NxStage Medical Rebounds on Wall Street, Looks to Grow Home Dialysis Biz

2/2/10

For a while last year, it looked like investors had lost faith in NxStage Medical. But the Lawrence, MA-based company (NASDAQ:NXTM), which makes portable dialysis machines for kidney failure patients, found its stride last May when it struck a financing and partnership deal with Japanese medical supplies firm Asahi Kasei Kuraray Medical.

The Asahi deal included a $40 million loan that enabled NxStage to pay off more expensive debts of about $30 million to GE Capital. Asahi also agreed to market NxStage’s kidney dialysis system in the Asian market under its own brand, among other facets of the agreement between the two firms. And since the deal, NxStage’s stock has been booming. The stock price hit its nadir at $1.90 per share just days before the Asahi deal was announced on May 18, and by last Friday, the stock closed at $8.11 per share.

NxStage is blazing a new trail by providing the first system that makes hemodialysis in the home a practical option for people whose kidneys can no longer remove toxins and water from their blood. It’s been hard work for the company to convince the healthcare providers to adopt home-based hemodialysis as opposed to the standard practice of having patients travel to centralized dialysis treatment facilities. The company also competes for the attention of doctors with industry giants such as Fresenius and Baxter International.

Nevertheless, NxStage has seen its sales grow consistently in recent years, in large part because more and more healthcare providers have warmed up to its portable hemodialysis machine, called System One. In November, the company reported that its revenue for the first nine months of 2009 was $108.2 million, up 16 percent from its $93.1 million in revenue from the same period of 2008. Yet the company’s sales of System One, which was launched after it was cleared for the U.S. market in 2005, haven’t been enough to make the business profitable.

“We’ve had a very consistent and predictable performance across multiple metrics,” says CEO Jeff Burbank, “Having done that for eight consecutive quarters now, that’s starting to build some confidence.”

No company before NxStage had succeeded in bringing a practical device for home hemodialysis to market. (Wealthy people had installed hulking hemodialysis machines like the ones used in clinics in their homes for decades, but those systems require professional clinical assistance as well as plumbing and electrical infrastructure upgrades that are impractical for most people with kidney failure.) The NxStage system, which is about the size of an old-school computer monitor, features several key innovations. One of them is a disposable cartridge loaded with the blood and fluid circuits. Burbank says that precise fluid management is a key to the overall function of the system. The system also had to be easily operated by patients, or a family caregiver, for them to use it in their homes.

Indeed, the company is years ahead of its competitors in providing home-based hemodialysis. Still, Burbank is keeping track of his neighbors to the north at DEKA Research and Development. That is the prolific inventor Dean Kamen’s Manchester, NH-based contract R&D firm, which is developing a home hemodialysis system on behalf of Deerfield, IL-based Baxter (NYSE:BAX). Baxter has been pumping … Next Page »

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