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Adoption of the AngioJet®, good clinical papers and FDA approvals driving growth for Possis Medical

Analyst Interview on:
Possis Medical, Inc. (NASD: POSS)
Medical Equipment & Supplies

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Douglas Eayrs
VP, Research Analyst
Dougherty & Company LLC
Phone: 612-376-4053

Interview conducted by:
Walter Banks, Co-Publisher

June 2002

Bio of Analyst,
Douglas A. Eayrs, CFA
Vice President and Senior Research Analyst
Telephone: 612-376-4053


·         Follows Medical Technology and selected biotechnology and diagnostics companies.

·         Nine years experience as an investment analyst covering medical technology and selected biotech companies.

·         Over three years experience in the biotech industry as a Vice President of Finance, he assisted in the completion of several financings to fund company sponsored late-stage clinical trials.

·         Chartered Financial Analyst; Master of Arts in Applied Economics, Marquette University; Bachelor of Arts, University of Minnesota.

·         In 1996, named an All-star Analyst in the medical products space in the Wall Street Journal's annual survey.

About Dougherty & Company LLC,
Dougherty & Company is a Minneapolis-based investment banking firm that specializes in markets underserved or overlooked by large investment and commercial banks.   Founded in 1977, the Firm has been built on the strength of long-term relationships and the ability to find innovative solutions for our clients.  With a team of experienced investment bankers, research analysts, equity and fixed income traders, institutional and retail sales persons and investment executives we have the creative resources necessary to meet a broad range of client needs.  Our clients include thousands of institutional and retail investors and hundreds of corporate, state and local government, and not-for-profit organizations.

CEOCFOinterviews: Mr. Eayrs, please tell us about the industry that you cover and current trends?

Mr. Eayrs:  “I basically cover Medical Technology companies and I look for companies that have innovative products and technology. The key trend is toward improved patient outcomes at reduced cost. There has been a tremendous movement in the past 10-15 years towards the interventional procedure, such as the catheter based technologies offered by Possis Medical, Inc. (NASD: POSS), and the adoption of those technologies in treating cardiovascular disease. Many cardiologists and interventional radiologists can now go in in a minimally invasive manner and treat the clot or plaque problem, withdraw the catheter and close the patient up; they get good outcomes and fast recoveries. Therefore, that is a great trend in healthcare.”

CEOCFOinterviews: What companies do cover in that space?

Mr. Eayrs: “We cover Possis Medical Inc. (NASD: POSS), Merit Medical Systems Inc. (NASD: MMSI) and two smaller cap companies, one of them which I have a neutral rating on is Vascular Solutions, Inc. (NASD: VASC), which is in ‘vascular closure’. The second small cap company I cover is called Synovis™ Life Technologies (SYNO) andthey also have a cardiovascular focus.”

CEOCFOinterviews: What do you think of the Possis Medical’s AngioJet® and the development of their company?

Mr. Eayrs: “The AngioJet® system, is a minimally invasive catheter based technology that uses water-jet pressure to break up a blood clot and extract it from the body. Their business is taking off fast; they are on a July 31, fiscal year end. Last year they did 30 million in revenues, and they had a 20-cent loss per share and in July of 2002, I have them projected to do 42 and-a-half million in revenue and make 32 cents positive earnings per share so they move from a loss to positive earnings on 45% plus revenue growth. What is driving that is the combination of the growing adoption of the AngioJet® in cardiovascular interventional medicine supported by good clinical papers, and additional FDA approval of some of their next-generation catheters.”

CEOCFOinterviews: How have people been responding to the adoption of the product?

Mr. Eayrs:  They had a paper that was just published in February; in the American Journal of Cardiology ; with the final clinical results from their VeGAS 2 study. Independent clinical investigators compared using the Posis Medical, AngioJet® Rheolytic™ Thrombectomy System catheter system versus Urokinase Thrombolysis drug therapy to remove fresh blood clots in blocked native coronary arteries and blocked coronary bypass grafts. These bypass grafts are done when a patient has had cardiac bypass surgery. In the past when a patient had already had blockage, they suture in bypass grafts to create blood-flow around a signficant blockage.Later, these bypass grafts can become blocked too. The AngioJet® is used in both the native coronary arteries and the saphenous vein bypass grafts to quickly reestablish blood flow to the heart muscle. Basically the AngioJet had a better overall procedural success rate than Urokinase, which is a clot dissolving drug that is the common drug that they give to patients that are having acute Angina (chest pains) from a coronary blockage.”

CEOCFOinterviews: So there been a greater success using the AngioJet® system.

Mr. Eayrs: “Yes, using the interventional AngioJet catheter system; they had an overall success rate of 86% in the 180 treated patients, versus Urokinase with a procedural success rate of 72% in 169 treated patients, so the AngioJet® was a statistically significantly better treatment approach. They also had fewer patient complications and fewer adverse events. There were bleeding complications in 12% of the patients given Urokinase drug therapy, and only in 5% of theAngioJet treated patient group. The Urokinase patients had major adverse cardiac events in 33% of the cases at follow-upand the AngioJet group had only 16%, which is quite a bit lower. They had better procedural success and fewer serious complications; this was a large trial with almost 350 patients and it was peer reviewed and randomized.”

CEOCFOinterviews: Is Possis Medical’s main competition coming from drug therapy?

Mr. Eayrs: “Yes, the main competition, especially in the coronary arteries, is anti-thrombolytic drug therapy; however balloon angioplasty is also used sometimes without thrombectomy (AngioJet). When working in the peripheral arteries and the kidney dialysis access grafts, they also use devices such as the Possis Medical’s AngioJet® to open up peripheral arteries as well, in the legs and arms. There are some other “cruder” catheter-based technologies, so they compete with some other catheter based systems in the peripheral arteries but up in the coronaries, it’s mainly the clot dissolving drugs, which is their main competition.”

CEOCFOinterviews: Does the AngioJet® help to speed up the intervention process?

Mr. Eayrs: “With their AngioJet system, you can intervene quicker and then roll to balloon angioplasty and the placing of coronary stents too, whereas with drug therapy, you typically have to wait several hours. If a person has a clot in their coronary artery and they put them on clot dissolving drugs, they typically have to wait 4-24 hours before they can come in and do balloon angioplasty and stenting. With the AngioJet® system you can roll right through the total interventional procedure.   First use the AngioJet catheter, and go up and clean the clot out and then you can go back in with the balloon catheter and do balloon angioplasty to widen the site (compress plaque), then go back with a stenting catheter and place the stent.

They are preparing for  the interventional procedure and they can more quickly move to angioplasty/stenting; whereas with clot dissolving drugs, there is a waiting time of up to 24 hours in intensive care before the interventional procedure can begin. That is kind of the trade-off with the Doctors, whether to delay by using the clot dissolving drugs first to reestablish bloodflow or to go right to the clot with interventional catheters instead and start working on it with interventional devices.”

CEOCFOinterviews: Are there any advantages to using drugs over the AngioJet®?

Mr. Eayrs: “The drugs are easier to use but there is a tradeoff because you have the time delay before angioplasty/stenting. The patients actually do better when the Possis Medical product, AngioJet® when it is used right away and the clot dissolving drugs are not used.”  This was the conclusion of the VeGAS II study that we spoke of previously.

CEOCFOinterviews: Can you give us your thoughts on their approach to marketing?

Mr. Eayrs: “What they are doing is going direct, they haven’t hired a large major medical device company as a partner to help market AngioJet; they are doing it by having their own direct sales people, which is always a bit harder. It takes time but you also control everything when it is your own sales people. They are going with a direct sales force in the United States, and then using distributors in Europe and overseas.

The U.S. is really the key market because interventional procedures are a fast growing segment and the uptake of new technology  is quicker. Their strategy is get some good Centers going that are good users and key Doctors that are comfortable with their technology, and then they branch out from there continually moving outward.  In the U.S. at the last quarter that ended January 31, they publicly disclosed the number of drive units, which are the ‘pumping’ systems that they have out in the United States and the number was 771. They have in their typical Cath Lab, 1-2 drive units. There are over 6000 hospitals in the U.S. and over 1800 Cath Labs. With a relatively small market penetration, they have a ways to go, however they are just getting rolling with their business.”

CEOCFOinterviews: What do they need to do to continue growth in the market place?

Mr. Eayrs: “Just keep producing good clinical results in published papers, get additional approvals, get the device out in the hands of experienced interventional cardiologists and interventional radiologists; give them a chance to work with it. They usually have clinical specialist support people there in the beginning to make sure the procedure goes right. It is just a matter of basic “blocking and tackling” to get the marketplace penetrated with their AngioJet system.”

CEOCFOinterviews: But you think that they have a successful strategy for growth in this market?

Mr. Eayrs: “Yes, they are growing; they are doing it on their own which takes a little longer but they control it.”

CEOCFOinterviews: Does their revenue model include disposables?

Mr. Eayrs: “It is primarily disposables, that drives the revenue stream. The drive unit is a machine with a pumping unit with controls, it monitors and controls the pressure to break-up and extract clot from vessels, to monitor what is going on inside the vessel. They get revenue both from sale and lease of the machine, and then they get revenue from the one-time use, disposable catheter, and related disposable products that are used with the procedure.

On a typical procedure you will have anywhere from $9 to$1,300 dollars in disposable catheters, collection bags and the disposable drive pumps so that there is no cross-contamination risk with any other patients. It is a nice system because it is all enclosed and the disposable things are thrown away and the brand new disposable catheters are used with the next patient. In the last quarter, they had about 8000 catheters used in the United States. It’s a growing business.”

CEOCFOinterviews: Do you give them a rating?

Mr. Eayrs: “The rating we have is a Buy Rating on their shares. We actually have a four rating system, Strong Buy, Buy, Neutral and Sell, so Possis Medical has our number 2 rating.  We expect positive price appreciation over the next twelve months, at least better than the market in general,  a 20% or higher gain.”

CEOCFOinterviews: In closing, could you address possible global markets for their product?

Mr. Eayrs: “The one thing about POSSIS is that most of their current revenues are derived from sales in the United States.They have applied for Japanese clearance and we project it will be approved in Japan around August 1st this year (2002).  Most of the $42 million in projected sales for this July fiscal year-end is U.S. revenues; and there is just minimal revenues from outside the U.S.

They have a significant business opportunity overseas to help drive their business growth and that is going to start with Japan next year. I think the Japanese market will be a good market for them and will drive revenues higher  next year as well.

CEOCFOinterviews: Will that be done through partnering?

Mr. Eayrs: “They are going to use a partner to help them in Japan.”

CEOCFOinterviews: Thank you for your time and insight.


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