Abbott Could Potentially Dump SurVeil Commercialization Plans

The cloud of uncertainty looming over Surmodics' SurVeil drug-coated balloon (DCB) continues to darken.

Surmodics announced in January that its premarket approval (PMA) application for the highly-anticipated SurVeil DCB is not currently approvable, according to a letter from FDA. The agency has asked to see additional information regarding the biocompatibility of the device and the labeling, which would require additional testing and analysis. The silver lining is that the agency did not question the human clinical data submitted, nor did it ask for additional clinical data.

The delay has prompted Eden Prairie, MN-based company to cut about 13% of its workforce to reduce cash burn, and could potentially jeopardize Surmodics' commercialization agreement with Abbott. Under the agreement, Abbott paid Surmodics a $25 million upfront payment and agreed to pay an additional $67 million once certain product development milestones have been met.

The SurVeil DCB is designed to treat peripheral artery disease (PAD). The device includes a proprietary drug-excipient formulation using a special process to improve coating uniformity. The device is designed to use a lower paclitaxel drug dose of 2.0 μg/mm2 and to have better efficiency of drug transfer. The aim was to achieve similar clinical outcomes with a lower dose of drug, potentially lowering the risk of complications.

If FDA approves the SurVeil DCB before the end of 2023, Abbott will owe Surmodics a final milestone payment of at least $24 million. However, approval is delayed into 2024 or longer, Abbott will have the option to terminate the agreement and not commercialize the device.

Surmodics would not have to refund any of the milestone payments Abbott has made so far under the commercialization agreement, even if Abbott decides to opt out of the deal, Surmodics CFO Tim Arens said Monday during the company's fiscal first quarter earnings call 

Jim Sidoti, a medtech analyst at Sidoti & Co., surmised that if Abbott has already invested $60 million or more into SurVeil, it's "probably unlikely" that the company will opt to not commercialize the device if it takes a few months into 2024 to gain FDA approval.

"We are limited in what we can say about Abbott," CEO Gary Maharaj said, according to SeekingAlpha transcripts of the Surmodics earnings call. "But I have found them to be highly constructive and engaged throughout this entire regulatory process. So that partnership as we continue to interact with them is strong and it continues."

Maharaj said Surmodics has an "excellent regulatory and technical connection" with Abbott regarding the SurVeil device. 

"They know what we're filing, they know the idiosyncrasies of the FDA interaction, and I will say I have only high respect for their technical experts that they give us on loan to comment or give advice on this," Maharaj said.

Since receiving the letter from FDA, Surmodics' regulatory and clinical teams, as well as external advisers, have been focused on evaluating its contents and preparing to formally engaged with FDA, the CEO noted. He said the company has also had an informal call with the agency and is now preparing to request additional feedback from the review team regarding specific requirements for the additional testing and analysis to address the items outlined in the letter. Assuming normal timelines, Maharaj said the company anticipates receiving FDA's formal feedback in May.

"It is important to understand that a 'not approval’ letter is not a permanent denial decision. The agency provided specific guidance in terms of the information that must be added to our PMA application in order to place it in an approvable form," Maharaj said.

The CEO also said the company views FDA's labeling questions as "generally routine" and expects those to be easily addressed. The wild card, however, will be what additional biocompatibility data the agency wants to see, and how long it would take the company to address those concerns.

He emphasized that the letter did not question the clinical data supporting SurVeil, which demonstrated comparable sustained clinical outcomes between the device and Medtronic's In.Pact Admiral DCB. The In.Pact Admiral also uses 75% more paclitaxel than SurVeil, he said.

The trial was the only head-to-head randomized pivotal trial ever conducted in the drug-coated balloon space, Maharaj said.

"What's stuck in my craw is that this device can be having a huge beneficial impact on U.S. patients," Maharaj said. "But we'll work through this with the agency."

Surmodics cuts workforce in wake of SurVeil FDA delay

Surmodics disclosed Friday in a filing with the U.S. Securities and Exchange Commission that it plans to cut about 13% of its workforce to reduce cash burn in the wake of a recent FDA delay related to the SurVeil DCB. According to a Star Tribune report about the Surmodics layoffs, a 13% reduction would translate into 58 jobs, assuming Surmodics still has 447 employees on the payroll as it did at the end of September.

Maharaj acknowledged during the earnings call that it is possible the level of biocompatibility evidence FDA requests will be too expense for the company to proceed.

"While unlikely, if this were to occur, we would need to reevaluate our regulatory and commercial strategy for the product," he said.

The workforce cuts are part of a spending reduction plan intended to lower the company's planned use of cash by about $10 million to $11 million for the rest of the fiscal year, before factoring in restructuring charges. Roughly 48% of the spending reduction is from selling, general, and administrative expenses; 27% is from capital expenditures; and 25% is from R&D.

Maharaj said the workforce reductions impact the company across several business areas, including manufacturing and operations, R&D and clinical, and sales operations and Surmodics' direct sales force.

"On a manufacturer and operations front, we have reduced a number of positions that support the manufacturer of our SurVeil drug-coated balloon while retaining our core team that support SurVeil, including key manufacturing, technical, regulatory and clinical personnel," he said. "On the R&D and clinical front, we have aligned our headcount to support our current R&D priorities from a product development standpoint. And finally, we've reduced the size of our commercial organization, supporting our Pounce thrombectomy and Sublime radial access products to optimize our investment in sales operations."

The company's 2023 revenue guidance does not include any incremental expenses that may be required to address FDA's biocompatibility concerns related to SurVeil. The guidance also excludes revenue associated with any potential future Abbott milestone payment on receipt of FDA approval.

"In the letter, they laid out in specific but not directly detailed terms what type of data they'd like to see to cover any gaps that they believe exists ... and much of this really deals with small animals, not for the large animal testing," he said.