An Artificial Heart IPO From SynCardia Systems
Science fiction often takes a futuristic look at mankind and in some cases, these predictions are remarkably accurate. Concepts like “pills that cure cancer”, “artificial organs”, and “reversing the process of aging” are all ideas that are being worked on today. It’s not too far-fetched to think that in the next few decades, these concepts will become a common reality. We’d expect to see big pharma dominate this future landscape alongside giant medical device manufacturers like Medtronic or Becton Dickinson. However, it is often the smaller companies and startups that are nimble enough to innovate and solve some of these grand problems before being acquired or going to the equity markets for more capital via IPOs. One such company is Syncardia Systems and their artificial hearts.
Founded in 2002, SynCardia Systems has been selling their devices since 2010. The Company has developed the world’s first and only “Total Artificial Heart” (TAH-t) that has been approved by the FDA (2004), Health Canada (2005) and has also achieved CE approved (1999) which is the European equivalent of FDA approval. The TAH-t assumes the full function of a failed human heart in patients suffering from advanced heart failure. The current 70cc SynCardia Total Artificial Heart fits a majority of adult men, and some women and adolescents. More than 1,400 implants have been completed successfully, the longest of which was nearly 4 years after which the patient successfully received a heart transplant.
Developing this product has not been cheap however, with SynCardia running a $137 million deficit so far. But that money has been well spent with the SynCardia 70cc TAH-t currently reimbursed by Medicare and more than 100 private insurers in the United States. Annual revenues for SynCardia in 2014 were $15.4 million, down from $20.6 million in the year prior.
According to SynCardia, the frequency of heart transplantation has been impacted by a shortage of donor hearts. Surprisingly, the number of donor hearts available each year has remained flat over the past 20 years. In Europe alone, 58% of people listed for a donor heart had been waiting for a year or more. According to SynCardia, 79% of near-death patients who received the “Total Artificial Heart” were eventually bridged to an organ transplant which saved the lives of these patients. In 2010, SynCardia introduced the Freedom® portable driver, the world’s first wearable power supply for the Total Artificial Heart which weighs just 13.5 pounds and allows patients to wait at home for their transplant.
While Syncardia has had success in providing a “bridge” for patients who are awaiting transplant, the Company has to be envisioning a future where that 13.5 power supply pack is drastically reduced in weight and size offering future heart transplant patients with a viable alternative to receiving a human heart. If SynCardia shows that they can offer a convenient alternative to heart transplant patients, their device could displace the ~2000 heart transplants conducted each year. With artificial hearts, you don’t have to worry about your body rejecting the donor heart or the donor heart failing after X number of years.
The question then becomes, how much does the TAH-t cost? In their S-1 filing, SynCardia discounts casual comments made by the CEO in which he stated that the “SynCardia 70cc TAH-t is the highest price for an approved medical device in the United States”. Let’s assume that the device costs $100,000 and then $20,000 a year to operate. If SynCardia captured half of the 2,000 heart transplants a year, this would amount to $120 million in revenues for the first year alone. It’s an interesting company, and now that they have full regulatory approval in multiple countries, revenue growth will be a leading indicator as to how successful SynCardia will be in addressing a market where they appear to be the only player for now. The proposed ticker for SynCardia is TAHT.
Here at Nanalyze, we write about tech stocks a lot, but most of our money goes into a dividend growth strategy. Our 30 dividend stocks provide an income which increases every year. Find out how to build your own growing income streams with dividend growth stocks - Quantigence - A Dividend Growth Investing Strategy - freely available to Nanalyze Premium subscribers.