Analyst Highlights 'Mixed Results' of Cartiva Data

Wright Medical shelled out $435 million to acquire Cartiva last year and CEO Bob Palmisano told investors in May that Wright "couldn't be happier with the Cartiva acquisition."

"This provides us with another platform technology with high gross margins and many avenues for growth," Palmisano said during the company's first-quarter earnings call, as transcribed by Seeking Alpha.

FDA approved the Cartiva Synthetic Cartilage Implant (SCI) for treating arthritis at the base of the great toe in July 2016. The implant is composed of a biocompatible, durable, low-friction organic polymer designed to function similarly to natural cartilage, and it can be implanted in about 35 minutes, Wright noted at the time of the acquisition.

Other benefits the company touted include the reduction of joint pain without sacrificing the foot's natural movement and the retention of the patient's mobility and range of motion. Also, due to a less restrictive rehabilitation protocol, Cartiva patients typically return to function and daily activities faster than patients who undergo a fusion procedure, Wright said.

But investor concerns prompted Mike Matson, a medtech analyst at Needham & Co., to dig into the data from Cartiva's pivotal trial, known as the MOTION trial.

"The MOTION pivotal trial showed statistically significant higher pain scores with Cartiva but similar functional scores," Matson wrote in a price target and estimate change report published July 23, 2019. "We also found a Cartiva case series with mixed results and numerous online complaints from dissatisfied Cartiva patients."

Based on the analysis, Needham & Co. lowered its Cartiva estimates and price target but maintained its "buy" rating on Wright Medical's stock. It's also worth noting that Matson has included Wright Medical on his list of 25 public medtech companies he thinks are likely to standout to larger companies looking for M&A targets.

"For [Wright Medical], we think that managing both physician and patient expectations and ensuring proper patient selection is key to ensuring Cartiva’s continued success," Matson said in the report.

Will a Vocal Minority Discourage Prospective Patients?

Matson cited patient complaints on various websites including this thread on patient.info, which has more than 844 replies posted over the past two years; and a physician's complaints posted here. He also pointed to the blog of Jane Langille, a health and medical writer whose blog offer a relatively positive and informative review of the device based on her personal experience: Cartiva Implant Reduces Toe Pain, Improves Motion. Langille said her procedure was performed by Timothy Daniels, MD, who was the primary investigator at St. Michael's Hospital in Toronto, one of 12 sites across Canada and the United Kingdom, and a co-author of the MOTION trial.

"While some of the patients are satisfied with Cartiva, a majority are dissatisfied with many citing pain that lasts longer than they expected. We believe that this is consistent with the MOTION trial results," Matson wrote in his report. "Although we suspect that the complaints are coming from a vocal minority (we think unhappy patients are much more likely to voice their opinions), we worry that the negative comments could discourage prospective patients from getting a Cartiva procedure."

'We Couldn't Be Happier'

As mentioned above, Palmisano, Wright Medical's president and CEO, said during the company's first-quarter earnings call that Wright "couldn't be happier" with the Cartiva acquisition.

He said Cartiva is the only FDA-approved device for the treatment of great toe osteoarthritis and the only product of its kind backed by level 1 clinical evidence.

"We are in execution mode now," he said. "And based upon our past experience, we are confident in our ability to execute and grow this market in the way we are anticipating."

Wright is currently focused on the U.S. launch Cartiva in the United States as an alternative to cheilectomy, which Palmisano said is roughly a $400 million market opportunity in the United States.

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Additionally, in the second half of the year, we will be direct in the UK and Australia, 2 of the largest international foot and ankle markets. We also have future opportunities to expand use to the thumb. We have not communicated a specific timeline for the thumb indication in the U.S., but the IDE study is ongoing. In Europe, we have a CE mark for Cartivathat has a broad label and it is already being used in the thumb and other areas. We are currently addressing the size of those opportunities and evaluating how best to harness this experience and move forward.

 

In a May 2018 report, Needham & Co.'s Matson noted that Wright Medical Group saw improved revenue growth as strong U.S. lower extremities and international growth improved and U.S. upper extremities growth remained strong. The company saw improved productivity from its U.S. lower extremities sales force, the analyst said, and also addressed its cash needs with $31 million from an insurance settlement and a $40 million increase in its loan agreement.

"With [Wright's] U.S. lower extremities business on the mend and the capital overhang lifted, we are more positive on [Wright] but maintain our hold rating given our expectation of a large share price increase."