft material, could be more desirable in this indication. A number of companies are targeting the carotid stent opportunity, including Guidant, Boston Scientific, Medtronic, Johnson & Johnson, Endotex, and others.
Embolic Protection
Boston Scientific (BSX) Guidant (GDT) Medtronic (MDT) Johnson & Johnson (JNJ) PercuSurge Mednova Embolic Protection, Inc.
29
Carotid stenting could eventually become a $752 million market. There are over 300,000 carotid endarterectomy surgical procedures each year. The key question is how fast will this market materialize? The surgeons are fighting a significant turf war in order to hold onto this stream of profitable procedures. We believe the trials such as J&Js SAPPHIRE Trial and Guidants CREST Trial will demonstrate that carotid stenting is at least as effective as endartorectomy.
HOSPITALS
Hospital administrations are using stroke treatment to differentiate their institutions in a competitive marketplace. The 5,500 hospitals in the U.S. are caught in an evertightening vice as the purchasers of health care attempt to stretch their budgets through lower payments. In response, the hospitals have made significant strides and are becoming more efficient. These efforts have resulted in streamlined care pathways and shorter hospital stays. Emerging outpatient surgical centers offering shorter hospital stays are attracting only the prime surgical candidates, reducing the volume of patients in the hospitals. Patient volume is important for hospitals that have significant fixed costs.
30
As a differentiator, some hospitals are trying to be quality leaders and are highlighting certain expertise, such as stroke treatment. The stroke center pitch is particularly appealing in areas with a high concentration of senior citizens. With this focus on stroke comes an institutional commitment to attract proficient physicians, invest in the necessary equipment, and support the development of care pathways. The end result of this effort is that the hospitals are becoming more adept at treating stroke. As hospital administrators gain experience, they will become better and more vocal advocates for reimbursement dollars. Medicare will be an important player because it is the largest payer for Americans over 65.
PHYSICIANS
There are a number of physician specialists who would like to expand into new therapies including stroke. These include interventional neuroradiologists, interventional cardiologists, and interventional radiologists. All of these physicians have learned from the interventional cardiologists, who rode the wave of interventional therapy to significant personal wealth. The adoption of guidewires and catheters propelled interventional cardiologists to the pantheon of hospital power as they rule the cath lab profit centers. Interventional cardiologists are continuing to do well, but many seek to expand their purview to the peripheral blood vessels outside of the heart. Their sights are increasingly focusing in on the stroke/carotid opportunity, as carotid technologies, including guidewires, catheters, and stents, are similar to those used in heart procedures. Moving into the brain requires a different set of anatomical knowledge and case experience. The interventional radiologists are at a competitive disadvantage because they do not control the patient, but are dependent on referrals from other practitioners. This dependence makes the option of joining an interventional cardiology practice and locking in patient flow more attractive to them. The interventional neuroradiologists (INRs) are in great demand. With only 240 INRs in the United States, there isnt nearly enough of them to meet demand. One hospital we spoke with works hard to prevent burning out its INRs. This hospital only calls them for emergencies, when they are confident that their services will be required. The loss of an INR at a hospital creates a major hole in a local hospitals physician panel. Cross-training neurosurgeons as INRs could accelerate the adoption of neuro-interventional therapies in the U.S. Proficient in both catheters and cutting, these highly trained physicians can specialize in the treatment of the most complex cases. Cross-training neurosurgeons in Japan and to a certain extent Europe greatly accelerated the development of this market. Consolidating expertise assures patients receive the most appropriate therapy. With a windfall of procedures and a shortage of INRs, others are attempting to step into the void and master interventional techniques involving the head and neck. They are having varying degrees of success. We believe that a turf battle has not erupted because the properly trained and qualified INRs are just too busy to care.
31
Stroke treatment devices dramatically improve the patients quality of life in a cost-effective manner. The cost-saving opportunity is enormous. Every year, the United States spends $16 billion providing care for stroke survivors alone.
The cost of stroke to society is enormous. In 1999, the American Heart Association estimates the total cost of stroke to the U.S. should exceed $45 billion. Of the $45 billion, $29.5 billion (65%) is direct medical costs related to hospitalization, physician services, rehabilitative care, nursing home care, and durable medical equipment. A 1996 study published in Stroke, Lifetime Cost of Stroke in United States, indicated that lifetime costs associated with ischemic stroke exceeded $90,000, and more than $225,000 for hemorrhagic. The lions share of these charges (43%) was spent on in-patient hospital charges. The hidden costs of lost productivity rippling throughout society account for the other $15.8 billion of the estimated costs of stroke. These ripples are not insignificant, as there are 4.4 million stroke survivors alive in the United States presently. At least 40% of stroke survivors are so disabled that they are unable to return to work. These people frequently require ongoing rehabilitation, nursing home care, and support from family members. Interventional approaches for treating stroke are not inexpensive, with average charges for devices frequently running in excess of $5,000. However, when total costs are considered, the interventional approach is usually 15-40% less expensive than open surgical procedures, and far less expensive than treating the aftermath of a stroke. This market can be very profitable, in our opinion. We believe 70% gross margins and 30% operating margins are achievable. The business has very high barriers to entry due to lengthy and expensive clinical trials. The customers are less price sensitive because these devices save lives.
Gross margin on interventional devices can exceed 70%. Once these devices have threaded the lengthy and expensive gauntlet of clinical trials, they can be manufactured for a reasonable cost. The devices use low-cost polymers and are designed to be amenable to mass-manufacturing processes. The lengthy and expensive clinical trials keep out unsophisticated competitors that would cut prices. The effort required to bring a device through the regulatory approval process is incompatible with a low-price strategy. Additionally, a low-price strategy would make funding critical new products significantly more difficult. A price strategy in this business is not self-sustaining. Customers also are less price sensitive when the technology is life saving. The superior performance of a neuro catheter can make the untreatable treatable, so the hospitals are willing to pay. The market is concentrated, so selling expense is reasonable. With less than 25 sales reps, Boston Scientific covers the entire United States and generates $70 million in revenue. The low selling expense in combination with high gross margin allows an established business to generate 30%, or greater, operating margin.
32
While the market opportunity is enormous, there are relatively few public investment opportunities. In the large-cap arena, we like Boston Scientific for its Target Therapeutics franchise. In the small-cap arena, we believe Micro Therapeutics is the most promising. Possis Medical is pioneering the enormous ischemic stroke opportunity. For those with venture-stage investing capability, there are a plethora of options.
Boston Scientifics Target Therapeutics franchise dominates the market with leading shares in guidewires, catheters, and coils for interventional neuroradiology. With an aggregate market share of 80+%, Target is only limited by 20-25% market growth. Target Therapeutics makes up 6% of Boston Scientifics total sales and a slightly larger portion of its profits. At $16.63, Boston Scientific stock sells for 15.1x and 13.2x our 2000 and 2001 EPS estimates of $1.10 and $1.26, respectively. Micro Therapeutics next-generation embolic agent for filling aneurysms has significant potential. The Onyx Liquid Embolic System could be a large and very profitable product. It has a two-year lead in clinical trials over other next-generation agents. The company is adding new patients to its growing clinical data file. The current $45 million market cap clearly does not reflect the potential of Micro Therapeutics innovative devices. Possis also could be an interesting play, as the company is applying its Angiojet technology to removing blood clots from the brain. If the company can accomplish three tasks, the stock could be a strong performer. First, Possis must demonstrate that the device can move beyond the carotid siphon in the brain and remove the clot. We believe it can. Second, the company must redesign the drive unit and catheter system to make it more user-friendly. The company is working on a new system. Finally, Possis must rethink its pricing policy; it has priced its drive units at $35,000. At this high level, we believe the company can make a reasonable 40% gross margin. Unfortunately, this pricing strategy slows the sales process considerably. There are also a number of private companies that are potentially worthy of investment consideration. Brief descriptions are provided later in this report.
Additional information is available upon request. First Union Securities, Inc. maintains a market in the common stock of MTIX and POSS.
33
Complex
Nutrient Replacement Intervascular Cooling Angiojet Anticoagulants + Device Anticoagulants Alone External Cooling Do Nothing
Procedural Difficulty
Simple
Ideal
Fast
Slow
Treatment Speed
34
Public Companies Boston Scientifc Guidant Corporation Medtronic, Inc. Micro Therapeutics, Inc. Possis Medical, Inc. Johnson & Johnson, Inc. Biostie, Inc. Biosphere Medical, Inc. NMT Medical, Inc. Private Companies Alsius Corporation AGA Medical Angiosonics Arteria Balt Cogent Neuroscience, Inc. Concentric Medical Cook Ekos Corporation Embolic Protection, Inc. Embol-X Endotex Endovasix, Inc. Innercool Therapeutics Intra Therapeutics Medivance, Inc. Mednova Micrus Corporation MV Medical Devices Neuro Vasx, Inc. Neuron Therapeutics Percusurge Prohold Medical Corporation Radiant Medical, Inc. Scion, Inc. Syn-X Pharma, Inc. Terumo Therox Twin Star Medical, Inc. W.L. Gore
Genetic Therapy
Distal Protection
Micro Catheters
Embolic Agnets
Neuro Stents
Guidewires
Coils
35
(BSX-NYSE)
Rating: 2
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Natick, Massachusetts
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (MM) Market Value (MM) $16.63 $44$18 none nil 410.5 310.0 1.9 $6,826.6 Estimates (FY 12/31): Q1March Q2June Q3September Q4December Full-Year EPS Price/Earnings Ratio Revenue (MM) 1999A $0.25 0.27 0.25 0.26 $1.03 16.1X $2,842 2000E 2001E $0.26A NE 0.30A NE 0.26 NE 0.29 NE $1.10 $1.26 15.1X $2,769 13.2X $2,992
COMPANY DESCRIPTION
Boston Scientific is a leading manufacturer of catheter-based devices for interventional cardiology, interventional radiology, and interventional neuroradiology. The company dominates the interventional neuroradiology market with 80+% market share. The company also is a major player in endoscopy and electrophysiology and urology devices. In interventional neuroradiology, Boston Scientific is the runaway leader with its Target Therapeutics franchise. The company pioneered the market, introducing the first micro catheters and detachable embolic coils in the early 1990s. Boston Scientific/Target offers a broad suite of products including guidewires, catheters, occlusion balloons, and a series of coils. Boston Scientific/Target Therapeutics Gugliemi Detachable Coils (GDC) are the leading neurointerventional devices. The company has continued to innovate and improve on the Guglielmi Detachable Coil (GDC) coil framework by iterating its material, shape, and form. The companys market-leading 3D coil curls in multiple axes to fill the aneurysmal space. Target Therapeutics could debut two new coil systems in the United States in Q4 2000. The first is the UltraSoft Coil that is manufactured with less platinum to make it thinner and more compact. This allows physicians to pack the aneurysm densely, accelerating clot formation and reducing the risk of the coils slipping out into the main vessel. Densely packing the coils provides a larger scaffold for thrombus formation, reducing recanalization. The second is the TriSpan coil that features a large three-loop design to fill wide neck aneurysms. The interconnected loops are designed to span the large necks of the aneurysms without falling out. TriSpan could potentially serve as scaffolding for filling the aneurysm with 3D or UltraSoft coils. Target is also developing Surface Modified Coils with a special coating that promotes endothelization. Initial animal studies have revealed significantly more tissue growth over the neck of the aneurysm after two weeks than conventional GDC coils.
36
Another development initiative is an Aneurysm Liner, a sack deployed within the aneurysm to house coils or embolic agents. All of these devices could reduce recanalization (recurrence) and lead to greater use of interventional therapy over surgery. The company has yet to determine the clinical pathways for the surface-modified coils and the liner. Boston Scientific also is a major player in interventional radiology and interventional cardiology. The technology and expertise in these businesses is being brought to bear on the carotid stent market. The company has both an internal effort to develop an embolic protection device as well as a relationship with EMBOL-X, a private company. Boston Scientific acquired all of EMBOL-Xs assets and intellectual property pertaining to embolic protection for use in interventional procedures, along with a 13% equity interest in that firm. Boston Scientifics Oasis system, a water-based device for clot removal, is only approved for the removal of blood clots from vascular access grafts. We have spoken to physicians who have used it off-label in removing clots from the venous sinuses of the brain. Boston Scientifics interventional neuroradiology business represents 6% of total sales. In 1999, this business grew 22%, and we are projecting it to grow 19% in 2000.
37
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Boston Scientific is a leading manufacturer of devices that enable procedures to be performed in a lessinvasive fashion. The company is a major player in the interventional cardiology, interventional radiology, endoscopy, and urology markets. The company has a powerful worldwide distribution infrastructure.
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Interventional Neuroradiology, Stroke & Carotid Artery Stenting August 10, 2000
Tax Rate 32.0% 32.0% 26.3% 33.0% 34.0% 33.9% 34.0% 34.0% 32.0% 28.2% 30.0% 30.0% 30.7% 34.0% (1) 1997 charges include write-downs for purchased R&D related to Medinol, write-downs associated with the Target Therapeutics acquisition and various other small, undisclosed acquisitions. (2) Q2 1998--The effective tax rate with the extraordinary net benefit of $9.4 million would have been 36.4%. Therefore, EPS, including extraordinary, after-tax, would have been $0.17. (3) Q3 1998--Special pretax charges of $671 million for purchased R&D associated with the Schneider acquisition and $31 million associated with the recall of the NIR w/ SOX. Restated for sales allowances and Nir Ranger Recall. (4) Q4 1998 includes pretax adjustments of $29 million related to write-downs and litigation expense accrual and $5.3 million charge related to Schneider consolidation. (5) Q3 1999 includes charges for a $62 million inventory write-down, $22 million legal expenses, and a $10 million gain on reversal of prior valuation allowances. (6) Q3 and Q4 2000 include pretax charges of $30 million and $40 million, respectively, associated with global operations restructuring plan. (R) Reflects restatements due to accounting irregularities in Japan. Source: First Union Securities, Inc. estimates and Company reports
39
1Q-99E VASCULAR EP Technologies SCIMED MediTech Target Total Vascular ENDOSCOPY UROLOGY OTHER TOTAL REVENUE US INTERNATIONAL $13 $374 $150 $42 $579 $88 $33 $7 $707 $440 $267
2Q-99E $16 $378 $155 $43 $592 $92 $36 $7 $727 $455 $272
3Q-99E $16 $341 $156 $44 $557 $93 $37 $5 $691 $419 $273
4Q-99E $17 $363 $152 $47 $579 $100 $37 $1 $717 $423 $294
1999E $62 $1,456 $613 $176 $2,306 $373 $143 $20 $2,842 $1,737 $1,105
2000E $71 $1,314 $607 $205 $2,197 $416 $156 $0 $2,769 $1,700 $1,070
2001E $78 $1,371 $655 $252 $2,356 $470 $166 $0 $2,992 $1,830 $1,162
2002E $86 $1,426 $726 $300 $2,538 $512 $181 $0 $3,231 $1,880 $1,351
GROWTH RATES
VASCULAR EP Technologies SCIMED MediTech Target Total Vascular ENDOSCOPY UROLOGY OTHER TOTAL REVENUES US INTERNATIONAL 8.3% 88.9% 35.1% 40.0% 65.0% 35.4% 10.0% -12.5% 55.7% 65.6% 41.8% 23.1% 81.7% 27.0% 22.0% 56.5% 31.4% 9.1% -12.5% 48.6% 58.8% 34.2% 10.7% 13.4% 36.5% 17.6% 19.3% 25.7% 7.6% -42.9% 18.5% 12.0% 30.2% 30.8% -6.2% 2.7% 11.9% -1.9% 17.6% 8.8% -87.5% 0.0% -9.6% 18.1% 23.1% -12.6% 0.0% 19.0% -6.2% 13.6% 9.1% 12.5% -10.8% -3.9% 14.8% -6.5% 10.9% 11.1% 16.1% -6.9% -3.6% 15.9% -3.5% 10.8% 8.1% 11.8% -8.5% 3.9% 17.0% -2.6% 11.0% 8.1% 18.2% 34.2% 11.2% 18.4% 25.2% 19.5% -0.5% -52.4% 19.8% 30.9% 5.2% 18.3% 33.1% 23.8% 21.7% 29.2% 26.9% 8.8% 15.4% -9.8% -0.9% 16.7% -4.7% 11.5% 9.1% 9.9% 4.3% 7.9% 22.9% 7.2% 13.0% 6.4% NM 8.1% 7.7% 8.6% 10.3% 4.0% 10.8% 19.0% 7.7% 8.9% 9.0% NM 8.0% 2.7% 16.3%
-100.0% -100.0% -100.0% -100.0% 9.1% -2.3% -6.7% 11.1% -8.9% 3.2% 8.1% 3.9% -10.1% 8.1% -0.7% 0.4%
40
1998A Operating Cash Flows Net Income Amortization & Depreciation Deferred Income Taxes Add-Back for Special Charges Purchased R&D Working Capital Changes Other Total Sources Investing Cash Flows Capital Spending Sales of Property Plant & Equipment Merger-Related Charges Other Change in Marketable Securities Total Cash from Investing Cash Generated Before Financing Financing Cash Flows Debt Proceeds (Paydown) Issuance of Common Stock Stock Repurchases Other Total Cash from Financing Effect of Foreign Currency Translation Net Cash Generated Beginning Cash Ending Cash
1999A
2000E
2001E
$64.0 14.0 445.0 376.0 121.0 35.0 $1,055.0 $604.0 $1,726.0 $187.0 $3,572.0
$70.3 5.1 537.8 462.0 129.9 61.5 $1,266.6 $679.9 $1,813.5 $132.7 $3,892.7
$58.0 22.3 365.5 391.6 147.0 36.2 $1,020.5 $499.0 $313.3 $91.5 $1,924.3
$72.2 45.6 321.0 236.7 97.4 44.0 $816.8 $362.3 $319.8 $86.2 $1,585.1
612.0 343.0 NA NA NA 89.0 $1,044.0 $570.0 120.0 $690.0 $1,734.0 $1,780.0 $3,514.0
600.0 378.0 32.0 42.0 3.0 $1,055.0 $678.0 115.0 $793.0 $1,848.0 $1,724.0 $3,572.0
559.0 444.0 NA NA NA 39.0 $1,042.0 $761.0 83.0 $844.0 $1,886.0 $1,753.0 $3,639.0
503.0 416.0 NA NA NA 26.0 $945.0 $1,060.0 83.0 $1,143.0 $2,088.0 $1,658.0 $3,746.0
1,027.0 530.0 NA NA NA 50.0 $1,607.0 $1,260.0 88.0 $1,348.0 $2,955.0 $921.0 $3,876.0
1,027.5 353.6 139.6 18.8 71.2 8.9 $1,619.7 $1,363.8 88.1 $1,451.9 $3,071.6 $821.1 $3,892.7
447.2 260.1 11.4 68.4 6.3 $793.4 $46.3 8.3 58.0 60.9 $173.6 $967.0 $957.3 $1,924.3
240.6 163.8 48.2 29.3 $481.9 $0.0 60.0 48.1 $108.1 $590.0 $995.1 $1,585.1
41
42
GUIDANT CORPORATION
(GDTNYSE)
Rating: 1
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Indianapolis, Indiana
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (MM) Market Value (MM) $59.75 $75$41 none nil 309.2 55.2 1.8 $18,474.7 Estimates (FY 12/31): Q1March Q2June Q3September Q4December Full-Year EPS Price/Earnings Ratio Revenue (MM) 1999A $0.32 0.33 0.32 0.36 $1.32 45.3X $2,352 2000E 2001E $0.38A NE 0.40A NE 0.40 NE 0.43 NE $1.60 $1.87 37.3X $2,615 32.0X $2,861
COMPANY DESCRIPTION
Guidant is a major player in cardiac rhythm management, interventional cardiology, and cardiac surgery. The company is seeking to leverage its No. 1 position in coronary stents into the peripheral vascular arena. The company is adapting its interventional cardiology expertise in guidewires, balloon catheters, and coronary stents for peripheral applications. The company is making steady headway in the $300 million peripheral stent market with renal, illiac, billiary, carotid, and neurovascular stents. Guidant has adopted an interesting approach to entering the peripheral vascular market. Management strongly believes that the interventional cardiologist will eventually expand into the interventional radiology arena. The company is manufacturing interventional radiology devices and selling them primarily to its interventional cardiologist customers who perform peripheral procedures. The company is not making an active push to establish meaningful distribution to the interventional radiologists. The company is slowly building a neuro portfolio. The company has adapted its coronary stent for use in the carotid artery (Acculink) and the brain (Neurolink) and is initiating clinical trails in both areas. The company has worked through a number of prototypes for distal protection devices and is initiating trails of the Accunet, a filter device that allows blood flow while catching embolic particles. The company may include this device in the landmark Archer & Crest trials, comparing stenting with carotid endarterectomy. In Europe, Guidant is gathering experience in the interventional neuroradiology area by distributing devices for Micro Therapeutics (MTIX). The company has built a six-man sales force for that purpose.
43
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Guidant is a leading player in medical technology used to treat the heart. The companys cardiac rhythm management (CRM) devices help improve the electrical beating pattern of the heart. These CRM devices include pacemakers, implantable defibrillators, and new technology for congestive heart failure. The companys interventional cardiology business focuses on the blood flow within the heart, selling angioplasty balloon dilatation catheters, guidewires, and coronary stents. Physicians use these devices to help improve the blood flow supplying nutrition and oxygen to the heart. The company also has a cardiac surgery division and an exciting new device for treating abdominal aortic aneurysms (AAA).
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(1) Guidant is a leading player in cardiac rhythm management, with a major share in the fast growing $1.4 billion implantable defibrillator market. The company has 20% of the pacemaker market. The barriers to entry in these markets are enormous. (2) The company is the #1 player in interventional cardiology with itsTriStar and Tetra coronary stents. (3) Guidant is developing the AAA market with a 50person sales force marketing its Ancure device. (4) The company also has development programs to use pacemaker technology to treat congestive heart failure (CHF), which is a $1 billion market opportunity, and radiation to treat restenosis of coronary arteries following interventional cardiology procedures. (5) In our view, all of Guidants businesses are attractive, with operating margin potential in the 25%30% range. We believe that the company can leverage low-double-digit revenue growth into 20% EPS growth for the next few years.
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44
GUIDANT CORPORATION
Historical and Projected Income Statements (dollars in millions, except per share data) (fiscal year ends December 31)
1Q-98A(2) 2Q-98A(3) 3Q-98A(4) 4Q-98A(5) Revenue Cost of Revenue Gross Profit Selling, General & Administration Research and Development Total Operating Expenses Operating Income / (Loss) Net Interest Income (Expense) Royalty Income/(Expense) Amortization Expense Other Total Royaties, Amort. & Other Total Interest + Other Income / (Loss) Before Taxes Provision for Income Taxes Net Income (excluding extraordinary) Extraordinary Item Net Income EPS (before extraordinary) EPS (after extraordinary) Average Shares Margins Gross Profit Selling, General & Administration Research and Development EBIT Pretax Income Net Income (before extraordinary) Growth Rates Revenue Gross Profit Selling, General & Administration Research and Development EBIT Pretax Income Net Income (before extraordinary) EPS (before extraordinary) Tax Rate $ $ $ $ $ 473.3 $ 109.0 364.3 140.2 64.7 204.9 159.4 (3.4) (9.2) (3.7) (3.3) (16.2) (19.6) 139.8 51.4 88.4 $ 38.8 49.6 $ 0.29 $ 0.16 $ 307.1 491.6 $ 111.7 379.9 147.0 68.4 215.4 164.5 (3.5) (11.2) (4.6) (0.6) (16.4) (19.9) 144.6 53.1 91.5 $ 18.6 72.9 $ 0.30 $ 0.24 $ 307.2 449.8 $ 97.6 352.2 140.5 72.7 213.2 139.0 (3.2) (10.5) (4.6) (0.6) (15.2) (18.4) 120.6 44.3 76.3 $ 258.2 (181.9) $ 0.25 $ (0.62) $ 308.1 498.4 110.9 387.5 152.6 81.7 234.3 153.2 (5.2) (12.3) (6.0) (1.1) (19.4) (24.6) 128.6 47.3 81.3 46.7 34.6 0.26 0.11 308.4 $ $ $ $ 1Q-99A(6) 2Q-99A(7) 3Q-99A(8) 4Q-99A(9) 1Q-00A(10 2Q-00A $ 596.4 $ 141.8 454.6 175.7 84.5 260.2 194.4 (12.6) (13.5) (8.7) (1.5) (23.7) (36.3) 158.1 59.8 98.3 $ 50.0 48.3 $ 0.32 $ 0.15 $ 311.8 610.8 $ 149.1 461.7 173.3 81.2 254.5 207.2 (15.4) (14.5) (12.6) (1.5) (28.6) (44.0) 163.2 61.0 102.2 $ 10.6 91.6 $ 0.33 $ 0.29 $ 310.8 569.0 $ 135.4 433.6 168.9 75.8 244.7 188.9 (14.9) (8.5) (13.1) 4.3 (17.3) (32.2) 156.7 58.5 98.2 $ 1.3 96.9 $ 0.32 $ 0.31 $ 311.2 576.1 125.6 450.5 181.3 79.8 261.1 189.4 (13.9) (6.8) (11.2) 1.1 (16.9) (30.8) 158.6 46.3 112.3 16.8 95.5 0.36 0.31 309.9 3Q-00E 4Q-00E 1Q-01E 2Q-01E 3Q-01E 4Q-01E 1998A(2-5) 1999A(6-9) 2000E 10 $ 1,913.1 $ 2,352.3 $ 429.2 551.9 1,483.9 580.3 287.5 867.8 616.1 (15.3) (43.2) (18.9) (5.6) (67.7) (82.5) 533.6 196.1 $ 1,800.4 699.2 321.3 1,020.5 779.9 (56.8) (43.3) (45.6) 2.4 (86.5) (143.3) 636.6 225.6 2001E 2002E
$ 630.7 $ 668.4 $ 642.4 $ 680.7 140.8 162.3 148.4 156.6 489.9 185.6 86.4 272.0 217.9 (13.4) (14.0) (11.5) (0.3) (25.8) (39.2) 178.7 59.9 506.1 191.9 93.0 284.9 221.2 (15.4) (14.5) (11.4) 1.6 (24.3) (39.7) 181.5 57.2 494.0 187.0 85.6 272.6 221.4 (9.0) (14.4) (12.3) (1.3) (28.0) (37.0) 184.4 59.9 524.1 201.0 89.3 290.3 233.8 (6.8) (11.2) (12.0) (1.2) (24.4) (31.2) 202.6 65.9
$ 683.6 $ 721.4 $ 694.7 $ 761.5 157.9 166.6 160.5 175.9 525.7 194.0 92.0 286.0 239.7 (7.0) (12.0) (11.5) (0.3) (23.8) (30.8) 208.9 66.8 554.8 209.0 97.0 306.0 248.8 (7.0) (12.0) (11.5) (0.3) (23.8) (30.8) 218.0 69.7 534.2 205.0 93.0 298.0 236.2 (7.0) (12.0) (11.5) (0.3) (28.0) (35.0) 201.2 64.4 585.6 215.0 99.0 314.0 271.6 (6.8) (12.0) (12.0) (0.3) (24.3) (31.1) 240.5 77.0
2,622.2 $ 2,861.2 $ 3,134.0 608.1 660.9 720.8 2,014.1 765.5 354.3 1,119.8 894.3 (44.6) (50.0) (44.0) (4.0) (102.5) (147.1) 747.2 242.9 504.4 $ 504.4 $ 1.61 $ 1.61 $ 312.8 2,200.3 823.0 381.0 1,204.0 996.3 (27.8) (48.0) (46.5) (1.2) (95.7) (123.5) 872.8 277.9 594.8 $ 594.8 $ 1.87 $ 1.87 $ 318.8 2,413.2 872.0 415.0 1,287.0 1,126.2 5.0 (50.0) (44.0) (4.0) (98.0) (93.0) 1,033.2 330.6 702.6 702.6 2.17 2.17 324.2
$ 118.8 $ 124.3 $ 124.5 $ 136.8 $ $ 0.38 $ 0.38 $ 311.9 0.40 $ 0.40 $ 309.2 0.40 $ 0.40 $ 313.5 0.43 0.43 316.5
$ 142.0 $ 148.2 $ 136.8 $ 163.5 $ $ 0.45 $ 0.45 $ 317.0 0.47 $ 0.47 $ 318.0 0.43 $ 0.43 $ 319.0 0.51 0.51 321.0
$ $ $
(2) 1Q 1998 reflects a $60 million pretax ($38.1 million after-tax) charge for paid-up Bard licenses. (3) 2Q 1998 reflects a $28.7 million pretax ($18.2 million after-tax) charge for purchased R&D associated with the acquisition of Neocardia LLC. (4) 3Q 1998 results exclude two special charges. The Company wrote down $90 million in purchased R&D associated with the acquisition of InControl and took a $200 million charge for the resolution of litigation with Sulzer Medica. (5) 4Q 1998 reflects a $40 million (pre-tax) non-cash impairment charge related to general surgery goodwill and a $9.2 (pre-tax) million charge related to damages awarded to GSI (6) 1Q 1999 income statement items exclude all non-recurring charges and gains (7) 2Q 1999 income statement items exclude non-recurring charges and gains including $13.0 million in costs associated with the Intermedics acquistioin and a gain of $14.4 million on an equity investment in cardiogenesis. (8) 3Q 1999 reflects a tax credit for the donation of stock to the Guidant Foundation, a change in the tax code relative to NOL carryforwards, adjustments for the Intermedics acquisition, inventory write-up from Sulzer Medical acquisition. (9) Q4 1999 reflects a $21.9 million charge for the CardioThorasic Systems (CTSI) acquisition. (10) Q1 2000 results include a $10.8 million Foundation contribution offset by a $10.8 million litigation settlement.
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45
GUIDANT CORPORATION
Revenue Buildup (dollars in millions) (fiscal year ends December 31)
1996E Year Cardiac Rhythm Management U.S. ICD Pacemakers Total U.S. International ICD Pacemakers Total International Worldwide ICD CHF Pacemakers CHF Total CRM Vascular Intervention U.S. Stent Peripheral Radiation Balloons OTW RX Total Balloons Wires, Atherectomy, Other Total U.S. International Stent Peripheral Radiation Balloons Wires, Other Total International Worldwide Stent Peripheral Radiation Balloons Wires, Other Total Vascular Intervention Minimally Invasive Minimally Invasive CTSI AAA Repair (EVTI) U.S. International Worldwide Total Minimally Invasive Total US International Worldwide $48 $0 0 0 0 $48 $67 $0 0 0 0 $67 $83 $0 0 4 4 $86 $74 $8 1 2 3 $85 $21 $42 46 5 51 $114 62 16 78 $154 85 20 105 $192 $76 $87 40% NM NM NM NM 40% 23% NM NM NM NM 28% -11% NM NM -43% NM -2% -72% NM 9120% 150% NM 35% 34% 220% NM 35% 37% 25% NM 25% 258% 15% 1997E Year 1998E Year 1999E Year 2000E Year 2001E Year 2002E Year % change 00/99
97/96
98/97
99/98
01/00
02/01
28% 3% 20%
21% 9% 17%
$84 87 $171
$101 83 $184
$109 92 $201
20% -4% 7%
8% 11% 9%
26% 0% 0% 0% 16%
$0 0 0
$187 0 0
$532 0 0
$647 5 0
$643 18 0
$650 30 0
$625 43 5
NM NM NM
184% NM NM
22% NM NM
-1% NM NM
1% 70% NM
-4% 43% NM
20 51 71 120 $378
14 84 97 89 $718
18 85 102 88 $841
17 91 108 90 $858
15 98 113 90 $883
13 97 110 90 $873
NM NM -32% 1% 69%
-6% 8% 5% 3% 2%
-10% 8% 5% 0% 3%
$75 0 0 88 50 $213
$149 0 0 86 49 $284
$234 5 0 97 50 $386
$180 30 25 90 53 $378
29% NM NM 8% 0% 22%
-1% NM NM 8% 6% 3%
-3% NM NM 0% -2% 0%
40% 5% 27%
11% 5% 9%
8% 14% 10%
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46
GUIDANT CORPORATION
Quarterly Revenue Buildup (2000/1999) (dollars in millions) (fiscal year ends December 31)
1Q 1999E 2Q 1999E 3Q 1999E 4Q 1999E YR 1999E
% CHG
2000E
% CHG
2000E
% CHG
2000E
% CHG
2000E
% CHG
NM 27% NM NM
NM 47% NM 18%
NM NM NM 48.7%
Note: In 2Q 1999 Guidant divested its general surgery business that was generating $10 million in revenues per quarter.
GUIDANT CORPORATION
Quarterly Revenue Buildup (2001/2000) (dollars in millions) (fiscal year ends December 31)
1Q 2000E 2Q 2000E 3Q 2000E 4Q 2000E YR 2000E
% CHG
2001E
% CHG
2001E
% CHG
2001E
% CHG
2001E
% CHG
U.S. Stent Peripheral Radiation OTW Balloons RX Balloons Wires & Other Total U.S. VI International Stent Radiation Peripheral Balloons Wires & Other Total International VI Worldwide Stent Radiation Peripheral Non-perfusion Balloons Wires & Other Total VI Minimally Invasive Ancure for AAA CTSI Total Surgical Worldwide Total Cardiac Rhythm Management Vascular Intervention Minimally Invasive Total
NM 17.1% 38.5%
NM 18.8% 15.6%
NM 22.2% 26.5%
NM NM 34.8%
47
48
GUIDANT CORPORATION
Cash Flow Model (dollars in millions) (fiscal year ends December 31)
1998A Sources of Cash Net Income Depreciation & Amortization Provision for Inventory & Other Losses Impairment Charges Purchased R&D Expense Change in Deferred Taxes Other Noncash Expenses Working Capital Changes Total Operating Cash Flow Investing Activities Net Purchases of Available for Sale Securities Net Purchases of Long Term Securities Capital Spending Additions of Other Assets Acquisitions Total Cash Used for Investing Financing Activities Net Borrowings Stock Repurchases Dividends Total Cash Used for Financing Effect of Foreign Currency Translation Net Cash Generated Beginning Cash Ending Cash ($24.8) 74.8 38.9 40.0 118.7 (73.6) 33.0 45.5 $252.5
1999A $341.2 119.7 27.3 0.0 49.0 (22.9) 35.0 (190.4) $358.9
2000E $504.4 128.2 30.0 0.0 0.0 0.0 30.0 (175.0) $517.6
2001E $594.8 133.7 30.0 0.0 0.0 0.0 30.0 (175.0) $613.5
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49
GUIDANT CORPORATION
Consolidated Balance Sheets (dollars in millions) (fiscal year ends December 31)
March 31 2000 ASSETS Current Assets: Cash and cash equivalents Short-term Investments Accounts receivable - net Other receivables Inventories Deferred taxes Prepaid expenses and other Total current assets Other Assets: Goodwill Other intangibles Deferred taxes Investments Sundry Total other assets Property, plant, and equipment Total Assets LIABILITIES AND SHAREHOLDERS EQUITY Current Assets: Accounts payable Payables to affiliated companies Employee compensation Income taxes payable Restructuring liabilities Other accrued liabilities Current portion of long-term debt Total current liabilities Non-current liabilities Long-term debt Other Total non-current liabilities Total liabilities Shareholders equity: Common stock Additional paid-in capital Retained earnings Deferred costs ESOP Teasury Stock at Cost Currency translation adjustments Unrealized appreciation on investments Total shareholders equity Total Liabilities and Shareholders Equity Source: Company reports December 31 1999 December 31 1998 December 31 1997 December 31 1996
$25.9 $4.6 $514.7 $15.4 $245.1 $119.8 $29.1 $954.6 $468.4 $201.4 $63.2 $43.4 $35.9 $812.3 $514.2 $2,281.1
$27.8 $0.0 $476.2 $16.5 $242.7 $120.2 $32.7 $916.1 $467.7 $199.7 $70.1 $46.8 $35.3 $819.6 $514.5 $2,250.2
$17.3 $27.5 $438.3 $9.0 $194.3 $83.3 $27.9 $797.6 $202.6 $44.3 $73.8 $73.6 $34.8 $429.1 $392.6 $1,619.3
$17.7 $13.3 $371.7 $10.9 $120.8 $65.7 $25.0 $625.1 $182.0 $6.5 $16.7 $46.2 $22.4 $273.8 $326.1 $1,225.0
$4.1 $15.3 $212.9 $17.8 $102.8 $62.1 $22.9 $437.9 $197.3 $9.1 $0.0 $41.3 $16.4 $264.1 $322.9 $1,024.9
$62.4 $0.0 $90.1 $35.7 $0.0 $139.3 $330.0 $657.5 $585.1 $118.8 $703.9 $1,361.4 $192.9 $208.5 $651.1 ($37.7) ($45.1) ($50.0) $0.0 $919.7 $2,281.1
$68.7 $0.0 $108.6 $22.0 $0.0 $179.2 $360.0 $738.5 $527.7 $116.7 $644.4 $1,382.9 $192.9 $257.2 $532.2 ($38.5) ($32.8) ($43.7) $0.0 $867.3 $2,250.2
$67.2 $200.0 $131.2 $0.0 $0.0 $142.2 $55.0 $595.6 $391.4 $38.4 $429.8 $1,025.4 $192.5 $298.9 $191.0 ($41.3) ($27.0) ($20.2) $0.0 $593.9 $1,619.3
$51.7 $0.0 $109.9 $40.6 $0.0 $126.9 $212.2 $541.3 $80.0 $21.9 $101.9 $643.2 $192.5 $211.1 $262.5 ($45.8) ($10.8) ($31.9) $4.2 $581.8 $1,225.0
$22.6 $0.0 $77.5 $2.6 $8.8 $68.8 $130.0 $310.3 $233.5 $14.2 $247.7 $558.0 $192.5 $206.8 $124.5 ($51.2) ($3.3) ($11.7) $9.3 $466.9 $1,024.9
50
MEDTRONIC, INC.
(MDTNYSE)
Rating: 2
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Minneapolis, Minnesota
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (MM) Market Value (MM) $56.25 $58$30 $0.20 0.4% 1,225 1,190 2.8 $68,906.3 Estimates (FY 4/30): Q1July Q2October Q3January Q4April Full-Year EPS Price/Earnings Ratio Revenue (MM) 2000A $0.21 0.21 0.23 0.26 $0.91 61.8X $5,014 2001E $0.25 0.26 0.27 0.30 $1.09 51.6X $5,795 2002E NE NE NE NE $1.26 44.6X $6,485
COMPANY DESCRIPTION
Medtronic is the worlds leading medical device company with a proven track record in discovering, manufacturing, and marketing implantable devices. The company is the worlds leading manufacturer of pacemakers and defibrillators, with more than 50% market share in both of these markets, which are $2.6 billion and $1.6 billion, respectively. The company has an impressive 85% share in the neurostimulation and drug delivery market. Medtronics neurological product portfolio includes implantable neuro-stimulation devices, implantable drug pumps, spinal products, neurosurgery products, and functional diagnostic systems. Medtronics acquisition of Sofamor Danek in January 1999 significantly increased the companys presence in the neuro and spine area. Medtronic has a strong interest in interventional neuroradiology, having gone as far as acquiring Micro Interventional Systems, a start-up company that was active in this field. Other than that acquisition, the company appears to be moving deliberately in this area with a few selected products. In our view, the companys most exciting interventional neurodevice is the INX stent for use in the brain. This stent has been implanted in humans and could be CE Marked and available for sale in Europe in H2 2000. We are hearing favorable reviews of this device. The company also is developing a distal protection device that has been used in humans.
51
Buy (2)
Description: Medtronic is the worlds premier medical technology company with major shares of the two key cardiac rhythm management (CRM) markets--pacemakers and defibrillators. The company has successfully adapted its technological expertise to other implantable devices for neurostimulation and implantable drug delivery. The company has also acquired major positions in related businesses such as external defibrillators, spinal orthopedics, and interventional cardiology. Investment Thesis: (1) Medtronic is the leader in the pacemaker and implantable defibrillator markets, which are $2.6 billion and $1.4 billion, respectively. (2) Medtronic is pioneering technology targeted at the enormous CRM opportunities for implantable devices used to treat atrial fibrillation (AF) and congestive heart failure (CHF). Both opportunities have $1 billion potential. (3) The company is the runaway leader in the field of neurostimulation devices and implantable drug delivery. These businesses are growing 25-30%. (4) Medtronic is extremely profitable, with a gross margin exceeding 70% and an operating margin exceeding 30%. We believe that the company can leverage 1315% revenue growth into 18-20% EPS growth.
Diluted EPS (Excludes Nonrecurring Charges) FQ1 (Jul.) FQ2 (Oct.) FQ3 (Jan.) FQ4 (Apr.) Total Gross Marg. (Year) Op. Marg. (Year) $0.20 $0.18 $0.18 $0.20 $0.77 73.5% 32.8% $0.21 $0.21 $0.23 $0.26 A $0.91 73.7% 32.5% 5.0% 16.7% 27.8% 30.0% 18.2% $0.25 $0.26 $0.27 $0.30 $1.09 74.0% 33.7% 19.0% 23.8% 17.4% 15.4% 19.8%
Price/Range Mkt. Cap. CY2000 EPS CY2001 EPS CY2002 EPS CY2001 P/E/Growth FY2000 EPS FY2001 EPS CY2001 Revenues
$58 - $30 Multiple 53.6 45.7 38.5 2.3 61.8 51.6 15.2
Balance Sheet ($B) Cash, Equivs. Current Assets Working Capital Total Assets L.T. Debt Total Equity Current Ratio L.T.Debt-to-Total Cap.
$68.9 billion
Recent Acquisitions
Company Field Date Est. 1999 Revs Price Type
Business Mix
FY2001E Revenue % 26% 16% 5% 1% 48% 5% 4% 3% 15% 27% 10% 4% 3% 17% 8% 100% $1,522 $920 $297 $47 $2,786 $282 $249 $169 $852 $1,552 $555 $256 $154 $965 $492 $5,795
$MM
Physio Control Midas Rex Sofamor Danek AVE Avecor Xomed New Products Q2 2000 H2 2000 Defibrillators Drills Spine Stents Bypass ENT 9/30/98 10/16/98 1/27/99 1/28/99 3/8/99 11/5/99 $190 $55 $400 $600 $40 $120
Brady
Tachy Physio-Control Other Total CRM Neurostim. Drug Deliv. Xomed Sofamor, Other
2001
Defib with Afib Tx. Coronary Stent Defibrillator Neurostim. for Parkinsons Coronary Stent Pacemaker for CHF Defibrillator for CHF
AneurX
Total Cardiovas. Cardiac Surgery Total Sales
MEDTRONIC, INC.
Historical and Projected Income Statements (dollars in millions, except per share data) (fiscal year ends April 30) Q1 1999A Revenue Cost of Revenue Gross Profit Selling, General & Administration Research and Development Total Operating Expenses Operating Income / (Loss) Interest Income Interest Expense Total Interest Income / (Loss) Before Taxes Provision for Income Taxes Net Income (excluding extraordinary) Extraordinary Item Net Income EPS (excluding extraordinary items) EPS (as reported) Average Shares Margins Gross Profit Selling, General & Administration Research and Development EBIT Pretax Income Net Income (before extraordinary) Growth Rates Revenue Gross Profit Selling, General & Administration Research and Development EBIT Pretax Income Net Income (before extraordinary) EPS (before extraordinary) Tax Rate $ $ $ $ $ 1,015 257 757 299 101 400 357 9 3 6.5 364 125 239 8 231 $ 0.20 0.19 1,186.7 74.6% 29.5% 10.0% 35.2% 35.8% 23.5% NM NM NM NM NM NM NM NM 34.4% $ $ $ Q2 1999A Q3 1999A Q4 1999A $ 1,006 $ 1,065 $ 268 287 738 305 107 413 326 14 8 5.7 331 114 217 $ 98 120 $ 0.18 $ 0.10 $ 1,196.6 73.4% 30.3% 10.7% 32.4% 32.9% 21.6% NM NM NM NM NM NM NM NM 34.4% 778 349 109 457 321 17 14 3.1 324 108 216 250 (34) $ 0.18 $ (0.03) $ 1,219.8 73.0% 32.7% 10.2% 30.1% 30.4% 20.3% NM NM NM NM NM NM NM NM 33.3% $ 1,147 311 836 358 117 474 362 12 4 7.4 369 122 247 89 158 0.20 0.13 1,225.5 72.9% 31.2% 10.2% 31.6% 32.2% 21.5% NM NM NM NM NM NM NM NM 33.2% $ $ $ $ Q1 2000A $ Q2 2000A Q3 2000A (1) Q4 2000A (2) 1,432 382 1,050 448 131 579 471 9 4 5.4 476 155 321 1 321 0.26 0.26 1,225.0 73.3% 31.3% 9.2% 32.9% 33.2% 22.4% 24.9% 25.6% 25.2% 12.6% 30.1% 28.9% 30.3% 30.0% 32.5% $ $ $ $ Q1 2001E Q2 2001E Q3 2001E Q4 2001E $ 1,335 $ 1,395 $ 1,460 $ 1,605 344 363 380 417 991 410 125 535 456 11 3 8.0 464 151 313 $ 313 $ 1,032 429 134 563 469 14 3 11.0 480 156 324 $ 324 $ 0.26 $ 0.26 $ 1,235.0 74.0% 30.8% 9.6% 33.6% 34.4% 23.2% 17.2% 17.7% 13.6% 14.3% 22.8% 24.7% 24.4% 23.8% 32.5% 1,080 452 143 595 485 18 3 15.0 500 163 338 $ 338 $ 0.27 $ 0.27 $ 1,239.0 74.0% 31.0% 9.8% 33.2% 34.3% 23.1% 16.0% 17.3% 12.9% 22.0% 20.2% 22.9% 22.7% 17.4% 32.5% 1,188 493 154 647 541 23 3 20.0 561 182 378 378 0.30 0.30 1,243.0 74.0% 30.7% 9.6% 33.7% 34.9% 23.6% 12.1% 13.1% 10.1% 17.3% 14.9% 17.8% 17.8% 15.4% 32.5% $ $ $ $ 1998A $ 3,343 $ 876 2,468 1,019 368 1,387 1,081 27 15 12.1 1,093 360 732 137 595 0.63 0.51 1,157.4 73.8% 30.5% 11.0% 32.3% 32.7% 17.8% NA NA NA NA NA NA NA NA 33.0% $ $ $ $ 1999A 2000A (1),(2) 2001E 2002E 6,485 1,686 4,799 1,950 582 2,532 2,267 110 11 99.0 2,366 768.92 1,597 $ 1,597 1.26 1.26 1,264.0 74.0% 30.1% 9.0% 35.0% 36.5% 24.6% 11.9% 11.8% 9.3% 4.7% 16.2% 18.0% 18.0% 15.6% 32.5%
1,133 $ 286 847 362 114 476 371 7 3 3.7 374 122 253 253 0.21 0.21 1,221.0 74.7% 31.9% 10.1% 32.7% 33.0% 22.3% 11.7% 11.8% 21.1% 12.7% 3.8% 3.0% 6.0% 5.0% 32.5% $ $ $ $
1,190 $ 313 877 378 117 495 382 7 4 3.1 385 125 261 $ 261 $ 0.21 $ 0.21 $ 1,219.5 73.7% 31.7% 9.8% 32.1% 32.4% 21.9% 18.3% 18.8% 23.7% 9.1% 17.4% 16.3% 19.9% 16.7% 32.4%
1,259 $ 338 921 400 117 517 404 7 3 3.5 407 132 275 $ 13 262 $ 0.23 $ 0.22 $ 1,217.6 73.2% 31.8% 9.3% 32.1% 32.4% 21.9% 18.2% 18.4% 14.8% 7.8% 26.0% 25.9% 27.5% 27.8% 32.4%
4,232 $ 1,123 3,109 1,310 434 1,744 1,365 52 29 22.7 1,388 469 919 $ 443 476 $
5,014 $ 5,795 $ 1,320 1,504 9 3,695 4,291 1,588 480 2,067 1,627 29 14 15.7 1,643 533 1,110 13.9 1,096 0.91 0.90 1,218.9 73.7% 31.7% 9.6% 32.5% 32.8% 21.9% 18.5% 18.8% 21.2% 10.5% 19.2% 18.4% 20.8% 18.2% 32.4% 1,784 556 2,340 1,951 66 12 54.0 2,005 652 $ 1,353 $ $ 1,353 $ $
0.25 $ 0.25 $ 1,229.0 74.2% 30.7% 9.4% 34.1% 34.7% 23.4% 17.8% 17.0% 13.2% 9.7% 22.9% 23.8% 23.7% 19.0% 32.5%
0.77 $ 0.40 $ 1,185.4 73.5% 31.0% 10.3% 32.3% 32.8% 11.2% 26.6% 26.0% 28.6% 18.0% 26.3% 27.0% 25.5% 22.2% 33.8%
1.09 $ 1.09 $ 1,236.5 74.0% 30.8% 9.6% 33.7% 34.6% 23.4% 15.6% 16.1% 12.4% 15.9% 19.9% 22.0% 21.9% 19.8% 32.5%
(1) Includes $14.7 million charge for Xomed acquisiton (2) Charge reflects $24.9 million reversal of restructuring reserves and $24 million for a litigation settlement. Source: First Union Securities, Inc. Estimates and Company Reports
53
MEDTRONIC, INC.
Revenue Buildup (dollars in millions) (fiscal year ends April 30)
Cardiac Rhythm Management Brady Pacing CHF Total Brady Tachy CHF US International Total Tachy Physio-Control Other Total CRM NEUROLOGICAL BUSINESS Neurostimulation Drug Delivery Sofamor Danek Xomed Other Total Neurological CARDIOVASCULAR Coronary Stents U.S. Europe Japan Total Stents Other Vascular AneurX Total Cardiovascular CARDIAC SURGERY Cardiac Surgery Avecor Total Cardiac Surgery TOTAL REVENUES
1999E
2000E
2001E
2002E
$316
$315
$300
$354
$339
$355
$333
$387
$365
$380
$360
$417
$1,285
$1,414
$1,522
$1,670
$427 145 $572 $224 $41 $2,122 $176 159 440 124 $899
$607 183 $790 $264 $37 $2,505 $213 195 576 69 142 $1,195
$715 205 $920 $297 $47 $2,786 $282 249 700 169 152 $1,552
$830 240 $1,070 $310 $48 $3,098 $361 285 830 185 174 $1,835
GROWTH RATES
Cardiac Rhythm Management Brady Pacing Total Brady Tachy U.S. International Total Tachy Physio-Control Other Total CRM NEUROLOGICAL BUSINESS Neurostimulation Drug Delivery Sofamor Danek Xomed Other Total Neurological CARDIOVASCULAR Coronary Stents U.S. Europe Japan Total Stents Other Vascular AneurX Total Cardiovascular CARDIAC SURGERY Cardiac Surgery Avecor Total Cardiac Surgery TOTAL REVENUES NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM 6.6% NM 17.0% 11.7% 8.4% NM 18.9% 18.2% 11.7% NM 22.3% 18.2% 10.6% 120.0% 15.6% 24.9% 6.8% 10.0% 7.1% 17.8% 1.9% 10.0% 2.7% 17.2% 7.6% 0.0% 7.0% 16.0% 5.2% 0.0% 4.8% 12.1% 9.3% NM 18.3% 18.5% 5.4% 4.9% 5.4% 15.6% 11.1% 0.0% 10.2% 11.9% NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM -58.8% 30.0% -35.5% -45.5% 56.6% 100.0% -27.9% -50.4% 8.7% -9.7% -38.0% NM 185.7% -8.8% 69.0% 36.0% 160.0% 64.8% -33.8% NM 27.8% 85.0% 59.1% 166.7% 85.5% 0.0% NM 67.0% 58.3% -3.8% 125.0% 45.2% 11.5% NM 47.6% 47.5% 0.0% 28.6% 33.0% 20.4% NM 42.1% -3.1% -11.8% 15.4% -3.4% 27.5% 110.0% 14.4% -18.9% -14.3% -10.0% -16.9% 19.3% 56.7% 0.0% -14.6% 33.2% 36.1% -2.0% 17.5% NM 10.0% 12.1% -8.1% 25.5% 8.8% 19.6% 133.3% 22.1% -8.1% -4.3% -13.0% -8.1% 12.1% 38.3% 4.7% NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM 29.4% 20.6% 36.1% 21.7% 36.0% 31.0% 20.5% 21.1% 34.6% 31.8% 32.0% 29.2% 17.4% 22.0% 24.8% 23.1% -11.1% 18.1% 19.2% 26.1% 29.7% 32.1% 13.2% 25.2% 31.8% 22.0% 15.9% 35.7% 5.9% 20.1% 24.5% 17.4% 21.4% 41.4% 6.1% 21.6% 37.0% 40.0% 23.8% 37.5% 18.8% 29.5% 35.5% 29.3% 24.2% 24.3% 0.0% 24.1% 21.0% 22.6% 30.9% NM 14.5% 32.9% 32.4% 27.7% 21.5% NM 7.0% 29.9% 28.0% 14.5% 18.6% 9.5% 14.5% 18.2% NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM 81.5% 19.4% 62.4% 8.2% 15.8% 19.9% 73.1% 17.8% 56.6% 8.4% 0.0% 22.8% 23.6% 18.9% 22.5% 23.3% -50.0% 14.5% 18.9% 47.4% 24.9% 29.3% 9.1% 15.9% 19.0% 7.5% 16.4% 14.0% 0.0% 10.8% 16.9% 14.0% 16.2% 17.2% 25.0% 11.1% 15.1% 13.6% 14.8% 8.1% 100.0% 11.2% 20.0% 12.5% 18.1% 12.0% 16.7% 11.7% 42.2% 26.2% 38.1% 17.8% -8.6% 18.1% 17.8% 12.0% 16.5% 12.5% 27.0% 11.2% 16.1% 17.1% 16.3% 4.4% 2.1% 11.2% NM NM NM NM 7.3% 12.7% 11.0% 9.3% 7.7% 7.0% 8.1% 7.8% 10.0% 7.6% 9.7% Q1 1999E Q2 1999E Q3 1999E Q4 1999E Q1 2000E Q2 2000E Q3 2000E Q4 2000E Q1 2000E Q2 2000E Q3 2000E Q4 2000E 1999E 2000E 2001E 2002E
54
MEDTRONIC, INC
CASH FLOW STATEMENT Years Ending April 30 (Dollars in millions)
FY1998A Operating Activities Net Income Depreciation & Amortization Nonrecurring Charge (noncash) Working Capital Total from Operations Uses of Cash Capital Expenditures Acquisitions Change in Marketable Securities Total from Investing Financing Activities Change in Debt Dividends Net Share Repurchases/Other Total from Financing Translation Adjustment Total Cash Flow Beginning Cash Cash Flow Ending Cash $595 $167 $126 ($194) $693
($190) $0 $0 ($190)
($200) $0 $0 ($200)
$70 ($132) $645 (1) $583 ($2) ($295) $523 ($295) $229
(1)
Includes net proceeds from companys follow-on stock offering of 12.5 million shares priced at 56 3/4.
55
MEDTRONIC, INC
BALANCE SHEET (Dollars in Millions)
ASSETS Current Assets: Cash & equivalents Short-term investments Trade accounts receivable, less allowances Inventories Deferred tax assets, other Prepaid expenses and other current assets Total current assets Property, plant and equipment Goodwill and other intangible assets, net Other intangible assets Long-term investments Other assets Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Short-term borrowings Accounts payable Accrued compensation Accrued income taxes Other accrued expenses Total current liabilities Long-term debt Deferred tax liabilities Other long-term liabilities Total Liabilities Shareholders equity: Common stock Retained earnings Cumulative other nonowner changes in equity Receivable from ESOP Total shareholders equity Total liabilities and shareholders equity Source: Company reports
April 30, 2000 $448 110 1,210 691 161 394 3,013 947 1,361 210 138 $5,669
Jan. 28, 2000 $155 83 1,238 710 240 308 2,733 883 1,390 231 185 $5,422
Oct. 29, 1999 $158 59 1,153 683 231 239 2,524 824 1,351 305 173 $5,177
July 31, 1999 $230 82 1,047 600 205 236 2,400 781 1,355 256 210 $5,003
April 30, 1999 $222 154 1,005 554 256 205 2,395 749 1,063 263 204 197 $4,870
April 30, 1998 $520 124 790 423 195 87 2,137 627 410 154 139 180 $3,646
293 253
186 198
189 192
56
(MTIXNASDAQ)
Rating: 2
Estimates (FY 12/31): Q1March Q2June Q3September Q4December Full-Year EPS Price/Earnings Ratio Revenue (MM)
COMPANY DESCRIPTION
Micro Therapeutics develops, manufactures, and sells a portfolio of devices designed to treat blood vessel malformations in the intricate vessels of the brain and body. These devices include guide wires, specialty catheters, and embolic agents. The potential blockbuster in the pipeline is the Onyx Liquid Embolic System for filling aneurysm spaces or occluding malformed vessels. Onyx could be the most significant advance in interventional neuroradiology since Target Therapeutics Gugliemi Detachable Coil (GDC). Onyx has been used in humans to treat AVMs, aneurysms, and brain tumors. Micro Therapeutics is very well positioned as the catheter-based aneurysm treatment market is migrating towards greater filling density. The logical extension of this evolution is to complete embolic liquids that polymerize into solids that fill the aneurysm. The Onyx Liquid Embolic System is CE Mark-approved for treating AVMs as well as head and neck tumors. CE Mark approval for aneurysm treatment could come in Q4 2000. In Europe, the company has enlisted Guidant as a distribution partner. In Japan, the company has a relationship with Century Medical, which is managing the clinical trials. Century Medical is the former distributor for Target Therapeutics and very familiar with the interventional neuroradiology market.
57
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Description: Micro Therapeutics develops, manufactures and sells a portfolio of devices that are used to treat conditions affecting the blood vessels. These conditions include blood clots, arterio-venous malformations (AVMs) and aneurysms in the brain. These devices include guidewires specialty catheters, interarterial brushes, and the Onyx material for filling vascular spaces. Guidant is the companys European distribution partner. Investment thesis: -- The worldwide market opportunity for using Micro Therapeutics technology in neurological applications exceeds $800 million. -- The companys Onyx material offers physicians a significant improvement in the treatment of aneurysms and AVMs. These conditions are very difficult to treat and a new tool in the physicians armamentarium should be warmly welcomed. -- The companys technology allows physicians to perform more procedures in a minimally invasive or less traumatic fashion, which improves patient health and reduces overall costs to the healthcare system. -- Micro Therapeutics business model has the potential to be highly profitable with operating margins reaching 25%-30% for three reasons: (1) The barriers to entry are high. (2) The devices offer dramatic or lifesaving changes in patient health. And (3) The customers are concentrated so selling expense could be low.
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2000
EPS ($1.12) Multiple NM Target multiple on forward earnings in 2003 Target share price year-end 2002 Discounted back @ 35% $6.67 Market Cap ($MM) Revenues ($MM) Market Cap/Revs $51.98 $6.19 8.4
NM
NM
4.1
1.0
Target multiple on forward revenues in 2002 Target market cap year-end 2002 ($MM) Target shareprice year-end 2002 Discounted back @ 35% $14.90 Estimated Revenue Breakdown ($MM)
1998
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2002
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1998E Peripheral Blood Clot Therapy US International Total Onyx Peripheral US International Total Onyx Neuro US International Total
1999E
2000E
2001E
2002E
2003E
Micro Catheters, Guidewires, & Balloons US $0.0 International 0.0 Total $0.0 OEM - Third Party Manufacturing Total Overall Total
$0.0 $4.3
$0.0 $4.1
$0.2 $6.2
$0.4 $13.7
$0.6 $31.6
$0.9 $50.2
60
1998A Cash From Operations Net Income Amortization & Depreciation Working Capital Loss Equipment Sales Other Cash From Operations Cash From Investing Short-Term Investments Capital Expendatures Patant/License Agreements Sale of Equipment Cash From Investing Cash From Financing Proceeds From Common Stock Proceeds From Option Exercise Borrowings on Note Payable Issuance Cost Debt Paydown
1999A
2000E
2001E
2002E
2003E
ASSETS Current Assets Cash and cash equivalents Accounts receivable Inventories Other current assets Total current assets Other Assets Property & equipment Intangibles and other assets Total Assets LIABILITIES AND SHAREHOLDERS EQUITY Liabilities Accounts payable Accrued liabilities Deferred revenue Other current liabilities Total Current Liabilities Deferred revenue Long-term debt Total Liabilities Common stock Convertible preferred Additional paid-in capital Unearned compensation Accumulated deficit Total shareholders equity Total Liabilities and Shareholders Equity 1) Reflects $11.0 mil. proceeds from private placement Source: Company reports
$212 $1,017 $229 $55 $1,514 $750 10,698 $12,962 $10 $0 $55,326 ($323) ($43,377) $11,636 $24,598
$425 $773 $342 $71 $1,611 $775 10,610 $12,996 $10 $0 $54,764 ($323) ($40,817) $13,634 $26,631
$98 $1,203 $484 $57 $1,842 $800 10,492 $13,134 $8 $0 $40,253 ($9) ($37,795) $2,456 $15,591
$176 $1,160 $535 $70 $1,941 $825 8,819 $11,584 $8 $0 $39,673 ($21) ($35,041) $4,619 $16,204
$534 $920 $600 $73 $2,127 $850 16,979 $19,956 $7 $0 $29,674 ($32) ($30,465) ($816) $19,140
$754 $727 $600 $73 $2,154 $875 16,859 $19,888 $7 $0 $29,626 ($43) ($26,987) $2,602 $22,490
$332 $227 $0 $51 $610 $0 188 $798 $1 $4 $15,652 ($376) ($9,838) $5,442 $6,240
62
(POSSNASDAQ)
Rating: 3
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Minneapolis, Minnesota
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (000) Market Value (MM) $5.88 $15$6 none nil 16.1 15.3 81.9 $94.7 Estimates (FY 7/31): Q1October Q2January Q3April Q4July Full-Year EPS Price/Earnings Ratio Revenue (MM) 1999A ($0.26) (0.25) (0.23) (0.16) ($0.90) NM $13.1 2000E 2001E ($0.17)A ($0.13) (0.16)A (0.11) (0.18)A (0.09) (0.16) (0.08) ($0.67) ($0.41) NM $19.4 NM $27.8
COMPANY DESCRIPTION
Possis Medical has developed the Angiojet Rheolytic Thrombectomy System for removing life-threatening blood clots. This innovative catheter-based water jet technology is approved for use in the coronary arteries, saphenous vein grafts, native peripheral vessels, and arterio-venous access grafts. The Thrombectomy in Middle Cerebral Artery Embolism (TIME) Trial is evaluating the use of Possis Neurojet catheter used for treating stroke. The system consists of a control unit, a single-use pump, and a family of disposable water jet catheters. To use the device, the physician threads the catheter to the site of the clot and activates the water jets. Water passing across a small gap in the catheter creates suction (the Bernoulli effect) that breaks up the blood clot and sucks it back through the catheter for collection. Physicians make several passes with the device to remove the clot completely. Physicians have enjoyed great success in removing thrombus from both coronary and native peripheral vessels. The new Cross Stream catheter line with greater suction power could accelerate development of the Deep Vein Thrombosis opportunity and solidify Possis position in the coronary arteries before competing devices are released in the U.S. Possis is pioneering the ischemic stroke opportunity. The Neurojet catheter is only four french in diameter and can be threaded past the carotid siphon. When combined with the new smaller, low-cost drive unit, Possis could have a powerful combination.
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Product Descriptions
Angiojet Rheolytic Thrombectomy System: The system consists of a control unit, a disposable pump, and a variety of disposable catheters that use hydrodynamic forces to break apart and remove thrombosis (blood clots) from coronary, peripheral, and cranial blood vessels. LF 140 Catheter: Angiojet catheter designed for removing thrombosis from coronary arteries and saphenous vein grafts. AV60 & e-Train 110 Catheters: Angiojet catheters designed for removing thrombosis in A-V access grafts and peripheral blood vessels. Xpeedior Catheter: Angiojet catheter with Cross-Stream Technology for removing thrombosis in A-V access grafts.
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6,118 $ 13,123 $ 19,448 $ 27,786 $ 47,467 5,795 7,884 9,341 11,281 14,240 323 7,556 5,194 12,749 (12,426) 457 (11,969) 0 5,240 11,611 5,744 17,355 (12,115) 94 (12,021) 0 10,107 15,779 5,302 21,081 (10,974) 546 (10,428) 0 (6,825) $ (6,825) $ ($0.41) ($0.41) 6,037 6,037 $0.31 $0.31 $0.20 19,300 16,504 17,898 6,087 23,985 (7,481) 656 (6,825) 33,227 21,010 6,480 27,490 5,737 300 6,037
12,253
12,431
13,910
14,848
15,006
15,040
16,057
16,300
16,350
16,400
16,500
16,600
12,191
13,360
15,601
16,463
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65
1999 Year Angiojet - U.S. Control Unit Catheters U.S. Angiojet Revenue International Angiojet Revenue Worldwide Revenue Graft Revenue Other Revenue Returns & Allowances
2000 Year
2001 Year
2002 Year
2000/1999
2001/2000
2002/2001
42% 66%
45% 7%
74% 4%
48%
43%
71%
96% 4% 100%
98% 2% 100%
97% 3% 100%
97% 3% 100%
66
342 32 321
394 40 368
427 25 411
457 30 442
487 30 472
518 31 503
551 33 535
586 35 569
9.4 9.9 8.3 9.2 3241 3643 3488 4066 $ 1,030 $ 1,081 $ 1,034 $ 1,065 $ 3,338,230 $ 3,936,514 $ 3,608,000 $ 4,330,716 $ 694,712 $ 894,000 $ 525,000 $ 670,500 $ 21,710 $ 23,000 $ 21,000 $ 22,350 $ 4,032,942 $ 4,830,514 $ 4,133,000 $ 5,001,216 $ 69,247 $ 75,165 $ 104,795 $ 98,647
9.3 9.6 9.9 10.2 4390 4824 5292 5799 $ 1,087 $ 1,120 $ 1,145 $ 1,170 $ 4,771,495 $ 5,402,880 $ 6,058,825 $ 6,784,479 $ 661,500 $ 687,425 $ 734,250 $ $ 22,050 $ 22,175 $ 22,250 $ 787,500 22,500
$12,391,418 $ 525,340
$17,997,672 $ 347,854
$25,888,354 $ 714,049
$12,916,758
$18,345,526
$26,602,403 $ 1,183,434
GROWTH RATES
Catheter Revenue Drive Unit Revenue U.S. Angiojet Revenue International Angiojet Revenue Worldwide Angiojet Revenue Graft Revenue Total Revenue 122% 81% 114% NM 114% NM 141% 106% 27% 85% -55% 77% NM 87% 49% -41% 25% -18% 23% -45% 20% 37% -52% 9% -51% 7% 64% 12% 43% -5% 35% NM 36% NM 33% 37% -23% 26% 102% 27% 59% 26% 68% 40% 64% 90% 65% 13% 62% 57% 17% 51% 115% 53% 11% 51% 69% -18% 51% 3% 78% 35%
PERCENTAGE OF SALES
Catheters Drive Units Grafts U.S. Angiojet Sales International Angiojet Sales Worldwide Angiojet Sales Returns & Allowances Total Sales 74.5% 15.5% 8.5% 90.0% 1.5% 91.5% 0.0% 100.0% 76.4% 17.3% 4.8% 93.7% 1.5% 95.2% 0.0% 100.0% 80.7% 11.7% 5.2% 92.4% 2.3% 94.8% 0.0% 100.0% 81.1% 12.6% 4.4% 93.7% 1.8% 95.6% 0.0% 100.0% 79.8% 11.1% 6.6% 90.8% 2.5% 93.4% 0.0% 100.0% 83.0% 10.6% 4.1% 93.6% 2.3% 95.9% 0.0% 100.0% 83.5% 10.1% 3.6% 93.6% 2.7% 96.4% 0.0% 100.0% 84.4% 9.8% 3.2% 94.2% 2.6% 96.8% 0.0% 100.0% 68.6% 25.8% 5.1% 94.4% 4.0% 98.4% -3.5% 100.0% 78.2% 14.3% 5.7% 92.5% 1.8% 94.3% 0.0% 100.0% 82.8% 10.3% 4.3% 93.2% 2.6% 95.7% 0.0% 100.0% 86.3% 8.2% 2.6% 94.5% 2.9% 97.4% 0.0% 100.0%
67
1997A Cash From Operations Net Income Depreciation and Amortization Loss/(Gain) on Asset Disposition Working Capital Other Cash From Operations Cash From Investing Capital Spending Purchase of Marketable Securities Sale of Property and Investments Cash From Investments Cash From Financing Debt Paydown Proceeds from Borrowing Cash from Acquisitions Cash from Stock Issued Treasury Shares, Warrants & Restricted Cash Other Total from Financing Net Cash Generated Beginning Cash Ending Cash
1
1998A
1999A
2000E
2001E
2002E
($677) ($677)
($620) ($620)
($625) ($625)
($640) ($640)
68
$1,874 92 1,207 1,004 $4,177 98 0 $4,275 $6,031 75,137 (55,094) (76) $25,998 $30,273
$675 92 1,605 1,032 $3,404 99 0 $3,503 $6,006 60,735 (52,744) (105) $13,892 $17,395
$879 92 1,606 727 $3,304 100 102 $3,506 $5,999 60,609 -(50,152) (141) $16,315 $19,821
$1,245 98 1,061 1,040 $3,444 11,493 216 $15,152 $4,887 42,476 -(38,130) (489) $8,744 $23,897 --
$649 28 763 1,173 $2,613 10 $2,623 $4,849 41,119 ($6) (26,161) -$19,800 $22,423
$318 73 726 566 $1,684 39 42 $1,764 $4,821 40,689 ($145) (17,665) (103) $27,597 $29,361
69
(JNJNYSE)
Not Rated
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: New Brunswick, New Jersey
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (MM) Market Value (MM) $94.81 $107$66 $1.28 1.4% 1,413.6 1,380.0 3.04 $134,023.4 Estimates* (FY 12/31): 1999A Q1March $0.80 Q2June 0.82 Q3October 0.78 Q4December 0.56 Full-Year EPS $2.97 * First Call Consensus Estimates Price/Earnings Ratio Revenue (MM) 31.9X $27,472 2000E $0.93 0.94 0.88 0.64 $3.39 28.0X $29,800 2001E $1.05 1.06 1.01 0.74 $3.82 24.8X $33,150
COMPANY DESCRIPTION
Johnson & Johnson is the worlds largest health care company with a significant presence in pharmaceuticals, over-the-counter medications, and medical devices. Johnson & Johnson has a significant neurosurgical business and a healthy presence in interventional cardiology and interventional radiology. The company is a distant number two in interventional neuroradiology with a notable presence in catheters and guidewires. The company also recently won FDA approval for a glue for AVMs. This is the first glue to receive FDA approval and, prior to this event, physicians used various mixes of poly-methyl methacrylate on an off-label basis. J&J is developing a coil for filling aneurysms that has a controlled delivery mechanism.
70
BIOSITE, INC.
(BSTENASDAQ)
Not Rated
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: San Diego, California
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (000) Market Value (MM) $55.75 $60$8 none nil 15.0 6.2 149.5 $836.3 Estimates* (FY 12/31): Q1March Q2June Q3September Q4December Full-Year EPS * First Call Consensus Price/Earnings Ratio Revenue (MM) 1999A ($0.08) 0.01 0.06 0.09 ($0.05) Estimates NM $43.7 2000E $0.09 0.07 0.11 0.15 $0.42 NM $55.0 2001E 0.14 0.16 0.19 0.23 $0.70 79.6X $65.5
COMPANY DESCRIPTION
Biosite develops, manufactures, and sells diagnostic test panels, capitalizing on its high throughput system for marker identification. These panels are used to test for drugs of abuse and the definitive diagnosis of heart attack. The company is also developing test panels for congestive heart failure and stroke. Through its Biosite Discovery program, the company has initiated a stroke development effort. This initiative is identifying markers for stroke and evaluating the diagnostic utility of 22 promising candidates. Favorable data on these markers could allow the company to begin development of a stroke panel by year-end. This technology is still 2-3 years away from the U.S. market.
71
(BSMDNASDAQ)
Not Rated
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Rockland, Massachusetts
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (000) Market Value (MM) $13.81 $51$1 none nil 9.25 2.2 23.0 $127.7
COMPANY DESCRIPTION
Boston Scientific alumnus, John Carnuccio, is leading Biosphere Medicals effort to commercialize its Embosphere technology. Embospheres are tiny round particles with a consistent shape and diameter that are used as an embolic agent. This consistency allows the particles to pass reliably through a catheter and into small blood vessels. The Embospheres handle much better than other PVA particles, resisting clumping and clogging in the delivery catheter. Embospheres are 510 (k) approved for the same indications as PVA.
72
(NMTINASDAQ)
Not Rated
INVESTMENT OBJECTIVE: Growth INDUSTRY GROUP: Medical Technology HEADQUARTERS: Boston, Massachusetts
Price (8/9/00) 52-Wk Range Dividend Yield Trading Data Shares Outs (MM) Est. Float (MM) Avg. Daily Vol. (000) Market Value (MM) $3 $8$2 none nil 10.9 6.2 11.9 $32.7 Estimates* (FY 12/31): 1999A Q1March ($0.07) Q2June (0.01) Q3September (0.01) Q4December (0.36) Full-Year EPS ($0.42) *First Call Consensus Estimates Price/Earnings Ratio NM 2000E NE NE NE NE $0.24 12.7X 2001E NE NE NE NE $0.40 7.5X
COMPANY DESCRIPTION
NMT Medical has two technologies. The first is a vena cava filter that is sold on an OEM basis through Bard. The vena cava filter has gained approximately 1 percentage point of market share each quarter and currently has approximately 20% of an $85 million market. The second device is for sealing holes in the septum between the left and right side of the heart. The septal occlusion device has 40% market share in Europe where it has only two competitors. In the United States, the device has three Human Device Exemption (HDE) approvals from the FDA. Each of these approvals allows the company to sell 4,000 devices. The device sells for $5,000 and 60 U.S. centers are using the device. The septal occlusion device could be of value in preventing thrombotic ischemic stroke. Approximately 30% of the people who have a transient ischemic attack go on to have a full stroke in the next 30 days. These 100,000 patients represent a sizable market opportunity.
73
AGA MEDICAL
Minneapolis, Minnesota AGA Medical manufactures and sells devices for closing atrial-septal defects and PFOs. The company is selling its devices in international markets. Atrial-septal defects are a key source for clots that cause ischemic stroke. In Europe, AGA and NMT Medical, Inc. dominate this emerging opportunity.
ALSIUS CORP.
Irvine, California Alsius is believed to be exploring technology for cooling the brain for minimizing strokerelated brain damage.
ANGIOSONICS
Morrisville, North Carolina Angiosonics is developing a catheter-based system that uses ultrasonic energy to dissolve clots. The companys initial target is technology for clots in the heart. The technology could eventually be used for treating ischemic stroke.
BALT
France Balt manufactures and sells a range of devices for use in interventional procedures. These include guidewires, catheters, and nondetachable coils.
74
CONCENTRIC MEDICAL
Mountain View, California Concentric Medical is developing tools for interventional neuroradiologic approaches to stroke prevention and treatment. The company could unveil several exciting technologies in 2000.
COOK
Bloomington, Indiana Cook is a pioneer in the field of interventional medicine. The company manufactures and sells guidewires catheters and nondetachable coils. Cook has a fabulous track record of pioneering new treatments and technologies in partnership with physicians.
EKOS CORPORATION
Bothel, Washington EKOS Corporation is developing an ultrasound-enhanced drug delivery catheter system that could be used to treat ischemic stroke. The instrumentation includes a control box and a disposable catheter. In Phase I feasibility studies, the clots dissolve faster with half the drug dosage. In peripheral vessels, clots normally take 12-18 hours to dissolve, but EKOS was able to reduce this time to 1-4 hours.
EMBOL-X
Mountain View, California Embol-X has developed an arterial filtration system that is used in conjunction with coronary procedures. Guidant has the European distribution rights to this device. The company also has sold distal protection technology to Boston Scientific, which has a 13% equity stake in the company.
75
ENDOTEX
Cupertino, California Endotex is developing self-expanding stent systems for use in the carotid and peripheral arteries.
ENDOVASIX, INC.
Belmont, California Endovasix has a combination ultrasound- and laser-based device that breaks up clots. It is in clinical trials in Europe.
INTRA THERAPEUTICS
Saint Paul, Minnesota Intra Therapeutics is focused on the peripheral stenting opportunity. The company is developing stents specifically designed for the peripheral arteries. These include the iliac arteries of the legs, renal arteries supplying the kidneys, and carotid arteries that carry blood up into the brain.
MEDIVANCE, INC.
Louisville, Colorado Medivance is developing an external approach to cooling the body for treating stroke. Cooling the body can help protect the brain during periods of ischemia. The Arctic Sun temperature management system uses proprietary disposable pads, which are placed on the body. The pads cool the body using a closed-loop system.
76
MEDNOVA
Galway, Ireland MedNova is developing a distal protection filter for use in carotid stent placement procedures.
MICRUS CORPORATION
Mountain View, California Micrus is developing coils for filling aneurysms. The companys three-dimensional coil is approved for sale in Europe.
MV MEDICAL DEVICES
Mountain View, California MV Medical Devices is developing a system to prevent ischemic stroke from atrial fibrillation (Afib)-related clots. Afib is an uncontrolled or chaotic beating of the upper chambers of the heart. Blood tends to stagnate in those chambers and form into clots. If those clots travel outside the heart and into the brain, they can cause ischemic strokes. MV medical is developing an interventional approach to seal the atrial pouch, a thumbsized appendage that can be a locus for the clot formation.
77
NEUROCONTROL CORPORATION
Valleyview, Ohio Neurocontrol has developed several technologies that dramatically improve the lives of patients with neural injuries. These devices include systems that allow paraplegics to stand, move their hands, and control their bladders. The technology-rich company also has a system that can reverse the painful shoulder droop phenomena experienced by stroke patients with hemiplegia.
NEURON THERAPEUTICS
Malvern, Pennsylvania Neuron Therapeutics is developing a system for providing the brains of victims of ischemic stroke with a temporary supply of oxygen and nutrients until their own body develops collateral circulation. The key component is an oxygen-carrying fluorocarbon emulsion that is introduced into the ventricles of the brain. The liquid then diffuses throughout the brain, supplying key metabolites. The liquid is drained from the body through a spinal tap at the cauda equina. In animal studies, the results have been quite promising.
PERCUSURGE
Sunnyvale, California PercuSurge has effectively pioneered the concept of distal protection during interventional procedures such as carotid stenting. The company has a guidewire-based device that includes an inflatable balloon. The balloon is inflated distal to the site being stented. After the procedure, debris that has collected against the balloon can be removed using a vacuum system. The companys system is in U.S. clinical trials for treating diseased saphenous vein grafts used in coronary artery bypass procedures.
78
SCION
Miami, Florida Scion has several interventional devices in development, including a carotid stent and the Angio-Pro filter basket for distal protection.
SYN-X PHARMA INC. (formerly Skye PharmaTech Inc.) (Trades on the Canadian Venture Exchange)
Mississauga, Ontario SYN-X is developing a multiple marker diagnostic test panel, Strokepanel, which is licensed to Genzyme Diagnostics. The company is in the process of transferring its reagents to Genzyme, and this process could be complete in Q3 2000. An application to sell the panel could be filed with the FDA late in 2001. Management anticipates an expedited review from the FDA. The company has also entered into a clinical investigation agreement with a major Japanese pharmaceutical company developing an agent for stroke therapy. The S-100 marker could be valuable for proving efficacy of certain stroke-related pharmaceuticals.
TERUMO
Japan Terumo manufactures guidewires and catheters for use in interventional neuroradiology procedures. The companys guidewires are held in particularly high regard.
79
THEROX
Irvine, California Therox is developing a technology for supersaturating liquids with oxygen. A supersaturated liquid could be used to supply this key life-sustaining metabolite to the brain without the use of red blood cells or other carriers. This technology has been used in humans for cardiac indications. Use in the brain could occur in the near future.
THERUS
Seattle, Washington Therus is developing a technology directing external ultrasound energy at the head to accelerate the clot-dissolving action of TPA. This can lead to rapid resolution of clots that cause ischemic strokes.
W.L. GORE
Flagstaff, Arizona W.L. Gore is a major player in woven textiles. The company has been adapting its materials for medical use including vascular grafts and devices for closing atrial-septal defect closure. The company is in the preliminary stages of entering the atrial septal defect market. The Helix device has been used in humans for atrial septal defect closure in Europe. Atrial-septal defects are a key source for clots that cause ischemic stroke.
80
81
Arrhythmiaan irregular or unpredictable heartbeat Ataxiawhen muscles fail to function in parallel fashion Atherosclerosisa buildup of cholesterol plaque and other deposits in the artery Automonic nervous systempart of the nervous system that regulates certain automatic body functions such as heart rate and sweating. The autonomic nervous system has two components: the sympathetic and parasympathetic nervous systems. Axona long, usually single, fiber of a neuron that carries efferent (outgoing) messages from the cell body toward the target cells. A nerve cell has one axon, which can be as much as 20 cm in length; this cell transmits signals from the branches at the end of its axons. Basal gangliaa large concentration of nuclei located deep in the base of the brain Blood-brain barriera protective barrier, formed by blood vessels and glial tissue, impermeable to large molecules, that prevents the passage of certain substances into the brain tissue Brain attacka phrase that describes the effect and action of a stroke Brain stemthe lowest region of the brain, adjacent to the spinal cord, which regulates basic body functions, such as cardiac and respiratory activity Bruitrushing sound created by blood flowing past plaque in the carotid arteries Carotid arterythe internal and external arteries on each side of the neck that transport blood from the heart to the brain Carotid endarterectomya surgical procedure in which plaque deposits are removed from a carotid artery through an incision in the neck Cathetera flexible tubular instrument for introducing fluids or devices into the body Causalgiaa syndrome of sustained burning pain, allodynia, and hyperpathia that occurs after a traumatic nerve lesion CE Markan approval by regulatory agencies or notified bodies in Europe approving a product for sales Cerebellumthe part of the hindbrain located between the cerebrum and the brain stem that deals mainly with the somatic motor functions, muscle tone, and balance Cerebral angiographya diagnostic method that uses X-rays and an opaque dye injected through a catheter to examine the blood vessels in the brain Cerebral cortexouter layer of the brain that is responsible for receiving messages and sending them to other areas of the brain to be processed Cerebral edemaswelling of the brain due to intracellular water
82
Cerebral palsy a disorder brought on by injuries to the brain during fetal development; these injuries lead to loss of movement, seizures, and loss of other nerve functions Cerebrospinal fluidfluid that surrounds and bathes the brain and the spine Cerebrovascular accidentsynonymous with stroke Cerebrovascular diseaseany abnormality of the brain Cervicalpertaining to the neck Cortical regionarea located in the forebrain that is responsible for vision, memory, motor output, and judgment Craniotomya surgical method of opening the skull Diplopiadouble vision Distalremote, farther from a reference point Dysarthiadifficulty with speech Dysesthesiaabnormal sensations, such as tingling, numbness, or burning, felt below the level of a spinal cord lesion Dyskinesiadifficulty with movement; an impairment of voluntary muscle control Dysphagiadifficulty swallowing Electroencephalogram (EEG)the chart that records the pattern of the brains electrical impulses when using electroencephalography Electroencephalographya diagnostic method that makes an electroencephalogram by recording the electrical impulses of the brain using electrodes attached to the head and to a recording device Embolismthe cessation of blood flow through an artery due to a sudden blockage; this leads to stroke when it occurs in the carotid arteries and to heart attack when it occurs in the coronaries Embolizationcausing the blockage of an artery or a vein by a foreign material Endorphinsneuropeptides produced by the brain that act as natural opiates (they are the bodys own natural pain killers) Endovascularplaced through an artery or a vein Fibrinolyticcausing dissolution of fibrin (usually used in reference to breaking of a clot) Fistulaan abnormal passage or communication between two structures including arteries and vein
83
Fluoroscopya means of imaging internal structures of the body using an opaque agent and X-rays Frontal lobearea of the brain that is associated with intellectual processes, specifically, memory, and behavior Glucosea simple sugar found in blood that is the main source of energy for living cells; it is the main sugar that the body produces Guidewiremetallic wire used to gain access to an artery or vein. A catheter can also be advanced into an artery or vein over a guidewire Hamilton rating scaleindex for depression Hemiplegiaparalysis of one side of the body Hemorrhagic strokestroke caused by the rupture of an aneurysm within the brain; bleeding occurs in the brain, causing increased pressure and reduced oxygen flow Hippocampusthe area of the brain critical to memory and learning Hyperesthesiaincreased sensitivity to stimulation, including special senses IDEInvestigational Device Exemptionauthorization to begin the first clinical trials Infarctthe immediate area of brain cell death caused by stroke Interventional Neuroradiologist (INR)a medical practitioner in the subspecialty of radiology, diagnosing and treating conditions of the brain Intracranialwithin the cranium or skull Intravascularwithin the blood vessels Ischemiablockage of blood flow Ischemic stroketype of stroke whereby a vessel is blocked by a clot. The origin of the clot can be the vessel that it is clotting or another part of the body. Stenosis can also cause ischemic stroke Left hemispherethe left side of the brain, which is responsible for actions of the right side of the body as well as speech and writing Lobotomyan operation to remove all or parts of the lobes in the brain, specifically temporal, frontal, parietal, and occipital Medulla oblongatathe lower part of the brain, where the brain merges with the spinal cord, which controls heart rate, breathing, blood pressure, and consciousness Myelina fatty material that covers, protects, and insulates the axons, or nerve fibers Myelographya diagnostic method that uses X-rays and a contrast medium to examine the space around the spinal cord
84
Neuritisinflammation of nerve or nerves Neurologic Deficita deficiency of the nervous system or nerve function NeurologistA medical practitioner who is skilled in the diagnosis and treatment of the nervous system Neuromodulationdirect delivery of electricity or chemicals to nerves in order to enhance function or reduce dysfunction. Neurostimulation and drug therapy are forms of neuromodulation. Neuroradiologydiagnosing neurological or brain irregularities with X-ray imaging Neurosurgeona surgeon who focuses on the central and peripheral nervous system Pallidotomythe surgical lesioning procedure utilized in the treatment of Parkinsons disease; a small portion of the globus pallidus, a structure deep within the brain, is surgically destroyed, resulting in improved motor functioning Parasthesiachange in sensation in an area of the body, usually used to show change in neurologic function Parasympathetic nervous systemone of two components that make up the autonomic nervous system. The parasympathetic nervous system works to regulate and maintain a balance of the bodys vital unconscious activity, such as slowing the heart rate and relaxing the sphincter. Patent Foramen OvalA transient flap-like defect in the atrial wall that will open under various physiological conditions, allowing blood to flow from the right to left atrium Penumbrabrain cells that surround the initial area where a stroke occurred Pituitary glandgland located at the base of the brain that secretes hormones that regulate a number of body functions, including growth and water balance Positron emission tomography (PET scan) a diagnostic method that uses a radioactive isotope injected into the bloodstream to examine tissues within the brain Proximalnearer, closer to a specific point of reference Radiologista medical practitioner skilled in the use of X-rays for the diagnosis and treatment of diseases and conditions affecting the body Radiosurgerya noninvasive procedure that delivers precise doses of radiation directly to small intracranial targets while leaving normal healthy tissue surrounding the tumor unharmed Serotonina chemical found in the body and in the brain that is believed to act as a neurotransmitter in the brain, affecting mood Spasticityincreased tone in the muscle Stenta mechanical scaffolding to keep an artery or vein open
85
Strokeinterruption of blood flow to part of the brain, which kills brain cells within that area Subarachnoid hemorrhagestroke caused by bleeding under the membrane surrounding the brain Substantia nigraarea in the brain located in the basal anglia that produces the neurotransmitter dopamine Sympathetic nervous systemone of two components that make up the autonomic nervous system. The sympathetic nervous system works to regulate and maintain a balance of the bodys vital unconscious activity, such as accelerating the heart rate and raising blood pressure Synapsea connection or junction between cells (where a neuron communicates with a target cell) Temporal lobethe part of the brain associated with smell, taste, hearing, visual associations, and some memory; it is located in the lower side of each half of the cerebrum. Thrombolytic agentsinterventional drugs that dissolve stroke-causing clots Thrombosisclotting of blood in a vessel Thrombusclot Vagus nerveeither of the pair of tenth cranial nerves arising from the medulla and supplying mainly the viscera, especially with autonomic sensory and motor fibers
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