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Analyst sees Apollo as long-term investment

By Katie Pffaf

Staff Writer

Following an FDA letter issued Thursday Aug. 10 to health care providers about possible risks with liquid-filled intragastric balloons, Apollo Endosurgery Inc. held a call on Friday to address the letter. During the call, executives with Apollo, maker of the Orbera intragastric balloon system, discussed the FDA letter regarding unexpected deaths of five patients who had received the balloons, though their deaths were not determined to be the result of the devices, said the company.

In Friday's call, Apollo executives shared the company voluntarily reported five deaths between 2015 and 2017 to FDA, though the FDA letter related to five deaths between 2016 and 2017, four among Orbera patients and one patient who received the San Clemente, Calif.-based Reshape Medical Inc.'s Reshape integrated dual balloon system.

FDA letter

Though the agency noted in its letter the causes of death are not yet determined, the deaths occurred in relatively short time after balloon insertion. "At this time, we do not know the root cause or incidence rate of patient death, nor have we been able to definitively attribute the deaths to the devices or the insertion procedures for these devices (e.g., gastric and esophageal perforation, or intestinal obstruction)," the FDA letter said. However, the five "reports indicate that patient deaths occurred within a month or less of balloon placement" and three of the cases include deaths between one and three days after the device was inserted. Among the reported deaths, one Orbera patient suffered gastric perforation, and one Reshape patient esophageal perforation.

The FDA letter comes on the heels of a February issuance to health care providers cautioning them to closely watch patients who received both firm's liquid-filled intragastric balloons since there may be an increased risk of pancreatitis related to pressure on abdominal structures, or spontaneous inflation of the device. The firms responded with updated labeling for the devices.

Apollo responds

CEO of the San Diego, Calif.-based company, Todd Newtown, shared in the call that FDA issued the letter to inform physicians of five deaths worldwide among patients who had received an Orbera balloon since August 2015. The deaths were voluntarily reported by Apollo.

"The FDA issued the letter to raise awareness among physicians, and the letter does not require any action by physicians or patients, nor does the FDA indicate that the patient deaths were attributed to Orbera," said Newton in the call. FDA was alerted to the cases as part of the "company's normal and ongoing global product surveillance program." Reports submitted to FDA's Medwatch are available to the public in its Maude database.

The company also noted they conduct internal processes of following up with providers when an adverse event occurs, and indicated their investigations had not pointed to the device as cause of death. "What we can tell you is that there has been no indication, inference or assertion by the attending physicians or hospitals that the deaths were due to the Orbera device in any of the five cases referenced in the FDA letter during our investigation or since the Medwatch reports were filed with the FDA."

Details on patient deaths

The deaths included two patients in Brazil, one in the U.K., one in the U.S. and a U.S. resident who received the device in Mexico. Causes of death among the Brazilian patients were explained as heart attack, and gastric perforation not tied to the device itself, according to Newton. The British patient's death was unexplained, and it transpired after a second, replacement balloon was inserted. The U.S. patient's death also was unexplained, though Newton added the physician in the case reported it was not attributable to the device. Regarding the U.S. patient who received the device in Mexico, the cause was also undetermined though the patient also suffered from a left bundle branch block cardiac dysfunction which lead to complications.

"In each of these cases, we are not aware of any evidence that suggests a device malfunction or failure," said Newton. Between January 1, 2006 and March 31, 2017, 21 patient deaths have been reported among those who have an Orbera device. During that same period, 277,000 patients received the device, amounting to "an incident rate of less than one hundredth of one percent" said Newton. The number of reported deaths since the device gained FDA approval in August 2015 remains the same percentage, he added.

In context

The risk for the balloon procedure also is low compared to other gastric procedures, according to Newton, who said mortality rates for endoscopy is higher, laparoscopic gastric banding is eight times higher, laparoscopic sleeve gastrectomy mortality rates are 20 times higher, and gastric bypass mortality 34 times higher. "It is incomplete to talk about a numerator in isolation and lose track or fail to discuss the denominator," he said. "The very low mortality rate associated with Orbera actually gives an exceedingly strong testimony of its safety profile."

Newton also pointed out that the FDA letter urges health care providers to "closely monitor intragastric balloon patients for complications," a statement the company agreed with as the patient population may have comorbid conditions or take additional medications which may complicate care. Newton also expressed the company cautions against medical tourism. No liability claims have been made regarding the device and deaths, according to the company.

Orbera is intended to provide an option for obese patients wanting to avoid surgery but who have not had success with diet modification, exercise programs or pharmaceuticals, and for who an invasive procedure is not recommended. The device is inserted endoscopically and inflated with saline until it becomes grapefruit-sized. Orbera is accompanied with a 12-month program to assist the patient, and is removed after six months.

Patient cost is about $6,000 to $8,000 for the Orbera device and accompanying 12 month program. Apollo reported $65 million in revenue earlier this year, with $31.9 million of that coming out of its bariatric devices. (See BioWorld MedTech, July 7, 2017.) Obalon Therapeutics, of Carlsbad, Calif., also markets a weight loss balloon device, however, its device uses a capsule which is swallowed, and later inflated with air using a catheter.

Investor opportunity

Roth Capital Partners suggested the FDA letter was not an indication to back away from the company, instead issuing a buy rating with a target price of $10. The valuation was based on the self-reporting action of Apollo, its history of balloon use over decades, the overall portfolio of devices, and the fact the letter does not constitute a warning letter. "Overall, while the headline is ugly, and the FDA's rationale for putting out the letter remains perplexing, we do not expect this to have a material impact on Orbera's U.S. commercial prospects going forward as these events have been already properly recorded in the FDA's Maude database and are properly presented to and understood by APEN's physician customers," said Chris Lewis of Roth Capital in an equity research analysis.

The company will need to manage the FDA letter implications and ensure patient concerns are allayed, and that the physicians they work with remain involved and well-informed. "We expect this could likely be an overhang on the stock in the near-term until we gain better visibility on how this ultimately impacts Orbera adoption and utilization in the U.S. over time (again, we think this is minimal).For investors that can deal with the lingering overhang, and potential near-term noise/volatility, we view yesterday's pull-back as an attractive opportunity to buy on the weakness," said Lewis.

Published  August 14, 2017

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