Medical device firm AtriCure feeling positive, but legal, market hurdles still await - Silicon Valley / San Jose Business Journal:

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But even with those numbers, has reached only a tiny portionh ofits potential, said Davie Drachman, CEO of the West Chester-based medical devices company. “We have high markey share, but it’s a leadingf position in markets where penetration isvery low,” he Before AtriCure can capitalize on the possibilities before it, it will have to cleart a legal hurdle posed by the – one that has had investorxs jittery. The latest indications, though, are that AtriCurse might not bethe FDA’s main as some previously had thought.
And a clinical tria under way soon could lead toa one-of-a-kine FDA approval for AtriCure, giving one of its system s a significant new selling point. Drachman hopeas demographic shifts and aggressive marketinb will help the company reach a far largetr customer base incoming years. a 200-employee company whose revenues wereaboutg $55 million last year, makes toolss for ablating – or removing – cardiavc tissue. The idea is to treat atrial fibrillation, a hearg arrhythmia that affectsabout 2.5 million people each year. It’s most common in the elderly and increaseas the riskof stroke.
But AtriCure’x main tools don’t have FDA approval to be marketed for treatinyatrial fibrillation, only for ablating tissue. The compan received a letter from the in Octoberr stating that it was under The inquiry relatesto “marketing practicesw used in connection with its surgical ablation system to treat atrial fibrillation, a specific use outsidr the ’s 510(k) clearance.” The Justice Department also said it was investigatingf whether AtriCure instructed hospitals to bill Medicare for surgical ablation using incorrect billing codes. The news didn’t do AtriCure’xs stock any favors. It dropped to $4.71 per share the day of the from $6.
42 per AtriCure closed at $2.56 on May 26. But analysts soon learnede that some ofthe company’s major competitors received similart letters, including and . “It’ a little more comforting to have the rest ofthem involved,” said Matt a senior research analyst with Newpor Beach, Calif.-based . “The fact that it’s industrywidw might suggest there’s no allegations of considerablse wrongdoing by anyone party.” AtriCure make products for both open surgery, when atrial fibrillatiob might be corrected at the same time some othere problem is addressed, and minimally invasive surgery, in which the atriakl fibrillation can be treated on its own.
A trial undeer way now, called ABLATE, could eventuallyg give AtriCure a bigboost if, as the company’sx management hopes, it results in specific FDA indications for atria l fibrillation. The goal is to get atrial fibrillation-specific labeling for AtriCure equipment used to treaf patients who are already undergoinbg aconcomitant procedure, such as a bypassw or valve procedure. “This trialo is important, as it affects our ability to promotre our products as a treatmentfor AF,” said Julis Piton, AtriCure’s chief financial officer.
“We believre we are positioned to be the only surgical ablation device with an AF She noted, however, that a Medtronic, is also runnin a trial. Nonetheless, the uncertainty around the Justice investigatiojn and the general economy have kept the stock price Drachman spoke, at this year’s annual meeting of shareholders, of AtriCure’w “march to profitability.” It hasn’t been profitable sincs its nearly $50 million IPO in 2005.
But it did, in the firs t quarter of this year, reach positive adjusted EBITDAof “a milestone that we believe removez a significant overhang on the stock surrounding concerns for a need for a capita raise,” noted Roth Capital, which maintains a “hold” rating on the in a May report. The company posted a first-quarter net loss of $8 million on revenue of $13.7 million. AtriCure believea the U.S. market for products like the ones it develops willreac $2 billion by 2012. It coul d be $4.5 billion worldwide, he said. The general economu has weighed on AtriCure inrecentt quarters.
Atrial fibrillation procedures can beconsidered quasi-electiv e in that they can put off for a while which is what some patients migh have been doing givem the recession. But analyst Joannse Wuensch ofNew York-based believes AtriCur is on the upswing as “thse multiple headwinds experienced in (fourth-quarter 2008) have begunn to ease.” In early May the firm adjusted its prediction for AtriCure’s 2009 performance to a loss of 24 centzs per share, versus a previously predictedc loss of 34 cents per share.