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Cutting-Edge Devices And Diagnostics Deliver Drugs And Profits: Cantor Fitzgerald's Caroline Corner

|Includes: Alimera Sciences, Inc. (ALIM), XENT

Medical technology is not considered a huge-margin investment in the way that the biotech and drug industries are. However, some of today's medtech blurs the line, including hybrid companies developing stem cell and drug-device delivery systems that address complex disease indications ranging from blindness to spinal paralysis. Caroline Corner of Cantor Fitzgerald follows companies with technologies that can both address dire diseases and reap windfalls for investors. In this interview with The Life Sciences Report, Corner brings important names to investors' attention.

The Life Sciences Report: Caroline, broadly speaking you are a medtech analyst, but what specific areas do you cover?

Caroline Corner: I have a full track of names under my umbrella. My coverage includes ophthalmology; ear, nose and throat [ENT]; cell therapies and other areas. Ophthalmology includes products that focus on delivery of different therapeutics. It sounds like a lot of spaces, but there is quite a bit of overlap. I cover a lot of technologies that have a device paired with some kind of drug or biologic.

TLSR: You returned to industry for a while, where you were you served as head of investor relations [IR] at a life sciences company, but you came back to equity research. Did that IR experience focus or inform your work today as an analyst?

CC: Certainly. I think a big eye opener for me was recognizing how challenging it can be to forecast from the other side of the table. As companies build out pipelines and launch products, they have to manage timelines, and there are a lot of moving parts. I think being head of investor relations at a company helped me understand what goes into that process. I've always known that company management teams don't know everything that's going to happen in the future, but getting a healthy respect for the different moving parts of a business and how they impact forecasting was very helpful.

TLSR: Given that you had been a sellside analyst previously, did you find yourself having sympathy for analysts who needed information about your company?

CC: Yes. But I think what's even more interesting is that, if you give sellside analysts too many metrics, they're going to require those metrics down the road as well. So you have to be very thoughtful about what metrics you want to be held to going forward.

I talk to both public and private companies in my seat now, trying to get to know the various sectors I cover in more depth. I've actually advised companies-especially companies that might be in the early stages of a launch-to be conservative and thoughtful in what metrics they communicate to the Street.

TLSR: Let's speak to some specifics along the line of paired device and therapeutic. Is there a company in this space that you like?

CC: Alimera Sciences (ALIM) has an implant that elutes a steroid for the treatment of diabetic macular edema [DME]. The company is in early stages of its launch now. Along those same lines, Intersect ENT Inc. (XENT) has a stent for the sinuses. It's bioresorbable and elutes a corticosteroid over a period of time. Both of these companies are focused on delivery of steroids-on putting the drugs in the right place in the right concentration to avoid side effects while getting the optimal therapeutic value. Intersect's product also supports the sinus walls, so that's an added benefit. These two companies fit firmly into the device side, yet also deliver a drug. We have Alimera Buy-rated with a $10/share price target, and we have Intersect Buy-rated with a $35/share price target.

TLSR: Please provide a bit of detail about Alimera.

CC: Alimera recently started the launch of Iluvien [fluocinolone acetonide intravitreal implant] in U.S. markets. It is approved to treat DME, a condition that causes blindness in diabetics. DME has historically been treated with anti-vascular endothelial growth factor [anti-VEGF] products such as the monoclonal antibody Lucentis [ranibizumab; Genentech/ Roche Holding AG [RHHBY:OTCQX]] or the fusion protein Eylea [aflibercept]; Regeneron Pharmaceuticals Inc. [REGN:NASDAQ]]. The problem with the anti-VEGF agents in DME is that they generally stop working in about half of the patients. DME is unlike age-related macular degeneration [AMD], where we've seen blockbuster progress with anti-VEGFs. DME is a very complicated disease process, much like diabetes itself, and just using anti-VEGF is not enough.

TLSR: Getting this product through the regulatory process has been difficult. Why?

CC: Steroids are effective in DME. The issue for Alimera has been that systemic steroids, or steroids injected directly into the eye, have the side effect of increasing intraocular pressure in some cases, which can, in turn, cause glaucoma and damage to the optic nerve. Alimera has had to prove that the delivery of fluocinolone can be done in such a way that intraocular pressure increases can be managed. It's a controlled release and also delivered in a very small dose. Because it's going right where it's needed, you can use a lot less of it. It's targeted that way.

Now, if you talk to physicians, they will say that people with advanced DME are going blind anyway, and a slight increase of intraocular pressure is not that big of a deal. However, the FDA required lots of safety data. Ultimately, Alimera was able to prove Iluvien's safety and effectiveness in clinical trials, with very low rates of increases in intraocular pressure.

In addition, Allergan Inc.'s [AGN:NYSE] Ozurdex [dexamethasone intravitreal implant] is on the market now, which is a shorter-term steroid. That has provided a way for physicians to screen who is going to have an increase in intraocular pressure. The label in the U.S. for Iluvien is for the treatment of DME in patients who are not expected to have an increase in intraocular pressure. A way to test is by first using Ozurdex, which only lasts about three months. Generally, a physician will put a patient on a course of Ozurdex, and with a good outcome, they can then use the Iluvien implant, which lasts for three years.

TLSR: This is a second-line therapy after Lucentis or Eylea, right?

CC: That's currently how it is marketed. My Iluvien model is based on people who are now failing or having inadequate response to the anti-VEGF therapies.

TLSR: You mentioned Intersect ENT, another drug-device company. Would you go ahead and address that, please?

CC: Intersect ENT has a pipeline of products that treat chronic sinusitis. Its intellectual property centers around bioresorbable, drug-eluting stents that are inserted into the sinuses. Its approved products, Propel [mometasone furoate implant] and a smaller version called Propel Mini, are for use in functional endoscopic sinus surgery. These implants are inserted after surgery; the stents then support the sinus walls while delivering the steroid.

Currently, if you are being treated for sinusitis, you're often treated with steroids. You either receive them systemically through a pill, which has side effects, or as a steroid nasal spray. But steroids delivered nasally are mostly swallowed and do not really get into the sinuses.

Intersect's pipeline includes products that would be used for different sinuses-maxillary or frontal sinuses-in the physician's office. Another product in development is for people who have failed surgery or have had multiple interventions, and still have chronic sinusitis. This implant would deliver more of the steroid for a longer period of time. Intersect has a pretty full pipeline to address most of the chronic sinusitis market.

Nobody else is doing much at all in sinusitis, or in the ENT space in general. It's had very few entrants. I'm really excited about this company.

TLSR: How is Propel reimbursed?

CC: Physicians are not financially incentivized to implant these stents. There's a reimbursement code for the stent surgery, for about $14,000 per procedure. The cost of two Propel implants is $1,500, but there is no separate code for them. Surgeons are using Propel, not because they're making any more money-if anything, they're making less-but because they're getting better patient outcomes with fewer re-interventions and better healing. Propel is selling right now based on the strength of data, with level 1A evidence to support its use.

TLSR: Propel and Propel Mini account for virtually all of Intersect's revenue. ENT is a small medical specialty, and there are currently only about 540,000 surgeries for chronic sinusitis done each year in the U.S. I don't imagine that Propel is going to enlarge or expand that market. How much market share can Propel take?

CC: In my model, I have Propel and Propel Mini being used in about 20% of surgeries by the end of 2017. Some payers, including some of the Blue Crosses, have already deemed the stents medically necessary. That is putting pressure on other payers. You're right that the 540,000 number probably is not going to grow much, but the pipeline of products that Intersect is working on-including the Nova implant-will address procedures performed in the physician's office. People who have chronic sinusitis but who are not quite ready for surgical intervention could be a much bigger market. These products could also address patients who have already had surgeries but are still suffering. That more than doubles the addressable market. Intersect should be able to comprehensively cover all of the sinusitis market.

TLSR: When could we see Nova hit the market?

CC: I think Nova could enter the market as early as 2017. The management team previously mentioned Nova could be on the market in 2018, but the company has been able to accelerate that trial a bit, which has been good for Intersect.

TLSR: Would you say that, for the next two years, Intersect ENT is a horizontal growth story?

CC: Yes. It's selling on the strength of the data and the strength of patient outcomes, and I think growth so far has been pretty impressive.

TLSR: You also follow the stem cell therapy space. Can you talk about that?

TLSR: The cervical spine injury trial will enroll 52 patients who have C5-C7 injury, and it will have three cohorts. It's single blind-only the outcomes assessor is blinded here. Final data collection will occur around May 2017, less than two years from now. Are we going to get interim data?

CC: Yes, we should get six-month data in the middle of 2016. And yes, interim data can certainly help the case a lot. In fact, interim data have been quite good for a company called InVivo Therapeutics Holdings Corp. [NVIV:NASDAQ] out of Boston. It has a spinal repair program utilizing a device called the Neuro-Spinal Scaffold. The scaffold is bioresorbable and is implanted into the spinal cord injury site. Patients themselves have been vocal on social media about results of their spinal scaffold placements and the resulting spinal repair that has occurred. This has really helped that company's case.

Of the three patients InVivo has enrolled so far, the first and third have had really good outcomes. The second, which was a more complicated case, has also seen improvement. Even though we are dealing with tiny numbers-just three people-the interim data have been good for the stock because there is nothing else out there to improve patient outcomes. InVivo has a very robust pipeline as well, including the possible addition of stem cells to the scaffold.

TLSR: Caroline, it's interesting to note that the scaffold placements in these three patients have occurred without stem cells seeded into the device. The scaffold alone seems to be responsible for the patients' improvement.

CC: Correct. Another thing that's interesting with InVivo is the surgical technique being used. Before the scaffold is inserted, the surgeon opens the wound in the cord and drains out some of the necrotic tissue. That's different from traditional management of spinal injury. Since the beginning of time, surgeons have just left the necrotic material in the cord and caged around it or supported it mechanically, in contrast to surgical repair of every other type of injury, where removal of necrotic material and reducing inflammation and swelling is important. It may be that surgeons have been too scared to manipulate the cord. But I think the surgical technique itself, letting all that necrotic tissue out, putting a nice scaffold in, and allowing the body the opportunity to repair itself, is pretty interesting.

TLSR: A final question-Cantor Fitzgerald held its inaugural healthcare conference on July 8. How did it go?

CC: I think it's safe to say our conference was a big success. We were very pleased with it. It was a one-day conference, and we were inundated with requests from companies to present. Most of the companies I've mentioned here presented at the conference. Next year we'll do at least two days because we don't like to be in a position where we're turning people away. We had great one-on-one schedules. All the feedback from company management teams has been positive. We got some quality buysiders taking one-on-ones with company managements. Overall, it was a really strong day.

TLSR: Thank you, Caroline.

This interview was conducted by George S. Mack of The Life Sciences Report and can be read in its entirety here.

Caroline Corner, Ph.D., has been a managing director and senior analyst at Cantor Fitzgerald & Co., Research Division, since July 2014. Dr. Corner focuses on equity research of medical technology, ophthalmology and cell therapy companies. Prior to Cantor Fitzgerald, she worked in investor relations at Solazyme Inc. Previously, Dr. Corner served as a managing director and senior research analyst at MLV & Co. LLC. Dr. Corner served as a senior research analyst of regenerative medicine and convergent technologies at Pacific Growth Equities LLC, and worked at Montgomery & Co. LLC, where she served as a senior research analyst covering medical technology companies. She got her start on Wall Street at Wells Fargo Securities LLC as an associate analyst covering medical devices. Prior to working on Wall Street, she held engineering and product development positions at Baxter Transfusion Therapies and Eli Lilly and Co., working in the protein engineering group. Dr. Corner received her Ph.D. in biological and environmental engineering from Cornell University and her bachelor's degree in biological systems engineering at Virginia Tech.

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