UPDATED: JPM: HeartWare shares plunge 30% as company further delays key CE mark trial

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MVAD pump--Courtesy of HeartWare

HeartWare ($HTWR) shares plunged by nearly 30% on news at the JP Morgan Healthcare Conference that the CE mark trial of its MVAD left ventricular assist device will be delayed for at least several months, as the company considers a redesign to improve the safety of the heart failure treatment.

Since the announcement of the planned acquisition of Valtech Cardio in September, HeartWare shares are down from about $80 to around $27, based on investor opposition to the deal and continued bad news about the MVAD trial.

The company touted the MVAD as the world's smallest blood pump for end-stage heart failure patients. The device was supposed to improve its edge over rival Thoratec's HeartMate LVAD franchise (now part of St. Jude Medical) when it comes to ease of implantation.

In July, the company said the CE mark trial will consist of 60 patients in 11 sites throughout Europe, and the primary endpoint would be survival at 6 months. But in September, HeartWare halted enrollment of the trial after it got reports of adverse events in certain trial subjects. The company did not offer many details about the events at the time, other than saying that they're "typical of those seen in other clinical trials for ventricular assist devices."

In the J.P. Morgan press release, the company confirmed what investors had begun to suspect: that the problems with the device are quite severe and will lead to a significant delay in European approval.

"In consultation with study investigators, the company is evaluating MVAD System performance and the observed adverse event profile, including events that showed evidence of pump thrombus," the release says. "Meaningful progress has been made to identify improvements to manufacturing specifications, and the company has detected certain software algorithms, which appear to increase the potential for pump thrombus. In parallel, the company is evaluating various aspects of the system design to determine whether additional changes could be made to improve performance. Should design changes be identified that could enhance outcomes, initiation of a new trial would likely be required. The company expects that these efforts may take several months to complete, and the timetable for regulatory filings and restarting clinical implants cannot be precisely projected at this time."

Leerink equity analyst Danielle Antalffy wrote that HeartWare may potentially start a brand new trial. "In worst case scenario, the device might require a redesign - pushing restart of the trial or a completely new trial 18 months from the current timeline," she said. 

An equally big headache is being posed by activist investors from Engaged Capital, who are opposing the company's heavily dilutive purchase of Valtech Cardio, which has a deep cardiac implant pipeline and makes the Cardioband for minimally invasive mitral valve repair.

Engaged Capital owns 1.3% of HeartWare and has nominated three board members. The investment group argues that HeartWare should focus on its core LVAD business and set itself up to be acquired.

After all, HeartWare is one of only two players in a device segment with steep barriers to entry and lots of engineering challenges, such as the ones HeartWare is experiencing with the MVAD.

St. Jude paid a steep premium when it acquired Thoratec for $3.4 billion. To receive a similarly lucrative deal, HeartWare must obtain an expended indication possessed by its rival that would enable the HVAD to be used as a "destination therapy" and not just on those patients awaiting a transplanted heart.

There was good news on that front. Despite some safety concerns in the trial for the expanded indication, HeartWare said it intends to submit for FDA approval of the new use in mid-2016, based on more recent trial data from a follow-up study that required patients to manage their blood pressure. The initial study did not require patients to take blood pressure medication. 

Antalffy wrote that the news means HeartWare will submit for destination therapy approval 6 months earlier than previously believed, and stressed that the news should not be overlooked amid the gloom surrounding the MVAD. She changed her 2016 sales estimate slightly to $271 million (down from $274 million), and increased her 2017 estimate a bit to $328.1 million (up from $327.1 million). She predicted the company's share of the LVAD market would increase to 30% in 2017 and 39% in 2018. 

- read the release

Related Articles:
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HeartWare to commence CE mark trial of the world's smallest blood pump
Activist investor nominates trio to HeartWare board to block Valtech buy
HeartWare up as activist investor opposes Valtech acquisition
HeartWare looks to diversify into mitral valve repair with $929M purchase of Valtech Cardio
HeartWare device meets trial endpoint, but stroke data a big concern
St. Jude to buy Thoratec for $3.4B, will pair its heart pump with the cardioMEMs patient monitor

Editor's Note: This story has been updated with additional information from Leerink's Danielle Antalffy

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