Credit Crunch Trips Small Stent-Maker Xtent
January 23 2009 - 3:39PM
Dow Jones News
A tough financing environment caught up to development-stage
medical company Xtent Inc. (XTNT), which has a novel heart stent in
the works but said Friday it may lay off nearly all its workers
while it looks for a strategic deal.
Xtent's struggles are familiar among the ranks of pre-revenue
medical device and biotechnology companies, where expensive studies
are needed to prove technology works but financing has become hard
to find. There is little appetite among investors these days for
high-risk, high-reward propositions; while big players could easily
snap up these cheap companies, deal-making has yet to really take
off.
"I'm surprised that it hasn't happened yet with Xtent, but then
again I'm surprised it hasn't happened yet with a number of small
and micro-cap names," said Thomas Gunderson, a Piper Jaffray
analyst who covers Xtent and other device companies. The firm has
had a banking relationship with Xtent.
Xtent's stock, which debuted in an initial public offering about
two years ago at $16, closed Friday down 1 cent to 20 cents.
That puts the market valuation at less than $5 million, which
would look like bus fare to the four big players in the stent
business: Johnson & Johnson (JNJ), Boston Scientific Corp.
(BSX), Abbott Laboratories (ABT) and Medtronic Inc. (MDT). For
J&J and its $153.6 billion market cap, Xtent might represent a
low-cost way to tap new technology and help an in-house stent
business hurt by fresh competition.
All of the stent makers have been doing some deals lately. Among
them, Medtronic and Boston Scientific have picked up some small
companies that make devices to treat a heart-rhythm problem,
J&J bought a breast implant-maker and Abbott is buying eye-care
company Advanced Medical Optics Inc. (EYE).
Xtent Chief Executive Gregory Casciaro had a busy day working
the phones Friday following the company's announcement, and said
there has been a good reaction thus far regarding potential
strategic options. He noted that Xtent's technology - which allows
stents to be cut to size while in blood vessels - could also work
for companies interested in long stents to treat clogged leg
arteries.
Just announcing that the company plans to engage a bank to
pursue options "has brought a lot of enthusiasm to us in terms of
exploring what ifs," Casciaro told Dow Jones Newswires.
A deal in the near term could negate Xtent's announced plan for
draconian layoffs - 112 of 121 employees will be gone effective
March 23. Gaining approval to the European market, which has come
more slowly than hoped, would send a positive signal to potential
suitors.
Unfortunately for Xtent, it hasn't been able to woo financiers
thus far, and it needs more money to operate in Europe even if
regulators do approve its stent soon, Casciaro said. He declined to
estimate how much money Xtent needs because it varies depending on
what kind of distribution arrangement the company strikes, but he
noted that Xtent has said ever since the IPO road show that it
would need this financing.
Likewise, the company, which still has enough money now to take
it through this year based on its current burn rate, will need
additional cash to fund a big U.S. trial aimed at later domestic
approval.
Coronary stents are tiny devices used to prop open clogged heart
arteries, and devices like Xtent's use medication to combat
renarrowing. Xtent's product, called "Custom NX," is different than
current technology and "makes a lot of sense," according to
Gunderson. Xtent studies have aimed the device at very tough and
hard-to-treat cases.
The company, which also cut staffing last summer, announced in
August that European officials were asking more questions that
could significantly delay approval. The duration of the delay was
uncertain then, but Casciaro said Friday that he thinks a favorable
regulatory response could actually come very soon.
As Gunderson noted, European regulators have approved several
drug-coated stents so far - including devices that use the same
drug and polymer to attach the drug as Custom NX - but appear to
have raised the bar and slammed the door to entry in Xtent's face.
The U.S. Food and Drug Administration also boosted requirements for
U.S. entry after safety-related stent concerns hit the market in
2006.
"Xtent happens to be the one that didn't make it in under the
wire," Gunderson said.
The environment has also gotten tough for other
development-stage medical companies. A third of the 370 public U.S.
biotechnology companies are operating with less than six months of
their needed cash, and only 10% of the companies in the sector are
profitable, according to the Biotechnology Industry
Association.
In the devices space, Northstar Neuroscience Inc. (NSTR), which
makes a brain-stimulation device and was hurt last year when a
major study backfired, said earlier this month that it plans to
liquidate the company. The study, aimed at helping stroke patients,
surprisingly failed, and the company had a long road ahead to prove
the next potential technology application: for depressed patients.
Major shareholders became disgruntled along the way.
There are very few small medical companies these days doing just
OK, Gunderson noted. "There's nothing in the middle. Either you hit
a home run or strike out."
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(Thomas Gryta contributed to this report.)
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