Okay, good to go. Thanks, everybody, for joining for our next session here. I'm Matt Taylor, the U.S. Medical Supplies and Devices Analyst here at Jefferies, and I'm joined by David Hochman, the CEO of Orchestra BioMed.
Nice to be here.
We have about half an hour for moderated Q&A, and I'll get things rolling here with kind of a high-level question. I think let's start with, you know, your business, your business model is really kind of differentiated in a novel idea. Maybe just talk about your idea to bring this kind of a business model to med tech, why it's a great unmet need, and how you're starting to address that with the first couple of programs here.
Orchestra was founded to pursue a partnership-driven business model for advancing and commercializing high-impact medical device therapies. We were inspired by a lot of biotech companies. You guys have a lot of biotech participation in your conference. Partnerships are fundamental to how drugs get developed. Oftentimes, partnerships are formed even around preclinical assets on the drug side, but generally, you know, mid and late-stage clinical assets often look to partner with a bigger company to be able to both finance and then have an answer as to how we're going to go, you know, sell and distribute a drug across the global market. In the medical device world, we really do not see that type of partnership activity at all.
Our thought was, would not that be a valuable innovation when the challenges as an innovator in med tech are not just right technology for the right problem, how do you get it through and get the right data, but also how do you go transform into a commercial enterprise? Most of the companies in your emerging growth in your coverage universe are funding commercialization. Our thought process is, how do you build a company that can be a great R&D partner, bring technology to the right partners, and leverage a Medtronic as your commercial engine or a Terumo? One of the things we noticed as we were thinking about this model and we were realizing why does it work this way in med tech is, interestingly, huge R&D constraint for med tech companies in terms of their P&L.
The average spend for the medical technology industry, if you look at the top 30 companies, is around 7% of revenue is spent on R&D versus 20% in pharma, and yet they do all these interesting off-P&L, off-in structures. We think what we're answering is a question that's critical for a Medtronic. How do we drive top-line growth without having to compromise the other aspects of the P&L, in particular EBITDA and EPS, through a collaboration where you're ultimately leaning on our organization to do the R&D spending and execution, and you've already aligned on commercial execution, and we're going to participate? Once again, how are we going to make money? Royalties, significant long-term royalty interest that can be very profitable, essentially 100% gross margin, and we believe significantly exceed the expense structure of the company that we will have in the future. That's really the thesis.
So far, we're pioneering. There's challenges, but it's working pretty well.
You mentioned that you can bring some R&D, some technology. Maybe talk a little bit more about your core capabilities today and how they're starting to evolve. Sort of what's on the menu if you're going to work with a partner?
Fundamentally, the founding team at Orchestra, my co-founders and I, and a lot of the people that have been part of our organization, we're innovators and entrepreneurs. The two platform technologies we have, our lead program, maybe AVIM therapy, the Virtue product, were things that we developed in our predecessor vehicle. We ran a device accelerator. We had our own venture fund. One of the core competencies at Orchestra is, you know, from concept through to late-stage clinical execution, fundamental innovation, creating intellectual property, understanding unmet needs and markets, and really building solutions. What we've layered on top of that is clinical execution, clinical operations, regulatory and quality expertise, and then what we need to kind of learn to be a good partner and structure the right deals with our partners. A lot of finance expertise.
My CFO is here, so I don't want to forget the fact that we have a great team that, you know, helps us manage our cash and execute the business. Those are what we're best at: understanding a market, building a great solution, then mapping and then executing to data. That's what the business model really requires for success.
Great. Maybe we can talk about the programs a little more. I can start with AVIM, where you're well on your way. You've referenced Medtronic a couple of times as the partner there.
Had to slip it in.
It's part of the conversation.
It's an important part of what to like about our company is our partners.
Let's start with just explaining what that opportunity represents. Talk about some of the data that you've generated in the past with Moderato and where you are with the BACKBEAT study.
Sure. And thematically, you know, both of our programs really address significant unmet needs and opportunities that we think can be clinically impactful and commercially disruptive in two of the largest, most established markets in medical device. With Medtronic, we're partnered, focused on a therapy we develop that is delivered as really programming. It's essentially an upgrade to an existing pacemaker, but focused on turning that device into a potent way to reduce blood pressure and do that immediately, substantially, starting with the patients who already need pacemakers. Medtronic invented the pacemaker. Medtronic is the dominant market leader in cardiac pacing therapies, controls about half the market, more than that in the U.S. Our therapy turns their existing top-of-the-line device into another more powerful therapy. In that pacemaker population, which really represents older, higher-risk patients, hypertension is the number one comorbidity.
It is what is driving the things you worry about most in a 65-plus patient population: heart attack, stroke. Importantly, it is the driving force behind progression to heart failure, which is what you worry about in these patients. Our innovation is empowering an existing device. We've aligned with the market leader. We have a beachhead, which is the patients they already are serving, their physician community serving. We don't need to create a new device. They already manufacture it. We brought the firmware, essentially. We brought the intellectual property, big patent portfolio, a good base of outstanding clinical data. Now we're aligned where we're now running a pivotal study.
It's the BACKBEAT Global Pivotal Study, focused on, you know, just proving efficacy and safety, but we think really enough data to establish this as a potential standard of care for how we manage hypertension in the pacemaker patient population. With a recently granted FDA breakthrough designation on a broader indication of patients, we think we're really on a roadmap to a better way to manage the risk of hypertension in older, comorbid, high-risk patients.
Maybe we could discuss, you've already generated some data in the past, the precursors to the BACKBEAT study. What has that shown? Talk about why it's exciting.
First off, our number one target is reduction of systolic blood pressure. The gold standard for measuring in clinical studies and increasingly used in clinical care is 24-hour ambulatory systolic blood pressure measurement. Here, patients are wearing a device measuring their blood pressure roughly every 10 minutes for the full day. You average those results. You are really changing, you are seeing what is a change in the blood pressure profile. Consistently, patients treated with AVIM therapy have seen 10 mm or greater mm reductions in ambulatory systolic blood pressure. In our MODERATO II double-blind randomized pilot study, the treatment group at six months saw an 11-mm reduction in ambulatory systolic blood pressure. When compared to the control group, that was a statistically significant greater than 8-mm difference between the groups.
When you think about that, that's a huge impact, particularly when you're looking at it in that sensitive way across the profile. What we've seen is that small reductions in blood pressure, or what seemingly small, 5 mms, get up to 10 mms. In the broad population, across the board, that's 20% or greater reduction in the risk of a heart attack, stroke, progression to heart failure. You're looking at impact in coronary artery disease as well. In the concentrated older, higher-risk population, it's even more pronounced for various reasons. Great data. It's what we expect. We understand how the therapy works. It has a huge response profile. We have responders. More than 90% of our patients see significant blood pressure reductions. The data is super encouraging.
Now we're scaling that up, frankly, beyond what's really statistically necessary because we believe we have a great chance to align with Medtronic to have data that can drive a rapid adoption into the market, given their market position and the opportunity.
Maybe let's talk about how the study has been going. There's been a couple of changes to the protocol and the timeline. Give us an update there and talk about when that could read out and the chances of success.
First off, it's a big study. It's 500 patients. And it's, once again, statistically overpowered for our primary endpoints. It's also the first of its kind study. While there are other studies that have happened in hypertension, this patient population, older, high-risk pacemaker population, this therapy, it's the first of its kind. We learned some things. We started last year. We learned out of the gates that we had really too narrow of an eligibility profile for patients, that we had limited eligibility to just patients who were getting their first pacemaker. All the screening happened really in a short window, 90 days after they got their first implant. That really limited eligibility. We quickly went to work with FDA, took a fair amount more time to implement because you have to go through your database, your IRBs, and so on.
By the later part of last year, we had changed the protocol to widen that eligibility criteria. We'd estimate about eightfold. You now can look at patients that have been implanted over the last year. You have a longer window to screen patients. It's really helped, I think, build more momentum enrollment. Most important part of this study is we've had great response from the clinical community. Generally, the sites we want want to be in the study, but still, clinical research takes time, particularly when you're doing pioneering work. We've made adjustments, and I think that adjusted the timeline. We hope to get the study done in 2025. Now we've shifted that timeline to 2026. Importantly, the key primary endpoints are measured at 90 days for each patient. The data will come relatively quick once we finish enrollment.
I guess, given your balance sheet, can you talk about your ability to run through the studies with the current cash balance?
Sure. We ended the last quarter with a little over $50 million. Our annual spend is a little more than $50 million. So we've got a little under a year's worth of cash. As a public company, we've been public now a little over two years. Really haven't taken any significant equity or one of our large shareholders, Perceptive, put a little more equity in last summer. We think equity is an option that can readily be used, but we've been focused since the beginning on doing things the right way at the right time. Clearly, we have two great strategic partners. There are opportunities, ongoing opportunities with Terumo as well, that could be a component of how we finance other pathways that would complement equity. We think we're in a good position to thoughtfully add cash the right way at the right time.
One of the things that's beautiful going back to the business model is while we have capital needs to our key inflection point of data in both trials, what is special about the handoff is it happens on data. Regulatory approval is driven by our partners. Commercial scale-up, commercial expenses, really ongoing expenses are driven by our partners. What we believe makes this business model attractive for shareholders is we were never funded. When we funded the company to go public, we knew we would need some incremental capital, but the gap from here to an inflection point where we can see significant growth in the top line while have the opportunity to shrink our expenses rather than to have to continue to grow them and see a pretty rapid turn to potential profitability is one of the things that makes us, we think, attractive and highly investable.
Now that we're in execution mode and closer and closer to data, we think we're in a good spot to bring in the necessary capital to get to the finish line.
Let's talk about what happens after the finish line. So let's say you commercialize in 2027.
It might be a little aggressive, but we'll see when we get the FDA approval and that happens.
I just wanted you to illustrate how the agreement with Medtronic works and basically how the payments would start to flow through and what that's been based on.
Medtronic has all of the commercial and operational responsibilities for AVIM therapy. First and foremost, they have exclusive rights in the pacemaker population. As we noted, our breakthrough designation, which came through in April, speaks to a broader population. They have a right of first negotiation to broaden that license. As I mentioned, at some point, we at Medtronic think that relationship could expand and that could be a substantial additional deal. They make the device. Ultimately, we have a firmware integrated therapy, so we do not make anything. They make it. They handle regulatory quality and then all of the sales, marketing, distribution. That is on their side of the ledger for each AVIM-enabled device. Once again, this is an important point about the opportunity. Pacemakers are well reimbursed all around the world.
The United States is the largest, both in terms of volume of implants as well as the largest commercial opportunity. The reimbursement is in place, but the devices tend to be sold at negotiated prices to lock in market share. Medtronic having by far the biggest market share, north of 50% of the U.S. Our revenue share, expressed in dollars, assuming no change to the reimbursement, is between $500 as a minimum and $1,600 on the top end. And there's minimums OUS, higher minimums for the U.S., Japan, and China, and then a percentage participation. As Medtronic chooses to pursue the highest potential pricing, we do better. If you take the midpoint, excuse me, $1,000, $500, $1,600, there's a global opportunity every year of about three-quarters of a million patients that are going to get a pacemaker that have hypertension.
Very substantial revenue share, obviously a huge growth opportunity for Medtronic on a device technology that generates upwards of $2 billion already in top-line revenues and is highly profitable. It is a foundational business for them. We at Medtronic are highly aligned, something that can drive growth and improve market share and profitability for them. We are orchestrating to participate through our royalty quite significantly. Obviously, the profit aspects for us can be attractive. We have worked hard. We are spending a lot of time and money to get here. We are all excited about what the impact on patients will be, but the commercial opportunity is quite compelling.
With the breakthrough designation that you referenced and looking at other hypertensive patients, when could we see something develop there in terms of an additional deal with that right of first refusal?
I think now that we're in the study and we have the breakthrough, certainly the discussions around that opportunity is we work very closely with Medtronic. They're very aware of that opportunity. Medtronic has another program, renal denervation, that is pursuing a big opportunity in a broader but younger, less sick population. They are committed to device-based hypertension, I think, more than anyone else in the space. The breakthrough really reflects that the profile of patient that does not yet need a pacemaker that we can benefit the most is really the same type of patient we're already treating. Older, have hypertension, but they tend to have isolated systolic hypertension, meaning high systolic, normal diastolic in the older patients. These patients experience conditions like diastolic dysfunction.
The breakthrough, really one of the most exciting included populations are patients with heart failure with preserved ejection fraction that also have hypertension, which is actually most of them. Hypertension is really, as you get older, driving excess work and driving the breakdown of the cardiovascular system. It may also drive mortal and morbid events like heart attacks and strokes. In short, the study we're already enrolling is going to have patients with all of those characteristics. As a 500-patient double-blind randomized study with 12-month blinded follow-up beyond the primary endpoints, the first opportunity is to turn over the data, look at the impact, and say, "Wait a minute, we're really benefiting high-risk patients.
We need to think about talking to FDA about potential expanded labels. I think in the timeline up to data and certainly in the regulatory process, we're going to have to figure out how to align with our partner on that broader opportunity.
Great. Maybe we should pivot and talk about the second program, Virtue, the SAB. I'll start with just asking you to give us any updates you can on the Terumo partnership.
Sure. Our strategic partner for Virtue, Virtue is a novel, we think, clearly has the potential to be best in class, differentiated, sirolimus drug-eluting balloon, true drug-eluting balloon. It is an exciting space, what is happening there. We picked and we pursued Terumo as a partner because for those of you who do not know Terumo, they are the largest Japanese-headquartered global medical device company. 40%+ of their revenue is generated from interventional cardiology products that are considered the best-in-class accessories that are critical for coronary and some peripheral procedures. What we liked about Terumo was a partner that could see a product like Virtue, a differentiated therapeutic product, as a flagship. This is going to be our way to drive significant growth, particularly in their most important market, which is the U.S. Over $1 billion of their revenues here, and frankly, an outsized share of their profit.
Exciting partnership, but actually a lot of structure went into that relationship. They paid us money upfront. We always were responsible to execute the first pivotal trial, which is in coronary and stent restenosis, which we just announced an updated IDE to do a head-to-head study versus Boston 's product AGENT. Terumo took on, similar to Medtronic, regulatory and all the commercial operating expenses. We have a big royalty, up to 15% royalty, plus they pay us for the drug. They also took on responsibility for additional clinical studies in both coronary and peripheral artery disease, coronary studies in Japan, China, coronary small vessel studies here in the U.S. Fundamentally, as the program, and you and I have talked about this in the past, our program is quite novel. What we are excited about is its novelty. It has taken a little longer.
have been shifts in the market dynamic. In the last couple of years, Terumo had a new CEO, new management team. Fundamentally, they are not executing those programs quite on the timeline that the contract we view requires. We are sitting down and trying to get some third-party help to mediate a solution to those. They are still very much in the deal. We are in the deal. We both see a lot of benefit. Going back to your first question, it is a novel type of structure in our space. I think what we are learning in real time is as you execute over time, some priorities need to shift and you need to align with your partners. This is hopefully going to be a constructive reset, one that we think is going to be valuable to both parties. We are looking forward to that process playing out.
It's taken a little longer than we expected, but we expect over the next several months to hopefully have a resolution. We'd like to find our way to a clear alignment with our partners. It's so important in a partnership business to be aligned with your strategic partners. We're importantly in the driver's seat. We've always been responsible for this study. It's our IDE. It's our technology. We've always been responsible at this stage for what happens next. We can both move forward while working with Terumo on our alignment.
Right. Maybe let's discuss the SAB technology and why it could have advantages over other TCBs, DEBs.
If we think about the space, particularly the treatment of coronary artery disease, the dominant technology for the last two decades has been drug-eluting stents. The first drug brought to market was by J&J , sirolimus-eluting stent. If we look at the market today, every stent sold, used all over the world, uses that drug or a chemical analog. The shift to balloon-based intervention, drug-coated balloons, which every other product but Virtue is, was really to try and address places, and frankly, the view now is potentially broadly where leaving behind a permanent metal implant, a stent, actually has risk and cost to the patient. A kind of perpetual risk of restenosis, almost an inevitable process of restenosis or reclogging the vessel. I mean, the stent can be a nidus for thrombus. You can have a major event.
There's a lot of clinical interest, a lot of clinical momentum in trying to move to leave nothing behind. Drug-coated balloons are now gaining adoption globally, and we're the first approved product as AGENT. To make a drug-coated balloon work, we had to go back in time to paclitaxel, a drug that Boston first commercialized, but largely went away because the clinical data points to very clear pictures, 26 randomized controlled trials that show that sirolimus is a better drug to help heal a vessel and prevent further events in retreatment. To formulate sirolimus on a coated balloon has been really challenging. Ultimately, the drug works by getting enough of it to tissue for a minimum time frame of 30 days. We engineered Virtue to be an optimal and ideal approach to solving that problem.
We actually focused on the drug and how do you encapsulate a drug that actually does not really want to go into tissue and does not stay in tissue on its own, kind of relies on that permanent implant to be its delivery mechanism, and found a better way to encapsulate it using novel technology, facilitate uptake, and extend the elution of the drug. When we look at our pharmacokinetic data and we compare it to what is known from stents, we actually deliver almost tenfold as much drug as proven top drug-eluting stents, Xience, the market leader. We have a terrific elution profile that tenfold extends out to the 30-day period. Our clinical data paints a picture of a product that is outperforming, at least in its pilot studies, anyone else's data. Boston had data that was sufficient to get approval.
If we look at first-time single-layer restenosis, their target lesion failure, their rate of, "Did we need to retreat or did we have a major event?" was 13.5%. In our pilot study in that same population, frankly, years earlier where some of the best practices in the clinic hadn't really been optimized, we had a 2.8% target lesion failure rate. We built a different product, but we fundamentally built it around how do you take a drug that we know works, how do we take a device like a balloon that we know works, get them to work together without needing a permanent implant, deliver the drug in a way that gets the best uptake and elution, and we shouldn't really be surprised that our clinical performance is optimized. We think it's a differentiated product that really could be best in class. We made a decision.
We had an IDE to do a Virtue sirolimus balloon study. We said, "Wait a minute, if you have a best-in-class product, going head-to-head with the market leader is the right way to demonstrate." It's a non-inferiority endpoint. Frankly, we think very low risk of not succeeding in getting approval, but it's the best chance we have to really showcase that difference in a head-to-head study. Actually, I was just coming from one of the local hospitals. There's a lot of clinician excitement about this product. They're excited about drug-coated balloons. When they see a true drug-eluting balloon with the kind of PK data and clinical data, they're excited about this design, using the product. We think we're going to have strong interest in the study. Once again, this study has been run before. There's a lot of experience running these types of studies.
We think it will be reasonably straightforward to enroll. We expect to have some of the most experienced and best centers participating. We're excited about the next step.
You just said double-click on that. You mentioned the TLF. What are the other endpoints that you're going to be comparing?
Really, it all actually comes down to TLF. TLF encompasses major adverse cardiac events and target lesion revascularization. There'll be additional data, high-quality imaging data, but there isn't an angiographic. Essentially, most of the interventional cardiology studies have kind of moved away from angiographic endpoints. Our late lumen loss data is pretty exceptional. And that study I referenced, 0.12, is kind of as good a result as you like that result in de novo lesions. In ISR, it's outstanding. The study mainly focuses on TLF, and we'll have some good imaging data from it as well.
I guess, what has the initial Boston commercial experience taught you about the potential for Virtue?
Interestingly, there is, I think, pent-up demand and interest in Boston. Boston's doing something exceptionally well, leveraging their breakthrough designation to establish higher reimbursement that can be permanent. They're taking advantage of being first and having a nice window where we've done our own work. We think, while Boston does this extremely well, they have set things up to create sustainable high reimbursement for the category. In that intervening period, when you have a transitional pass-through payment, we expect the NTAP to come through in October. There are some challenges for uptake, but we see from the conversations we're having significant demand. The price point's in and around $6,000. That's a very compelling price point for Boston. Some places are going to find ways to leverage the current pass-through to use it a lot. Other places are going to have challenges.
There may be a difference between academic centers and other centers, but the universal interest and actually a lot of excitement about doing a study where we're going to have a control group, which is AGENT, and where they can actually use the product in that context. Two-year data coming out, I don't know if you've looked at it. I think it's given some folks pause. Not only was a TLF maybe a double-digit TLF, a little underwhelming, but you've seen progress or you've seen progressive TLF, TLR in two years. There is a little caution around the two-year data from Boston. I think from our perspective, that's generated even more interest in doing the Virtue study.
Great. Lastly, maybe we could talk about the pathway beyond ISR for Virtue or what are some of the other use cases that you see for this in the future?
The next kind of frontier where you see a lot of use of drug-coated balloons outside the U.S. is coronary small vessel de novo. Vessels in and around, let's say, 2.75 mms and below. We think that is another great place for Virtue. We have breakthrough designation, and we're doing some work now on roadmapping. Ultimately, that study is supposed to be funded by and executed by Terumo. There's been some work with FDA in the past, and we're still pursuing that. Generally, the view in the coronary is that drug-eluting balloons, ours and others, although the drug-coated balloons have value beyond that, side branches and eventually larger vessels. There's actually a fair amount of clinical work going on outside the U.S. on large vessel de novo as well. When we move into the periphery, the biggest unmet need is in below the knee.
We have a breakthrough designation for Virtue in below the knee. We're really excited about it, but we're also thinking about, because we decouple the drug component and drug delivery from the surface of the balloon, we're doing a lot of work in-house on how do you actually optimize that technology for longer lesions that are tortuous below the knee where you have a lot of calcium and you have challenges. There's also reimbursement reasons why that approach may distinguish our technology. The upside reimbursement in the coronary doesn't appear to be available for drug-coated balloons in the periphery. Both from optimizing our technology as well as optimizing our pathway to commercial success, we're really excited about below the knee as a frontier.
Frankly, once you've created this long-acting sirolimus and different delivery devices, what you're really doing is looking at indications where inflammation and post-procedural healing is needed. There's a bunch of places outside the vasculature that we think our technology could have value. Drug-coated balloons, particularly paclitaxel, is actually gaining traction in urology, both for benign prostate hyperplasia and urethral strictures. We've looked at some other markets as well. Our focus in energy is on getting the Virtue trial going in coronary ISR.
Great. I think we have to end there, but that is a great summary. Thanks a lot, everybody, for your interest in Orchestra. David, thanks a lot.
Thanks, Matt.