I thought that the CEO of Physiometrix (PHYX), a medical device company, did a bang-up job at last week’s JM Dutton Healthcare conference. At the risk of offending the biofreaks who eschew device companies, I’ll publish some notes from the presentation here.
The company develops and markets Patient State Analyzers (PSA) that calibrate and display brain activity so that anesthesiologists and ICU nurses can monitor a patient’s wakefulness. This monitor can save lives in those settings. Doesn’t sound that tough, but apparently there are only two players in this market and it is a big market. Giving a patient too little or too much anesthesia is a serious problem that occurs all too frequently. A recent front-page article in USA Today said more that 100 patients per day wake up during surgery (at a different point in the presentation, we were told that annually over 200,000 patients wake up during surgery, but the two calculations don’t agree). On the other side of the coin, it is generally recognized that over-anesthesis during surgeries increases mortality rates. The goal, then, is to give the surgery patient just enough anesthesia to keep him from waking up, and not any more than that. The PHYX PSA does this by calibrating wakefulness on a scale of 1 to 100 (100 being fully alert) and displaying the result in a color-coded fashion allowing the anesthesiologist to verify, from as far away as across the room, that the surgery patient is staying in the desired zone of 25-50. The device is intended for use in three settings: the operating room, the ICU, and outpatient sedation.
In preparing the patient for surgery, the anesthesiologist administers three drugs. The last of the three to be administered is a paralytic, which is needed to allow a breathing tube to be inserted into the patient. Using the PSA, the anesthesiologist can titrate the patient with the first two drugs, to achieve the 25-50 zone, before administering the paralytic drug.
Pitching the PSA for use in the ICU and outpatient surgical suites are new, and potentially even more lucrative, market opportunities. Nurses, not anesthesiologists, are typically responsible for administering sedative drugs in these venues. The device can also assist the nurses in titrating to the optimal level and avoiding over-sedation.
PHYX markets its products through Baxter Healthcare. Baxter manufactures the anesthesia products recommended for use with the PSA, which is marketed as a device allowing those anesthesia drugs to be used to optimal effect. Baxter currently only has a 35% market share with those drugs and it believes that the PSA can help them increase market share to 70%. So Baxter is marketing the PSA aggressively. The Baxter sales reps for the PSA only market three other products, and in order to obtain the coveted “president’s club” status they have to make their quota in sales of the PSA.
Baxter is currently sponsoring a follow-up study to determine whether use of the device reduces the incidence of mortality due to over-anesthesis. Another benefit of using the device in surgery is a reduction in the number of patients needing post-anesthesia care units. By using no more anesthesia than is necessary during surgery, it becomes possible to awaken the patient immediately after surgery
There is a growing acceptance among anesthesiologists of the need to use PSAs. The website of the American Society of Anesthesiologists hosts an article stating: “The time is right for anesthesia monitoring.”
There is only one other player in the PSA market, which PHYX believes to be a $1B annual market opportunity. The surgery market includes 50M applicable procedures per year [that seems awfully large -- perhaps I didn't record that figure correctly in my notes], and the ICU is an even bigger market. There is a disposable component used with the device, so PHYX continues to generate revenues after selling the main hardware units. The other player is Boston Scientific, which has been in the market for 5 years longer. Boston Scientific has just made a $20M investment in a competing device. Naturally, PHYX believes that its device, particularly the new upgraded version for which FDA approval is expected this July, has distinct advantages over the Boston Scientific product. The presenter listed the following advantages:
o Intuitive user interface and color LCD, which allows the anesthesiologist to follow the data from a distance
o The new monitor is faster, easier to use, and it works 100% of the time.
o The device includes a deep sedation safety monitor
o Electrical noise will not cause the device to crash.
o More data with 4 channels of EEG
The company had an anemic $1M in sales in 2002. In 2003 they developed a new head-attachment device that allows the anesthesiologist to use the device quickly and easily. Apparently difficulties in attaching the device to the patient were impeding the market acceptance. They are now in the launch mode for the improved device.
PHYX did a PIPE financing in December. They now have adequate cash now to get to profitability.
The company has the following key goals for 2004:
o Obtain a marketing partner for the rest of world partner
o Fully launch the marketing effort for use of the product in ICUs, where they believe costs can be achieved by shortening a patient’s say by avoiding over-sedation.
o Obtain FDA approval for, and launch the marketing of, the new PSA 5000 model, which is smaller and easier to use, and half as expensive to manufacture. They submitted for FDA approval in December and expect to obtain approval and launch the product in July of this year.
One near-term driver is that JM Dutton intends to issue an investment report on PHYX in a few weeks. I think it is a good bet that JM Dutton, after having PHYX present at its Healthcare conference, will be issuing some type of a buy recommendation. The company’s market cap is only about $20M, so a little visibility could produce a significant effect.
Marc |
