Biotech Values

[DewDiligence]

ARTE – More analysts are now singing the
sad song of a product with no demand.

http://money.cnn.com/2007/08/23/news/companies/dermal_filler/index.htm

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Artes Medical, a San Diego company that went public in 2006, launched its permanent dermal filler ArteFill this year. ArteFill contains polymer microspheres that remain in the face long after its supporting gel fades away - supposedly forever.

But some analysts believe that doctors and patients might be afraid of a facial injection that's considered permanent. More people are seeking eternal youth, but just for a few months at a time, analysts say.

"There are some doctors who won't use ArteFill because they're afraid that any mistakes they have are permanent, and some patients feel that way, as well," said Arrow of Lazard. "That's why we think ArteFill will never become a market leader."

Arrow estimates that the newly-launched ArteFill will total $13 million in 2007, barely trailing competitor BioForm's Radiesse, which is expected to total $15 million.

Nonetheless, Artes Medical said that 800 physicians have opened accounts to use ArteFill, and 600 of those doctors have completed training to use the new product, a promising sign that product sales could grow in the near future. [Great—the doctors have accounts! But they’re performing only 0.1 procedures per week on average. In other words, there is no demand.]

"The company trained over 600 physicians on the ArteFill procedure by July and is on track to train close to 1,000 by year end - well ahead of our previous expectations," wrote Sara Michelmore, analyst for Cowen and Co., in a note published Aug. 10.

But Aaron Gal, analyst for Sanford C. Bernstein, said "the question is not how many doctors will sign on, but how many doctors will use your product, and how often. [ArteFill is] a permanent filler and doctors are afraid of committing to use this. Permanent use means permanent problems."

This might be partly responsible for Artes Medical's 40 percent plunge in stock so far this year, though Arrow of Lazard said much of the decline comes from a stock lockup that was lifted six months after the IPO.

Jose Haresco, analyst for Merriman Curhan Ford, said in a published note that Artes Medical might be getting squeezed by BioForm Medical, a privately-held California company that recently filed for an IPO.

BioForm's dermal filler Radiesse, which was approved by the FDA in 2006, lasts for a year "on average," according to the company. BioForm licenses the technology to make its product from competitor Artes Medical.

Gal of Bernstein said that ArteFill might eventually pay off, but it will take a while.

"[Artes Medical] has got a long road ahead of them to prove its product is good," said Gal. "It's a competitive marketplace and they make a difficult proposition for a doctor to accept a permanent product. It's not going to be a walk in the park. But in the long run, if their product is good and has no side effects, then doctors will use it and the company will succeed." [I highly doubt it.]
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