Endologix exits challenging month, resumes shipment of some AFX devices

January 4, 2017 – 3:10 PM | By Omar Ford | No comments yet

By Omar Ford Staff Writer

Endologix Inc. has resumed shipping of some of its AFX endovascular abdominal aortic aneurysm systems, after placing the devices on hold. This brought an end to a rather tumultuous week for the Irvine, Calif.-based company’s stock (NASDAQ: ELGX), which plummeted as much as 27 percent upon news of the hold. However, shares of the stock slightly rebounded late last week. (See Medical Device Daily, Dec. 28, 2016.)

In the second of two calls held over a four-day period, Endologix provided an update on developments in the AFX product line. Endologix noted the temporary hold stems from the company noticing damage to the graft material in some sizes of the AFX system. The company said it believes the damage is related to the manufacturing process during which the graft is loaded into the delivery system. Endologix removed the hold on all sizes of the AFX system and some sizes of its AFX2 device. The firm said it is developing a plan to release the remaining sizes of AFX2 as soon as possible.

“For the sizes we’re not yet able to release, we’re bringing them back through a voluntary recall and putting them through a secondary lot release protocol to get a portion of them back on the market as soon as possible,” said John McDermott, Endologix CEO.

McDermott noted it was a little too early to provide a timeline of when 100 percent of the AFX products will be available. AFX is designed to provide anatomical fixation to treat a wide range of abdominal aortic aneurysm anatomies.

DECEMBER BLUES

Earlier this month, the company’s CE mark for the AFX was suspended over reports of type III endoleaks with a previous-gen version of the device. But with the introduction of the Duraply graft material, later iterations of the device had a substantial reduction of type III endoleaks, said Matthew Thompson, who joined on as Endologix’s CMO late last year. Previously the devices used Strata graft material.

“Since the adoption of Duraply (in 2014) into the AFX system, the rates of type III endoleaks have been reduced considerably with a type III endoleak rate of 0.19 percent in over 17,000 implants,” Thompson said.

During the call, Mathew Blackman, an analyst with Stifel, asked when the company would know the fate of the AFX CE mark approval.

McDermott said the company would probably hear something about its appeal to get the CE mark reinstated, but noted it probably wouldn’t be before the J.P. Morgan Healthcare Investor’s Conference slated to be held Jan. 9-12.

“If the appeal is not successful, then the next step is to file for recertification in January and likely get a decision in April,” McDermott said. “Based upon the low rates of type III endoleaks with the current versions of AFX and AFX2 … we believe the CE mark will be reinstated in January.”

Brooks West of Piper Jaffray asked if Endologix could grow year-over-year on a reported basis because of the issues the company faced.

Endologix CFO Vaseem Mahboob noted that the wildcard in answering West’s question was the AFX regaining CE mark approval.

“Based on internal discussions with our sales teams we feel very comfortable that we can hold that mid-single digit guidance we’d [previously] given out,” Mahboob said.

Chris Pasquale, an analyst with Guggenheim Securities, asked about the $4.5 million impact the CE mark suspension and hold of some AFX products could have on the company for the 4th quarter.

Mahboob said that $3 million of the $4.5 million impact was the result of time-related lost sales that can be recaptured in 1Q17 shipments. Pasquale then asked what kind of financial impact Endologix could face if it did not have AFX sales in January for Europe.

“We have done some scenarios on that, but I think it’s too premature to share that,” Mahboob said. “We will share that during the next earnings call when we give 2017 guidance.”

Rick Wise, a Stifel analyst, lowered sales projections from $208 million to $200 million. He noted the analysis is more complex with more moving parts – namely the AFX product hold and CE mark suspension.

The company also issued a voluntary letter to physicians, after discussions with the FDA. The letter reviews data from the commercial experience since the original introduction of AFX in 2011. It provides guidance for physicians in the monitoring and post-operative care of patients to address an increased rate of type III endoleaks with the first-generation AFX device (with “Strata” graft material), for which manufacturing ceased in 2014.

The company stressed the letter regarding the older first-generation AFX device is entirely separate from the hold currently in place for some sizes of AFX2.

Endologix’s December blues come on the heels of the company revealing it expects 2Q18 approval of the Nellix endovascular aneurysm sealing system. The company noted that FDA asked for two-year patient follow-up data on the device. (See Medical Device Daily, Nov. 18, 2016.) Such an approval would give the company another tool to compete with other dominate players in the Endovascular Aneurysm Repair (EVAR), which includes Cook Medical, Medtronic plc and W.L. Gore Associates.

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