CVIS launches IPO; sets SciMed agreement

Cardiovascular Imaging Systems (CVIS) of Sunnyvale, CA, went publiclast month, raising about $10 million. The funds will help expandmarketing and development of intravascular ultrasound products,according to Richard M. Ferrari, president and CEO. CVIS tradeson the NASDAQ market under the symbol CVIS.

Nearly 300,000 of 1.5 million common shares issued were soldat $7 per share to angioplasty catheter company SciMed Life Systemsof Maple Grove, MN. CVIS signed a joint development and OEM supplyagreement with SciMed in March.

The SciMed agreement will help produce revenue to replace theincome CVIS realized from medical imaging vendor Siemens Ultrasoundlast year (SCAN 3/27/91). CVIS's cooperative agreement with Siemensended at the end of 1991, Ferrari told SCAN.

CVIS is negotiating with other ultrasound vendors to incorporatethe firm's Insight intravascular ultrasound catheter into general-purposescanners, he said.

"The relationship with Siemens was one in which our technologycould have been more broadly disbursed across a general ultrasoundplatform," he said. "We still have that strategy. Wewant our catheter to be (used in) a broad-based product regardlessof whether it is a CVIS ultrasound system."

CVIS realized $1.8 million last year in sales of intravascularultrasound components to Siemens for incorporation into that vendor'sultrasound equipment. No significant additional revenue is expectedfrom this source in 1992, according to the IPO prospectus.

Siemens shifted its focus away from the CVIS project in themidst of merging its cardiology ultrasound business with the radiology-focusedQuantum business it purchased two years ago (SCAN 4/11/90), Ferrarisaid.

CVIS revenues jumped substantially in fiscal 1991 (end-December),more than doubling from $2.9 million in 1990 to $6.8 million.While the firm is still not profitable, losses were trimmed from$4.3 million in 1990 to $3 million last year. Revenues for thefirst quarter of 1992 rose 23%, from $1.3 million in 1991 to $1.7million in the same period of this year. Losses also declinedfor the first quarter, from $894,000 in 1991 to $694,000 in 1992(see graphs).

The SciMed agreement involves cross-licensing of technologybetween the two companies. The firms will jointly develop a guidewireultrasound imaging device, which SciMed will have exclusive rightsto sell in intravascular applications and CVIS will sell for otherapplications, according to the prospectus.

SciMed has also agreed to acquire a minimum volume of CVISintravascular ultrasound systems to sell with its catheter line.The marketing relationship could grow in the future, Ferrari said.

"Down the road, we hope we will be using common distributorsin certain parts of the world," he said.

CVIS will use SciMed catheter technology in developing futureproducts of its own. SciMed may provide ways to make CVIS imagingcatheters more trackable on guidewires and help ease movementthrough the vessels, he said.

"As one of the premier balloon angioplasty companies inthe world, they (SciMed) have access to certain technology CVISmay not have the resources to develop," Ferrari said.

SciMed settled an angioplasty patent infringement suit lastyear with Advanced Cardiovascular Systems, a subsidiary of EliLilly. Under that agreement, SciMed licensed ACS technology, enablingSciMed to continue manufacturing and selling its own Express angioplastycatheter through November 1993. It must pay ACS a royalty on theExpress catheters sold or made in the U.S. SciMed signed an agreementthis month with American Home Products to acquire European assetsthat will enable it to set up production outside the U.S.

CVIS has developed significant proprietary technology relatingto its core intravascular ultrasound imaging system. The firmhas been issued six U.S. patents and four more have been allowedand are being processed, according to the prospectus.

The company licenses technology, however, from Vingmed Sound,which was purchased by intraluminal ultrasound competitor Diasonicsa year and a half ago (SCAN 12/12/90). Electronics for the Insightsystem were developed originally under an agreement with Vingmed,the prospectus states.

CVIS is currently in a patent dispute with Intertherapy ofSanta Ana, CA, another intraluminal ultrasound company (SCAN 5/22/91).Intertherapy filed suit in April against CVIS in U.S. districtcourt for the central district of California, claiming tortuousbusiness interference and invalid patents, the prospectus said.

Intertherapy alleges that CVIS contacted its potential customersin order to disrupt their business relationships. CVIS filed acountersuit on patent infringement grounds. The two cases havebeen consolidated and are expected to reach trial by September.

THE MARKET FOR INTRALUMINAL ultrasound devices is still emerging.Vendors face a substantial commercial obstacle in the lack ofU.S. Medicare reimbursement. Angioplasty, on the other hand, isroutinely paid for by the government and private insurers.

Although CVIS is developing a combined imager and balloon angioplastycatheter, the firm views this application as a niche opportunityrather than the future of intravascular ultrasound, Ferrari said.

Doctors would only start with a particular combination of therapyand imaging on a single catheter if they were predisposed to usethat therapy.

"We believe (doctors) will image first, determine thecharacteristics of the plaque and the problem they are dealingwith in the coronary vessel and then apply the appropriate therapy."

Combining imaging and therapy on an angioplasty catheter doesnot automatically reduce costs, Ferrari said. It would be morecost-efficient if doctors picked the right combined device thefirst time, every time. Statistically, however, 1.6 balloon cathetersare used per procedure.

"That means in most cases you are using more than onedevice. Any time you use more than one device you would be betteroff picking the best imaging and balloon catheters rather thanhaving to use (more than one) combined device," he said.

Along with procedure reimbursement problems, restrictions onMedicare payments for hospital capital equipment are expectedto trim Medicare capital payments by 10% a year through 1995,according to the prospectus.

"Such reductions could have an adverse effect on reimbursementsto hospitals for the capital cost of the company's products,"the prospectus said.

Several CVIS intravascular ultrasound catheters have been approvedby the Food and Drug Administration. The 4.3-French Insight systemfor coronary imaging is the best-selling ultrasound catheter,Ferrari said. The company is developing a smaller catheter forcoronary use.

Applications were filed with the FDA in March for 510(k) approvalof an intracardiac catheter and a nonvascular, gastrointestinalcatheter that will compete with endoscopy, he said.

Although the Siemens relationship would have helped internationalsales significantly, CVIS was not depending on it, Ferrari said.The firm has 10 international distributors and is the only intravascularultrasound company to obtain Japanese regulatory marketing approval.

"We have a commanding lead in the Japanese market,"Ferrari said.

Like the U.S., however, that market is still small. CVIS has20 Insight installations in Japan--eight to 10 times more thanthe closest competitor, he said.

CVIS is building its own direct U.S. sales group. The companyhired John D. Eichhorn as vice president of sales and marketingin January. Eichhorn was previously with Acuson and Acoustic Imaging.

The U.S. sales group will not have to be very large, accordingto the CVIS prospectus. Balloon angioplasty and other catheter-basedtreatments for atherosclerosis are performed by interventionalcardiologists and radiologists at about 1000 hospitals with cardiaccatheterization laboratories. However, half of these proceduresare performed at around 200 hospitals.

CVIS is investing in clinical education and the developmentof protocols for intravascular imaging. The company formed a clinicalvalue group internally to support testing of the technology.

"There has to be a great deal of attention placed on educatingthe market how to use intravascular imaging, where to use it,and how it affects patient management decisions," Ferrarisaid.

There is a need for intravascular ultrasound, particularlybecause it produces diagnostic information that angiography doesnot, he said. As more catheter-based therapeutic devices reachmarket, the need for more detailed diagnostic information, suchas plaque composition, will rise.

BRIEFLY NOTED:

• Imatron's revenues and bottom line slumped in the firstquarter of fiscal 1992 (end-March) as the company switched productsand geared up its marketing relationship with Siemens. Imatronand Siemens signed a CT development and marketing agreement inMarch 1991 (SCAN 3/27/91).

The South San Francisco CT developer had revenues of $2.9 millionfor the first quarter this year, down from $8.5 million in thesame period of 1991. The firm's 1991 quarterly results includeda one-time $4 million licensing fee from Siemens. Imatron hada loss of $1.8 million for the recent quarter, compared to netincome of $3.7 million in the first quarter of 1991.

Imatron has shipped the first of its new C-150 scanners toJapanese partner Mitsui, the company said. However, sales of itsprevious model, the C-100, declined more than expected duringthe period leading up to the new product introduction. Shipmentsof the C-150 to Siemens have been scheduled. The German medicalimaging vendor will sell the system in the U.S. and Europe underthe product label Evolution Ultrafast CT.