When Good Buzz Goes Bad
In September, 2006, Gregory D. Casciaro, chief executive of Xtent (XTNT ), was feeling optimistic as he roamed the halls at the European Society of Cardiology meeting in Barcelona. Just weeks before, Xtent had filed to go public to raise capital for continued testing of its experimental drug-coated stent. Doctors had used Xtent's device in live procedures at other conferences, generating good buzz on Wall Street. But then, in Barcelona, a group of scientists presented evidence that cast a pall over all drug-coated stents. It showed that such products put patients at higher risk of heart attack and death, compared with old-fashioned bare-metal stents. "Oh, my God," Casciaro thought. He was about to learn the perils of stewarding a promising medical innovation under a spreading cloud of safety concerns.
Casciaro and his colleagues at the Menlo Park (Calif.) company quickly regrouped, devising a plan to use the new studies as a way to differentiate their product. During their pre-IPO road show for investors, they stressed that their stent potentially is safer because it is coated with a new drug, and cardiologists can adjust its length to fit the size of the clot. In the months that followed, as a confusing collection of new studies cast further doubt on drug-coated stents, Casciaro stuck to his script. Xtent, he told anyone listening, "is not another me-too."
At first, the message seemed to resonate. Xtent went public at 16 a share on Feb. 1, raising $75 million--squarely in the middle of the range executives hoped for. But the stock began falling on the day of the offering, sank to 8, and is still struggling to bounce back. To get the device approved in the U.S., Xtent will need additional capital next year for two more trials. If the stock doesn't rebound, it might have to look at less attractive alternatives, such as borrowing, says Jose Heresco, an analyst for Merriman, Curhan, Ford (MEM ). "That [share] price is about the overall sentiment toward drug-eluting stents," Heresco says. "It's hard to find a silver lining."
Unexpected glitches added to investors' jitters. During European trials, some doctors commented that the handle used to deliver the stent was clumsy to use. Back in Menlo Park, Casciaro rang a ship's bell that hangs in Xtent's offices, summoning 150 employees to explain the problem. And he halted the studies while the handle was redesigned.
In May, Xtent announced that there was a 9% rate of adverse events such as heart attacks in one of its overseas trials. That's half the rate in some tests of Boston Scientific's (BSX ) Taxus stent. Still, the mere mention of "adverse events" caused Xtent's stock to drop 10%. "That was our fault," says Casciaro. "We didn't set the tone properly."
Analysts predict Xtent will lose more than $60 million this year and won't turn a profit until 2010. If its device gets any positive pickup in Europe, where it's likely to hit the market next year, the startup could get acquired. But Casciaro refuses to dwell on takeover scenarios. "We plan on carrying this banner as far as we can ourselves," he says.
By Arlene Weintraub