DYNT DJ News article
June 25, 2001
Dow Jones Newswires
IN THE PIPELINE: Pain Device Awaits Insurers' Verdict
PHOENIX -- For Dynatronics Corp. (DYNT), getting Food and Drug Administration approval for its new pain-relief device was the easy part.
The hard part of achieving financial success with the product is going to be convincing health insurance companies to cough up $4,000 per patient for the home version of the device, which some say stands to revolutionize the pain-management market, freeing patients from debilitating pain and a lifelong need for medication.
"We've probably got a yearlong battle on our hands," estimated Dynatronics' Chief Executive Kelvyn Cullimore Jr. Whether the Salt Lake City company wins that battle could make all the difference not only in the success of the device, but in the future of the medical device maker. The Dynatron STS devices have "the potential to be the single largest product line" ever of 20-year-old Dynatronics, according to Cullimore.
FDA approval to market STS devices for use in the "symptomatic relief of chronic, intractable pain" was based on their similarity to previously approved Interferential Stimulation, or IF, devices. IF devices use four electrodes to deliver electrical current along two intersecting pathways, interfering with the transmission of pain messages to the brain. In another commonly used electrotherapy, transcutaneous electrical nerve stimulation, or TENS, stimulation is applied via two leads placed directly where the pain is felt.
The Dynatron STS, used by doctors and therapists in a clinical setting, and the Dynatron STS Rx, available by prescription for use in the home, deliver electrical current via eight electrodes placed at specific spots on the extremities. Four currents intersect along the spinal column, stimulating and normalizing the entire sympathetic nervous system, Cullimore said. In most cases, patients need an hour-long treatment daily, and use of the device continues indefinitely. Some patients have enjoyed permanent relief after a certain number of treatments.
The STS devices are "a radically new modality ... that will revolutionize" the treatment of certain types of chronic pain, said Joe Kleinkort, president of the Pain Management Special Interest Group of the Orthopedic Section of the American Physical Pain Therapy Association.
"I can truly say that I have never seen such a dramatic response to any modality," wrote Kleinkort in a recent edition of his group's quarterly magazine. He has treated patients with the device.
Company Sees Billion-Dollar Niche
But Penny Cowan, executive director of the American Chronic Pain Association, remains skeptical, saying she has difficulty believing there is a "magic bullet out there" to cure chronic pain, a problem for an estimated 50 million to 90 million Americans.
Indeed, the STS device does not work for every type of chronic pain. For example, it is not used to treat pain related to diseases, such as arthritis, which often requires taking anti-inflammatory medications, or cancer, due in part to FDA concerns that electrotherapy could stimulate tumor growth. However, in trials, the STS device has proved particularly effective in patients with peripheral neuropathy, a nerve condition that affects an estimated 15 million people in the United States; and complex regional pain syndrome, pain that occurs after an injury or surgery.
Judy Matthews, one such patient who suffered with chronic pain following 1998 gallbladder surgery, today is nearly pain-free. The retired businesswoman said she was unable to walk from the front door of her Corpus Christi, Texas, home to the end of her driveway because of "unfathomable pain." In recent months, however, she has been able to keep the pain at low levels using an STS Rx device twice a day, every day. She has stopped taking all pain medication and resumed many of her normal activities.
Cullimore estimates the potential market for the device at close to $1 billion. It should not be used by people with thrombosis, pacemakers, cardiac conditions, bacterial infections or by pregnant women. The main known side effect is skin irritation.
Dynatronics is a 20-year-old company with $15.17 million in fiscal 2000 revenue. In the first nine months of fiscal 2001, revenue was $12.5 million, with earnings of a penny per share in each of those three quarters. Cullimore said he expects the company to grow to double-digit earnings in about 18 months, based mostly on STS sales.
Dynatronics' other products include ultrasound therapy equipment, wraps, braces and bandages, nutritional supplements, diet programs, and wrinkle-reducing peels.
A $400,000 Bet
A recent Standard & Poors report noted that "development costs for the (STS) restricted profits in the second quarter, (but) the investment is expected to aid future results." Cullimore estimates the company has spent between $300,000 and $400,000 developing STS devices, almost half of that in the second quarter, when net income totaled $45,725.
Much of the initial research was done not by Dynatronics, but by the inventor of the technology, Dr. Donald Rhodes, a Corpus Christi podiatrist.
Although he developed and patented the technology behind STS, along with a database of thousands of pad-placement and electrical frequency combinations to use depending on where pain is felt, Rhodes couldn't design a compact device for delivering it. Instead, he used multiple IF machines set up in his office to treat "rooms filled with people who trickled in from the Internet," recalled Dr. Steven Sacks, a physiatrist (an M.D. specializing in pain) in Beaumont, Texas, who has studied STS.
Sacks also has invested heavily in Dynatronics, buying 90,000 shares of the company's stock after it decided to license the technology. In Sacks's most recent study of 197 patients treated with STS, he found that 91% reported at least mild pain relief, and 33% total relief.
Such findings are proving critical to winning over insurance companies. While case managers and adjusters at insurance companies have agreed in certain cases to pay for STS based on individual patients' experiences, including the Worker's Compensation Fund in Utah, which enrolled one of its own employees in a trial, others want to see documented studies. Marianne Martin, a case manager with MedInsights in Houston, said studies such as those done by Sacks and Dr. Ernesto Guido, a Corpus Christi neurologist, are key to convincing adjusters to cover STS. Guido used STS to treat 20 patients who suffered with pain from peripheral neuropathies and found that 19 (95%) reported a reduction or elimination of pain, and half reported total relief.
Cullimore expects it will be at least six months until insurance companies start listing STS as something they routinely cover.
Doubts about insurance coverage contributed to the decision by Dynatronics' competition, Rehabilicare Inc. (REHB), not to develop and market the technology on which STS is based, said Rehabilicare Chief Executive David Kaysen. Since insurance companies pay $475 to $600 for TENS devices, he said he didn't think they would pay significantly more for the STS device. Therefore, he isn't concerned about STS taking market share away from Rehabilicare.
"Certainly, the price tag, with the insurance companies, is our major obstacle," acknowledged Cullimore, "but we're confident we will overcome that."
-Anne Brady, Dow Jones Newswires; 602-258-2003; anne.brady@dowjones.com
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