PropThink: Expecting Significant AutoloGel Ramp In 2013
(Thomson Reuters ONE) -
By Jason Napodano, CFA
Shares of Cytomedix, Inc. (OTC:CMXI) have been under heavy pressure the past six
months. The stock is off 67% from the highs in May 2012 and 57% from the August
2012 decision by the Center for Medicare and Medicaid Services (CMS) to grant
Coverage with Evidence Development (CED) for AutoloGel (company press
release). We've spoken to a number of investors on the subject over the past few
weeks and we believe there is significant misconception of what exactly CED is,
and what it means for Cytomedix almost immediately.
...A Little Background...
On August 2, 2012, the CMS issued a National Coverage Determination (NCD) for
autologous blood-derived products for the treatment of chronic non-healing
wounds. The decision reverses nearly 20 years for non-coverage for autologous
platelet rich plasma (PRP) treatments, including Cytomedix' AutoloGel - the only
FDA approved treatment option. We encourage investors to read the CMS memo for
an explanation of the rational behind the decision to grant CED for AutoloGel.
What Is CED?
CED, or Coverage with Evidence Development, is full coverage by the government
to Medicare / Medicaid beneficiaries seeking to use AutoloGel for the treatment
of chronic non-healing wounds - more specially, diabetic foot ulcers, venous leg
ulcers, and pressure ulcers. Frost & Sullivan estimates the U.S. chronic wound
care market is $2.3 billion in size, with more than 6 million wounds treated
annually.
PRP products like AutoloGel represent only a small fraction of the market share.
There are dozens of alternative therapies that compete with AutoloGel, some of
them commodity types of products that have established habitual use patterns or
set provider contracts to encourage standardized use. There is virtually no
government business for AutoloGel now. Instead, management has been focusing on
private pay procedures, long-term acute care hospitals (LTAC), veterans
administration facilities, and certain state medicaid agencies. However, the
lack of a national coverage decision on the product has limited uptake in this
area as well. CMS coverage not only kicks open the door to Medicare/Medicaid, it
also meaningfully expands private pay coverage as well, as many private
insurance companies follow the CMS' lead.
AutoloGel, in our view, is a potential significant leap forward in the treatment
paradigm. Not only is the product more effective than the more commonly used
Dermagraft (~$195M in sales in 2011) and Aligraf (~$125M in sales in 2011), but
it costs less. The data below was complied by B&D Consulting in September 2007.
B&D is an independent advisory and advocacy firm located in Washington. The firm
completed a cost effectiveness analysis of AutoloGel compared to alternative
therapies for patients with diabetic foot ulcers. Results of this study
demonstrate AutoloGel offers a lower cost and better healing outcomes than the
other therapies analyzed. This study was published in the Journal of Advances in
Skin and Wound Care in December 2008.
Cytomedix has conducted its own market research and clinical studies to assess
the cost and effectiveness of AutoloGel when compared to readily available, and
fully-covered, alternative therapies. For example, included in the company's
dossier requesting reconsideration on NCD in May 2011 (company press release)
was a number of case studies collected over the previous seven years.
Prior to filing the reconsideration application, Cytomedix published a
comprehensive systematic review and meta-analysis (statistical pooling) of the
use of PRP gel in wound healing in ePlasty, the open access journal of the
Journal of Plastic Surgery. Data at SAWC in April 2011 highlighted comparing the
use of PRP gel (AutoloGel) and negative pressure wound therapy (NPWT) in the
long-term acute care setting. Results demonstrate that PRP greatly improved the
wound healing outcomes while also cutting costs associated with the overall
treatment. The study was conducted at the Asheville Specialty Hospital, in
Asheville, NC.
...Market Misconception...
Despite the significant advantages of the product on both cost and
effectiveness, and massive market opportunity that lies before Cytomedix
with AutoloGel, we believe that investors may be misinterpreting the CED
decision. CED is not a road-block or hurdle to coverage, nor is it a stepping
stone to coverage. CED is coverage. The only difference between CED and final
coverage is that CMS would like to monitor the ongoing use of AutoloGel - for a
certain period of time - in order to collect additional data to support its
decision. This isn't an FDA clinical trial where CMS is asking Cytomedix for an
outcome or a primary endpoint. Instead, CMS and Cytomedix will use a registry to
monitor patients post use.
The FDA establishes hurdles, guidelines and regulations to protect patients from
potentially dangerous experimental drugs and devices. Remember, the FDA already
approved AutoloGel. That's not what's happening here. On the contrary, CMS
recognizes the potential for the use of PRP in the treatment of chronic non-
healing wounds. However, use of PRP to date has been limited due to a lack of
coverage. For years, Cytomedix has been stuck in the, "How do we generate data
without coverage/how do we obtain coverage without data?" conundrum As a
result, the data available is limited. CED provides the pathway from CMS to
provide the coverage in order for Cytomedix to collect additional data. Perfect.
Investors unfamiliar or skeptical of CED might want to view a similar example to
what Cytomedix is doing with AutoloGel to Medtronic's (NYSE:MDT) efforts to gain
CMS coverage for its Transcatheter Aortic Value Replacement (TAVR) procedure.
CMS granted CED to Medtronic for TAVR in May 2012 (see CMS memo). The decision
came with similar post-coverage stipulations as the CMS CED decision on
AutoloGel. Medtronic has full coverage for the TAVR procedure, but must collect
additional data for CMS at qualified hospitals via a patient registry.
Yesterday we learned that Medtronic (NYSE:MDT) created (and apparently CMS
cleared) the TVT Registry, a benchmarking tool developed to track patient safety
and real-world outcomes related to the TAVR procedure. Medtronic got the Society
of Thoracic Surgeons (STS) and the American College of Cardiology (ACC) to
participate in the program, which is designed to monitor the safety and efficacy
of this new procedure for the treatment of aortic stenosis. Nicely done
Medtronic. We have also heard, anecdotally, that Medtronic is charging centers
up to $25,000 to participate in the registry. So not only are they driving
uptake and collecting data thanks to some key partnerships and CED, they are
selling the catheter and charging the centers to use it. And they accomplished
all this in five months following the CED memo. Very nicely done Medtronic!
Cytomedix is not Medtronic, so we are not expecting management to pull off that
type of a feat by January 2013. However, Cytomedix will be working with wound
care centers around the country to build its registry just as Medtronic did with
leading cardiac centers. The company will be using Intellicure to aid in the
collection and analysis of the data as it is being generated. Management tells
us that each use of AutoloGel will generate a profit to the company. That's
important for investors to understand. CED allows Cytomedix to earn a profit as
it collects the data and funnels that back to CMS for review. That's different
from a traditional clinical trial which normally cost companies money. Cytomedix
will be selling AutoloGel with CMS coverage, and booking revenues as it ramps.
Conclusion
Above we've outlined why CED is so important to AutoloGel. There is virtually no
government business for AutoloGel right now, and the lack of government business
is impeding uptake in the private pay market. CED is coverage. And not only is
it coverage, it's coverage at a profit to the company. AutoloGel is a superior
product. Data from both independent and company sponsored studies shows that
AutoloGel works better and costs less than products like Dermagraft and
Apligraf. Both these products have CMS coverage and will do over $150 million in
revenues in 2012. Based on conversations that we are having with investors,
there is significant misconception on CED.
Cytomedix will do $0.6 million in AutoloGel sales in 2011. That's a rounding
error for most companies and just a small part of Cytomedix $10 million
business. It's a non-factor in the company's valuation at this point. The stock
is all Angel and Aldagen; AutoloGel has been written off at this level. We
love Angel. The sales trajectory on Angel has been great and the upside is
meaningful. Aldagen is a wildcard, but if just one of those trials hits, you're
looking at a potential blockbuster drug. But buying into AutoloGel is where we
really think investors can make money in Cytomedix. Expectations are low due to
the previous sales and misconceptions on CED. That will change in 2013.
AutoloGel is a $25 million product. In the hands of a big pharma partner, once
that can complete with Shire (NASDAQ:SHPG) on Dermagraft or Organogenesis on
Apligraf, and it might be a $50 million product. We're expecting a significant
ramp in AutoloGel sales in 2013. The stock should retake the highs from earlier
this year as that becomes more evident over the next few months.
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Datum: 26.10.2012 - 15:05 Uhr
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News-ID 196775
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