US device firm Heartware aims for ASX

US venture-capital-backed artificial heart company Heartware is hoping to be the first in what might become a new wave of US firms considering an Australian IPO as an interim financing round, before moving on to a Nasdaq listing.

Heartware's ventricular assist device (VAD) will draw inevitable comparisons with Ventracor's VentrAssist -- and it is the AUD$300 million Ventracor's priming of the Australian market with its story that has led in part to Heartware's decision to raise finance in Australia.

Heartware's predecessor company was California-based Kriton Medical, which filed for chapter 11 bankruptcy in 2003. The company's intellectual property was sold to Heartware, and about US$32 million has been invested in the company to date. New York venture capitalist Appletree Partners now owns most of the company, having invested more than US$20 million and bought out other investors.

Heartware came to Australia planning to conduct a joint Australian/EU destination therapy trial for its VAD. A corporate advisor referred Appletree's Seth Harrison to Sydney investment bank EG Capital, and talk of an Australian IPO began.

Harrison, a trained surgeon and career venture capitalist, said that talking to the Australian surgeons he realised Ventracor had paved the way for awareness of heart-assist devices.

"We realised that the financing environment [in Australia] is ripe for this sort of company.

The people we were speaking with grabbed us by the leg and pulled us towards it," he said.

"The financing that we will do in Australia will give the company more cash in a single financing... therefore enabling [the company] to get well into humans with its first pump and the second pump."

The Heartware VAD is one third of the size of Ventracor's VentrAssist, and is placed in the pericardial space directly adjacent to the heart. Larger pumps are implanted in the abdominal space, a procedure requiring more extensive surgery.

The device has only one moving part, which is suspended both magnetically and hydrodynamically. The pumps are designed to have a usable life of over 10 years. Heartware also hopes its device will reduce the need for anti-coagulant medication.

The company's second-generation device, a miniaturised VAD, is at prototype stage, and it has plans to develop a device for small children supported by grant funding out of Europe.

However, Ventracor and other competitors are well ahead in the clinical trial race. Ventracor's CE Mark trial is already underway, and a US trial is in the offing. It is planning to launch its device in 2006.

Although Heartware is still 12-18 months from clinical trials, Harrison sees room for both Ventracor and Heartware in the multi-billion-dollar heart assist device market, and won't curb his ambitions for Heartware's product.

"We're certainly not setting out to compete with them as much as to offer patients the best possible alternative," he said. "We believe [Heartware's device] to be the best mechanical circulatory assist technology in the world."

Medical device executive Stuart McConchie, formerly of Australian medical device pioneer Telectronics, has been appointed as CEO of Heartware.

So is Heartware a niche story, or does its listing herald the beginning of a new trend in which US companies bypass the more expensive, more competitive US IPO market? EG Capital's Howard Leibman said he was investigating a number of similar opportunities.

"The US public markets have matured significantly so that in order to achieve a listing in the US you need commercial products -- Phase III or beyond, or CE Mark or FDA approval," Leibman said. "By comparison, the Australian market still has a greater appetite for earlier-stage medical device or biotechnology businesses, and as such provides potentially a valuable interim financing stage for a number of US companies."