Novadaq partnering strategy hits marketing milestone
Novadaq Technologies (TSX:NDQ), a maker of real-time fluorescence imaging products for the operating room, reached a significant milestone earlier this month when it named MAQUET Cardiovascular as the exclusive distributor of its CO2 Heart Laser system in the U.S.
“We have now completed our strategic agenda of partnering each one of our first four surgical applications with a market-leading company,” CEO Dr. Arun Menawat says in an exclusive interview with BioTuesdays.com, pointing out that the laser system will be sold by the industry’s largest specialized cardiac surgery sales force.
“Eight out of 10 cardiac procedures in the U.S. use at least one of MAQUET’s products, so it has the best relationships, not only with cardiac surgeons, but also with technicians that help out in the process,” he says. “This multiple-level relationship drove us to MAQUET.”
The CO2 Heart Laser is used for transmyocardial revascularization (TMR), a surgical procedure used to improve blood flow to areas of the heart that are not amenable to other revascularization methods, such as stents. During TMR, the laser is used to create small channels in heart muscle in order to improve blood flow. While the procedure is often performed in conjunction with coronary bypass surgery, it is also used for stand-alone interventions on patients with unresolved angina.
“There is more potential for TMR today compared to a few years ago,” Dr. Menawat says. “Stents have taken care of many cardiac patients these days, but there is a growing population that can’t benefit from a stent, and this is the target patient population for TMR.”
Novadaq’s core technology platform is SPY Imaging. It provides anatomic and physiologic images of perfusion in tissues, blood flow in vessels, tumor margins and lymphatics during open and minimally invasive surgical procedures.
In addition to MAQUET, Novadaq has signed partnerships with Intuitive Surgical, LifeCell and Kinetic Concepts.
Intuitive Surgical is integrating SPY into its da Vinci Surgical Robotic System, targeting urology, gynecology, GI and other robotic procedures. The integrated system received FDA approval in February 2011 and was launched in July.
LifeCell’s SPY Elite System, launched in February 2011, is designed for breast reconstructive, gastrointestinal, and head and neck surgery.
And last November, Novadaq announced an agreement with Kinetic Concepts to further develop the SPY imaging platform for applications in vascular surgery and wound care for the U.S and certain foreign markets.
JMP Securities analyst J.T. Haresco, who initiated coverage of Novadaq last December, figures there are 1.5 million procedures that can be performed using SPY technology, “which translates into an annual market opportunity of $2.3 billion”, excluding international or hardware sales.
He rates Novadaq as “market outperform”, with the 12-month price target of $7. The stock closed at $5.00 on Friday.
“Clinical data produced to date shows consistent reduction in re-operations and costs associated with the use of SPY technology,” Mr. Haresco writes, adding that the company’s string of partnerships “validate the technology while providing revenue.”
According to Dr. Menawat, since Intuitive and LifeCell launched their SPY products, “our results have been coming together very nicely every quarter”, with Intuitive and LifeCell placing more than 100 devices per quarter in hospitals. He adds, “So in terms of our installed base, this is a phenomenal rate.”
New and older installations include Stanford Hospital, MD Anderson Cancer Center, Johns Hopkins Hospital, Duke University Hospital, University of North Carolina, UCLA Head & Neck, Montefiore Medical Center and Mayo Methodist Hospital.
Combined shipments of fluorescence imaging systems in the third quarter last year exceeded the company’s expectations by reaching a total of 165, Dr. Menawat says, leading to a 20% increase in revenue to $4.2 million from $3.5 million in the second quarter of 2011. “While we believe it is still too early to accurately predict longer-term system shipment trends, we are delighted by this initial surge in demand,” he added.
He figures MAQUET will launch the CO2 Heart Laser in the current quarter, while Kinetic Concepts will be ready to commercialize the wound care product in the third quarter of this year.
“2012 looks like a very pivotal year for us,” he adds. “The key next steps are watching the continued growth through the first two partnerships and the initiation of the second two partnerships as the year progresses. Investors should expect revenues will continue to grow. Entering 2013, we expect to have one of the industry’s largest installed bases in our space.”
MAQUET is planning for a sales team of 60-plus reps to market the heart laser, including five Novadaq sales reps, which have been transferred to MAQUET. “2011 was a pretty good year for us in the TMR business,” Dr. Menawat says. “We created the right marketing message with a small sales team that really worked, and now, we’re turning over our team of five reps to MAQUET. So, MAQUET initially doesn’t have to create the marketing message; all it has to do is get the product to the mass market.”
Novadaq now has about 200 heart lasers installed in the U.S., doing 2,000 to 3,000 procedures a year. He figures that prior to the MAQUET deal, the CO2 Heart Laser was used in about 10% of cardiac surgery patients who could benefit from the therapy.
“What often happens is the device gets used only when a sale rep reminds the surgeon to use it,” Dr. Menawat says. “With MAQUET now representing the product, there will be a large group of sales reps in hospitals detailing the Heart Laser along with other products, and we think the MAQUET people should be able to both expand the user base and grow utilization of currently installed systems.”
MAQUET is a subsidiary of Sweden’s Getinge AB group of companies. The MAQUET brand represents the group’s Medical Systems business division. In 2010, MAQUET generated nearly half of the group’s annual revenue of 2.3 billion Euros, employing 5,100 people in 36 international sales and service organizations, as well as a network of more than 250 sales representatives.
With four partnerships already in its pocket, Novadaq’s next step is commercializing its PINPOINT endoscope system, which combines high-definition visible light imaging plus SPY fluorescence in a single system for minimally invasive surgery. The device, which is FDA-approved, is currently being evaluated in post-marketing studies at four hospitals for a number of clinical applications, including colorectal surgery.
Clinical data are expected this summer, and Novadaq hopes to launch PINPOINT with its own sales team in the third quarter of this year, initially targeting minimally invasive GI surgery. The company figures there are about 500,000 endoscopic procedures done annually that could use the PINPOINT product.
“Because PINPOINT will be a combination of capital sales and recurring revenue, we’ll probably start with a sales team of five to 10 and grow the team in regional terms as revenue grows,” Dr. Menawat says, pointing out that 50 to 100 sales reps will probably represent the ultimate size of the team.
Novadaq also hopes to parlay its own sales team off its four partnerships.
“That’s the beauty of our strategy,” he contends. “We’ll know which hospitals already will have SPY technology when we launch PINPOINT. So, when we speak to minimally invasive surgeons, we’ll be able to advance our arguments about PINIPOINT in the context that the hospital administration and other surgeons already are aware of the benefits of SPY. At a time when it’s difficult to get new technology into a hospital, that synergy will be huge.”