Add
CAMH.OB to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CAMH.OB > SEC Filings for CAMH.OB > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
Overview
We are engaged in the research, development and commercialization of products for the non-invasive diagnosis of cardiac disease. Using innovative technologies, we are addressing a key problem in cardiac diagnosis-the identification of those at risk of sudden cardiac death (SCD). Our proprietary technology and products are the first diagnostic tools cleared by the FDA to non-invasively measure Microvolt levels of T-Wave Alternans or MTWA, an extremely subtle beat-to-beat fluctuation in the T-Wave portion of a patient's electrocardiogram. Our MTWA Test is performed using our primary product, the Heartwave System in conjunction with our single patient use Micro-V Alternans Sensors. There are approximately 846 first and second generation Heartwave units that have been sold in the U.S. since the product was introduced at the end of 2000.
In the United States, we sell products through our direct sales organization, and from March 2007 through April 2008, we sold products through our Co-Marketing Agreement with St. Jude Medical, Inc. In May 2008, we implemented a new technology placement program whereby, instead of an outright purchase, customers have the option to pay quarterly fees for the use of the Company's Heartwave II System and consumption of Micro V-Alternans Sensors up to a set level. This program also allows customers to cancel at any time. Outside of the United States, we sell our products through independent distributors. Profitability for our business requires that we are successful in our efforts to expand the installed base of our HearTwave units in the United States and continually increase the number of Microvolt T-Wave Alternans Tests being performed in order to increase the usage of our Micro-V Alternans Sensors.
Distribution Update
At September 30, 2008, we employed 11 direct sales representatives and 2 regional managers in the U.S. We also employ 14 clinical application specialists who provide clinical support to our direct sales force and our customers. We utilize country specific independent distributors for the sales of our products outside the U.S.
On March 21, 2007, we entered into a Co-Marketing Agreement with St. Jude Medical granting St. Jude Medical the exclusive right to market and sell the Company's HearTwave II System and other Microvolt T-Wave Alternans products to cardiologists and electrophysiologists in North America. The initial term of the Co-Marketing Agreement expires on April 30, 2010.
On June 18, 2007, the Company entered into Amendment No. 1 to the Co-Marketing Agreement with St. Jude Medical, effective March 21, 2007, enabling St. Jude Medical to also market Cambridge Heart's HearTwave II Microvolt Alternans test to North American primary care and internal medicine physicians and Cambridge Heart's sales to support St. Jude Medical's field sales force in all physician markets in North America.
In May 2008 the Company reached an agreement in principle with St. Jude Medical to amend the Co-Marketing Agreement with St. Jude Medical to a non-exclusive arrangement, which enables Cambridge Heart to assume complete sales responsibility. On July 16, 2008, we entered into a Restated Co-Marketing Agreement (the "Restated Agreement"), with St. Jude Medical, which effective as of May 5, 2008 replaced the previous Co-Marketing Agreement. The Restated Agreement grants St. Jude Medical the non-exclusive right to market and sell our HearTwave System and other Microvolt T-Wave Alternans products (the "Products") to physicians in North America.
Pursuant to the Restated Agreement, we retain full sales responsibility for the Products and may approach and deal directly with any account. We agreed to collaborate in the development and implementation of co-marketing programs with respect to marketing the Products that may involve co-branding marketing materials, co-sponsoring of educational events and joint presence at industry conventions and trade shows.
The Restated Agreement restricts St. Jude Medical from distributing, selling, marketing or promoting any other non-implantable diagnostic system for the surface recording of ECG for the measurement of Microvolt T-Wave Alternans, with certain specified exceptions, during the term of the Restated Agreement. This restriction shall be extended following the expiration or termination of the Restated Agreement for a period equal to the term of the Restated Agreement with respect to any such product that is developed solely by St. Jude Medical or any of its affiliates, as opposed to a product developed by a third party. The Restated Agreement provides restrictions on our ability to enter into certain agreements, arrangements or understandings with certain direct competitors of St. Jude Medical during the term of the Restated Agreement with respect to the co-branding of the Products or the co-sponsorship of events related to the Products.
The term of the Restated Agreement expires on the earlier of November 5, 2008 or the placement of 300 new HearTwave Systems following the effective date of the Restated Agreement. The parties will assess the co-marketing arrangement and determine the nature of the future collaboration, if any, between the parties.
Reimbursement Update
Reimbursement to healthcare providers by Medicare/Medicaid and third party insurers is critical to the long-term success of our efforts to make the Microvolt T-Wave Alternans ("MTWA") Test a standard of care for patients at risk of ventricular tachyarrhythmia or sudden death. In order for physician practices and other health care providers to be able to purchase our products, the availability of appropriate reimbursement to them from both the federal government (Medicare) or a private insurance company is essential. At present, approximately one-half of the U.S. patient population that we believe is most likely to benefit from our MTWA test are at least 65 years old and, therefore, eligible for reimbursement via Medicare. The remaining 50% of our potential patient population is covered through private insurance plans such as Blue Cross/Blue Shield, Aetna, Cigna, Kaiser and United Healthcare.
Many local Medicare carriers have provided coverage for the MTWA test for several years. However, coverage indications have often been inconsistent and in many instances so administratively burdensome to physicians as to make it impracticable to obtain payment for many patients whom they would like to test. The Centers for Medicaid and Medicare Services (CMS) issues the vast majority of their coverage policies via Local Coverage Decisions (LCDs). In approximately 10-15% of the cases they issue National Coverage Decisions (NCDs) to apply uniform standards across the entire country.
In 2005, we applied to CMS for a National Coverage Determination seeking broader and more uniform reimbursement coverage for our MTWA test. After a nine month application process, CMS released a draft of its NCD on December 21, 2005, which became final on March 21, 2006. This broad coverage policy allows for the payment of MTWA testing of patients at risk of sudden cardiac death, but only when a MTWA test is done using our patented and proprietary spectral analytic method. Effective January 1, 2007, CMS published a revised Medicare payment amount for the CPT code for a Microvolt T-Wave Alternans Test of approximately $287.
In addition to federally funded reimbursement, we have been actively pursuing reimbursement from private insurers which cover the remaining 50% of the patient population that we believe could benefit from a MTWA Test. In 2005, we received a positive reimbursement decision from Horizon Blue Cross/Blue Shield in New Jersey. This was in addition to the coverage already provided by a number of Blue Cross/Blue Shield insurance companies including New York, Iowa, Maryland, Washington DC, Delaware, Michigan, South Dakota and Minnesota.
In the first three months of 2006, Aetna, CIGNA Healthcare and Humana each issued a coverage policy for our MTWA Test making it a covered benefit for those patients at risk of sudden cardiac death who meet the criteria for an implantable cardioverter defibrillator ("ICD") placement. The coverage policies for Aetna and Humana both specify the necessity of using our proprietary spectral analytic method as a condition for coverage.
On November 7, 2006, Healthcare Service Corporation (HCSC) issued a coverage policy for our MTWA test making it a covered benefit for those individuals who are at risk of developing life-threatening ventricular arrhythmias. HCSC provides healthcare benefits to 11.6 million beneficiaries through its BlueCross, BlueShield divisions in Texas, Illinois, New Mexico and Oklahoma.
Most recently, in February 2008, Premera Blue Cross revised its Corporate Medical Policy to make Microvolt T-Wave Alternans Testing a covered benefit.
While the Company has been able to achieve increased reimbursement coverage, there remain large patient populations in the United States where physicians and other health care providers cannot obtain proper reimbursement for the use of our products. For example, large insurers such as United Healthcare and a number of individual Blue Cross/Blue Shield insurance companies continue to maintain a policy of not reimbursing physicians for the use of our products. At September 30, 2008, we believe that reimbursement coverage remained unavailable for approximately 20% of the total patient population in the United States for whom a MTWA test would reasonably be considered appropriate. While the Company is actively working to broaden reimbursement coverage, there can no assurance that additional third-party insurers will decide to make reimbursement available in the near term, if at all, or even that certain payers who now reimburse for the use of our products will not decide to significantly reduce, or even eliminate, the level of reimbursement available for the use of our products.
In November 2006, CMS issued a ruling that changed the methodology used to calculate all physician reimbursement codes. This ruling, if not changed, will result in reductions in all categories of reimbursement levels through 2010. Effective January 1, 2008, the Centers for Medicare and Medicaid Services ("CMS"), reduced the Medicare payment amount for the CPT code for a MTWA Test from $287 in 2007 to $252 in 2008.
Clinical Developments
In March 2006, Dr. Paul Chan from the VA Center for Practice Management and Outcomes Research, and the University of Michigan, Ann Arbor gave a presentation at The American College of Cardiology regarding the cost effectiveness of ICD therapy.
The objective of the study was to evaluate the cost effectiveness of ICD therapy in MADIT II eligible patients with and without risk stratification using our MTWA test. The results of the study resulted in an Incremental Cost Effectiveness Ratio (ICER) of $88,700 per Quality Adjusted Life Year in the ICDs FOR ALL strategy as compared to the use of MTWA risk stratification. The use of MTWA in risk stratifying the population resulted in a $48,800 Incremental Cost Effectiveness Ratio as compared to medical management. This study was published in the Journal of American College of Cardiology in June 2006.
In May 2006, The Journal of the American College of Cardiology published a new clinical study titled, "Prognostic Utility of Microvolt T-Wave Alternans in Risk Stratification of Patients with Ischemic Cardiomyopathy." Dr. Theodore Chow from the Lindner Center was the Principal Investigator of the study. The study enrolled 768 consecutive patients with ischemic cardiomyopathy and an ejection fraction less than or equal to 35%. The authors studied MTWA to discern if MTWA was an independent predictor of mortality and could, therefore, identify which of the individuals would be at the highest risk of death and most likely to benefit from ICD therapy. After a mean follow-up period of 18 months, the MTWA non-negative, or abnormal, group of patients was associated with a significantly higher risk for all cause and arrhythmic mortality. In the group of patients that were not treated with implantable defibrillator therapy, the arrhythmic death rate for MTWA negative patients was approximately 2% per year while the MTWA non-negative patients' death rate was more than three times higher.
In August 2006, the "Guideline for Management of Patients with Ventricular Arrhythmias and the Prevention of Sudden Cardiac Death" was jointly released by the American College of Cardiology (ACC), The American Heart Association (AHA) and the European Society of Cardiology (ESC). In this new guideline, collaborated on with the Heart Rhythm Society (HRS) and the European Heart Rhythm Association, MTWA received a Class IIa guideline under the section Electrocardiographic Techniques and Measurements. The consensus guideline stated, "It is reasonable to use T-Wave Alternans for improving the diagnosis and risk stratification of patients with ventricular arrhythmias or who are at risk for developing life-threatening ventricular arrhythmias. (Level of Evidence: A)."
In November 2006, the clinical results from the Alternans Before Cardioverter Defibrillator (ABCD) trial were presented at the American Heart Association's 2006 Scientific Sessions conference. The study's Primary Investigators, Dr. Otto Constantini, M.D. and Dr. David S. Rosenbaum, M.D., presented the results. The study, sponsored by St. Jude Medical, found that the predictive value of our non-invasive MTWA test was comparable to the invasive EP tests in patients with a history of ischemic heart disease at high risk for SCD.
In March 2007, Dr. Gaetano M. De Ferrari, Head of the Intensive Care Unit in the department of cardiology at San Matteo Hospital in Pavia, Italy and a member of the ALPHA Steering Committee, presented the results of a multi-center, prospective study during the Late-Breaking Clinical Trials session of the American College of Cardiology Scientific meeting assessing the utility, using a CH2000 or HearTwave System, in predicting risk of sudden death among patients with non-ischemic cardiomyopathy. The ALPHA study (Prognostic Value of T-Wave Alternans in Patients with Heart Failure Due to Non-ischemic Cardiomyopathy) enrolled 446 Patients consecutive patients with NYHA Class II or III non-ischemic cardiomyopathy and left ventricular ejection fraction (LVEF) less than or equal to 40%. On the primary endpoint (cardiac death and life-threatening arrhythmias), an abnormal MTWA test had a Hazard Ratio of 4.01 (p=0.002), or four times the risk of a normal MTWA test. The 12-month negative predictive value of the test was reported to be 98.7%, indicating that patients with a negative test result are at very low risk of SCD. For patients with LVEF less than 35%, the Hazard Ration and negative predictive value were 4.28 (p=0.004) and 99%, respectively.
The results of the MASTER I (Microvolt T-Wave Alternans Testing for Risk Stratification of Post MI Patients) clinical trial, sponsored by Medtronic, Inc., were presented in a Late Breaking Clinical Trial session at the American Heart Association (AHA) Scientific Session in November 2007. The purpose of this 654 patient, multi-center clinical trial study was to show that MADIT II type patients with a normal MTWA Test result are at very low risk of dying suddenly versus those that test abnormal and, therefore, may not require ICD therapy. Each of the 654 patients met MADIT II criteria, meaning that they had all experienced a heart attack and had an ejection fraction of 30% or less. All of the patients received a currently available Medtronic ICD as prophylactic therapy.
The results of the MASTER I study showed that while the incidence of the primary endpoint (life-threatening ventricular tachyarrhythmic events) was lower in patients with MTWA negative results than patients in the non-negative group (10% vs. 13%), this difference did not achieve statistical significance. MTWA was, however, found to be a statistically significant predictor of total mortality (HR = 2.04, p=0.02). The majority of end point events in the MASTER I trial were appropriate ICD shocks. In addition, the event rate in the study was relatively low. Lastly, approximately 20% of patients in the MASTER I trial received a Cardiac Resynchronization Therapy and Defibrillator (CRT-D) device. An additional 1,200 patients with slightly better pumping function (ejection fraction of 30% to 40%) are being evaluated in a related registry according to the study protocol.
In March 2008, the preliminary results of MASTER II of 303 patients were presented in poster form at American College of Cardiology 2008 Annual Scientific Session. While results showed that in the post myocardial infarction (MI) group with EF 31-40% life-threatening ventricular tachyarrhythmic events are more common in patients who test positive for MTWA, the difference was not statistically significant. MTWA, however, was significantly correlated with all-cause mortality.
In May 2008, a meta-analysis of MTWA studies was presented by Dr. Stefan Hohnloser at the Heart Rhythm Society 2008 Scientific Sessions in San Francisco. The study entitled "Predictive Accuracy of Microvolt T-Wave Alternans Testing in Primary Prevention Patients With and Without ICDs" analyzed 14 recent trials, which collectively enrolled approximately 6,000 patients. The results showed that MTWA was a highly accurate predictor of arrhythmic events in those studies which used sudden cardiac death or sustained arrhythmias as the primary endpoint. Dr. Hohnloser, Director of Electrophysiology at J.W. Goethe University in Frankfurt, Germany, noted that "appropriate" ICD therapy appeared to be an unreliable surrogate endpoint for sudden cardiac death and can significantly impact the outcome of risk stratification studies.
Other Recent Developments
In February 2008, in response to a filing by GE Medical of a formal request for reconsideration of the National Coverage Determination (NCD) for Microvolt T-Wave Alternans to include GE's Modified Moving Average (MMA) methodology, the Centers for Medicare and Medicaid Services (CMS) released a Proposed Decision Memo stating that CMS proposes that there is insufficient evidence to conclude that the MMA method of determining MTWA is reasonable and necessary for the evaluation of Medicare beneficiaries at risk for sudden cardiac death (SCD) under section 1862(a)(1)(A) of the Social Security Act, and, therefore, CMS proposes to continue national noncoverage for the MMA method of determining MTWA. After careful examination, CMS found that the evidence base supporting the MMA method of measuring MTWA is limited, and though suggestive of benefit, is not yet convincing. CMS requested public comments on the proposed determination pursuant to section 1862(1) of the Social Security Act. In particular, CMS is interested in comments that include new evidence that they have not reviewed in past considerations of the NCD. CMS requested public comment on the reported findings of the MASTER I trial, specifically with regard to whether CMS should continue to cover MTWA in general, regardless of the method used. In May 2008, CMS issued a Final Decision Memorandum reaffirmed coverage of MTWA using the spectral analysis method and found insufficient evidence for coverage of MTWA using any other method.
On June 23, 2008, we entered into a license agreement with the Massachusetts Institute of Technology pursuant to which we acquired an exclusive license to United States Patent 7,336,995 "Method and Apparatus for Tachycardia Detection and Treatment." This broad patent covers the use of implantable devices such as pacemakers and defibrillators to measure T-Wave Alternans from intra-cardiac signals and to initiate subsequent therapy in order to prevent the development of arrhythmias which may lead to sudden cardiac death. Implantable defibrillators currently treat such arrhythmias only after they have been initiated, typically with a high-energy shock. A strategy to predict such rhythms before they occur could allow for preventive strategies, potentially avoiding imminent symptomatic episodes with the delivery of painless therapies.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations is based upon the financial statements which have been prepared in accordance with U.S. generally accepted accounting principles. The notes to the financial statements contained in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007 include a summary of our significant accounting policies and methods used in the preparation of our financial statements. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to incentive compensation, revenue recognition, product returns, allowance for doubtful accounts, inventory valuation, investments valuation, intangible assets, income taxes, warranty obligations, the fair value of preferred stock and warrants, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition and Accounts Receivable
Revenue from the sale of product to all of the Company's customers is recognized upon shipment of goods provided that risk of loss has passed to the customer, all of the Company's obligations have been fulfilled, persuasive evidence of an arrangement exists, the fee is fixed or determinable, and collectibility is probable. Revenue from the sale of product to all of our third-party distributors is subject to the same recognition criteria. These distributors provide all direct repair and support services to their customers. Under Emerging Issue Task Force ("EITF") 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables," in multiple element arrangements, separate elements can be considered separate units of accounting when the delivered unit has value to a customer on a stand-alone basis and there is objective and reliable evidence of the fair value of the undelivered element. The Company also sells maintenance agreements with the HearTwave System. Revenue from maintenance contracts is recognized separately based on amounts charged when sold on a stand-alone basis and is recorded over the term of the underlying agreement. Payments of $334,813 at September 30, 2008 ($289,312 at December 31, 2007) received in advance of services being performed are recorded as deferred revenue and included in current liabilities in the accompanying balance sheet. The Company also offers usage agreements whereby customers have use of the HearTwave System and a pre-set level of Micro-V Alternans Sensors for a 90-day period. Under the TPP, the Company retains title to the HearTwave System. The revenue from the TPP is recognized on a straight line basis over the term of the usage agreement, which, at this time, is not materially different than applying the separate unit accounting requirement of EITF 00-21. As of September 30, 2008, $18,100 is recorded as deferred revenue related system placements through TPP.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the non-payment of outstanding amounts due to us from our customers. We determine the amount of the allowance by evaluating the customer's credit history, current financial condition and payment history. We make a judgment as to the likelihood we will experience a loss of all or some portion of the outstanding balance.
At December 31, 2007 and September 30, 2008, the allowance for doubtful accounts was $250,216 and $309,049, respectively. We believe we have an adequate allowance; however additional write-offs could occur if future results significantly differ from our expectations.
Investments
The Company accounts for investments in accordance with the provisions of Statement of Financial Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity Securities." Investments consist of money market funds and marketable securities. The money market funds are readily convertible into known amounts of cash, and, therefore, are classified as cash equivalents. See Note 2 to these Condensed Financial Statements for further details regarding cash equivalents. The marketable securities consist of municipal bonds with long-term nominal maturities that are triple "A" credit rated debt instruments collateralized by student loans and guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program ("FFELP") up to 98%. The interest rates on these municipal bonds reset through an auction process every 28 - 30 days and referred to as auction rate securities (ARSs). See Note 3 to these Condensed Financial Statements for further details regarding ARSs. Investments which are considered held-to-maturity are stated at amortized cost plus accrued interest, which approximates market value. Investments which are considered available-for-sale are carried at fair market value plus accrued interest. Unrealized gains and losses are included in accumulated other comprehensive income (loss) as a separate component of stockholders' equity. Realized gains and losses, dividends and interest income, including amortization of the premium and discount arising at purchase, are included in interest and investment income.
As a result of continued illiquidity in the ARS market, the Company conducted fair market valuations of its investments in ARSs as of June 30, 2008. The fair market valuations were estimated by using the Trinomial Discount model which assumed that should a successful auction occur, the Company would be a seller, receiving the face value of the ARS at that point in time. Several sources were used to estimate probability including (1) credit default swap spreads on securities with similar credit, (2) implied volatility levels on exchange-traded options, and (3) spreads on corporate credit. Within the model, possible cash flows and probabilities are forecasted under each potential scenario. See Note 3 to these Condensed Financial Statements for further details regarding the accounting estimates and assumptions used in valuing the ARSs. The results of the valuations indicated that the fair market value of the investments in ARSs were $412,079 less than the carrying value. Further, although the Company expected the market illiquidity was temporary, the exact time-line was unknown. Therefore, at June 30, 2008, the classified its investments in ARSs as long-term assets and recorded $412,079 as a temporary unrealized loss in other comprehensive income.
In November 2008, Citigroup purchased all of the Company's investments in ARSs at par value totaling $9,250,000. Citigroup's agreement to liquidate the Company's ARSs, which was the result of a larger settlement between Citigroup, the United States Securities and Exchange Commission and the Attorney General of New York announced on August 7, 2008, called for Citigroup to liquidate the . . .
|
|