The Admedus Mystery Box Challenge

Let’s face it, we all love a mystery box.

You’ve probably noticed by now that I am a bit of a pop culture junkie and sometimes when I am looking at ASX-listed med/biotech companies, it feels to me a bit like a MasterChef Mystery Box Challenge. You suspect there is something tasty in there – and eventually when it all gets cooked it will turn out alright – but your initial reaction is holy crap. Of course, we are instinctively attracted to the allure and risk of the “mystery box”, which is what makes the whole concept so much fun. When I was a kid you couldn’t keep me away from a lucky dip at the Royal Show.

I should note that I am still a kid, just with a penchant for vintage whiskey and power tools (sometimes even at the same time).

I’ve wanted to write a piece about Admedus (ASX : AHZ) for a while now but there are so many components to this company that it takes a lot of fossicking around to try and understand the pieces. Then when one has “fossicked”, it’s necessary to take a step back and ponder whether the resulting understanding of the landscape looks cohesive, or whether it looks more like a dogs breakfast. Notwithstanding that Australian analyst reports are mostly bullshit designed to drum up business for brokerage firms, I think part of the reason why AHZ has a lot of confused punters and generally convoluted analyst coverage is precisely because it is tough to grasp and has a lot (too many?) moving parts.

It certainly challenged me.

As I understand the business, there are three segments. The first part is a fairly boring medical device portfolio that consists of a mixture of small devices and consumables. This part of the business doesn’t really warrant a whole lot of analysis – it either sells or it doesn’t. I actually don’t mind health service and distribution businesses provided that they have some sort of a differentiated strategy and can show growth without sacrificing profitability to just being “price competitive”. In the case of AHZ, the scale of this business segment isn’t enough – at least at this stage – to either get wildly excited or overly critical.

The second part of the business – the tissue engineering part – doesn’t leap out with controversy either. If anything it is a bit humdrum. Objectively, the “ADAPT” technology (process) has almost no discernible scientific oomph and sounds more like the love child of a research project and a creative branding exercise than anything else. All of the publications I have been able to find focus on the performance and applications for the technology, and tend to be quasi-marketing pieces in low-impact journals, rather than providing meaningful detail on the actual science and why it produces superior products, though I do understand (and respect) that sometimes for process technologies putting less information into the public domain is commercially necessary. As best as I can tell it is glycerol-based tissue processing of collagen scaffold in order to reduce intracellular crystallisation.

Yawn … but ok (incidentally, if someone wants to post a detailed scientific explanation of ADAPT, I would be most grateful).

Regarding the CardioCel product itself, there is nothing wrong with the idea. There is a market for it, and a need. I think it is also fair to say that there are a lot of competing products out there and a general recognition that we need more than just a quality collagen ‘patch’. Whether an ADAPT-modified TEP really delivers on this or not, is not possible to ascertain from what I have been able to read. What I do know is that there is a huge amount of effort being spent on smarter ways to build tissue matrix / scaffolds (in my reading, one of the best reviews I found was a recent MIT Ph.D thesis if you have a bottle of something that needs to be killed one evening).

Is CardioCel cutting edge? No. Can it sell? Probably. More on that in a minute.

So the first two parts of AHZ’s business neither offend me or turn me on. If the company has a solid commercial strategy and the products are competitive – at least within a certain pricing tier – there is no reason why it can’t be successful. However the third pillar of the business – the vaccine business – doesn’t resonate with me at all. Although there is no doubt that a HSV-2 vaccine would be a great product with mega potential, Prof. Frazer’s technology platform probably isn’t going to deliver it. The clinical experience with Garadsil has been generally positive and we should all take our hats off to Prof. Frazer’s accomplishments. However HSV has a completely different set of immunology challenges than HPV, ranging from the way the virus maintains its dormancy, to antibody recognition, to achieving durable immunity through enhancing certain specific T-cell responses. Even the scant (although one very nice) publication around the HSV work demonstrates that the strategy isn’t a slam-dunk and notwithstanding the nice data, the published pre-clinical study didn’t have an effective control to benchmark efficacy.

If AHZ’s HSV and HPV (“second generation”) vaccines are based on the Frazer ubiquitin-conjugated DNA vaccine concept, then there is no reason to doubt that these therapeutics will be safe and well tolerated. This is the intrinsic advantage of this platform technology (and so, incidentally, press releases that shout “safety” from the rooftop are probably a bit overstated and unnecessary). I’m not really going to comment on the potential HPV product because there isn’t yet enough information and it is just too early to say if there is something there. Not withstanding critique to the contrary, I prefer to make a more fact-based analysis rather than make too many inferences.

However for the HSV-2 product, there are basically two red flags for me. Firstly, given all the experience with Prof. Frazer’s platform technology, if there was an opportunity in HSV you would have thought we’d already see commercial momentum given the size of the market opportunity. Considering that Prof Frazer’s enforcement of his IP rights were essentially retrospective, pharma has been working on this concept for a long time. Secondly, a vaccine that confers immunity for HSV-2 is probably insufficient unless it also treats HSV-1. For example, some recent developments around ADCC-mediated immunomodulation for HSV that can handle both strains looks very promising, especially since antibody-directed strategies for gD glycoprotein targeting have not traditionally worked. Therefore the product that AHZ is developing probably doesn’t cut it, a least in terms of a product “vision” for HSV.

For me, the issue with AHZ is sort of fundamental and basically commercial rather than scientific. At a superficial level, it irritates me that company doesn’t clearly report its revenues attributable to the different product segments and so we don’t know whether their 2014 revenues come from catheters or engineered pig* patches. I did note the forecasted revenues in the most recent Edison report, but it would be nice to start seeing a more regular breakdown by product segment so we can understand how and where AHZ’s portfolio strategy is delivering value. At this time, it looks like about 1/3 of AHZ’s near-term revenue is attributable to CardioCel and the rest to its generic device/consumable products. This is really important to understand because if most of the valuation equation comes down to generic products, then this company is hugely overvalued at its current $120m-odd market cap.

I don’t mind the tissue engineering business because I see it as just a higher-value extension of the device/consumable business, and as a product portfolio strategy it is fine. I don’t really buy the “proprietary” or “performance” aspects of ADAPT/CardioCel – it looks like a nicely prepared collagen scaffold and that’s about it. But if it is a solid product with an articulated differentiation, quality manufacturing and good marketing (and price point!), it can be highly successful. By all accounts, clinicians like using it, the company has successfully pursued marketing clearance in a bunch of meaningful territories and if the growth forecast for CardioCel is even half-accurate, then it will be a nice little earner. A company doing $50-60m in sales from a product like this (which has good margins, I am sure) would enjoy a valuation contribution from that product of at least $300-400m. AHZ is not there yet, and initial sales are a bit sluggish but time will tell.

Of course none of the analyst reports on AHZ talk about competition, but let’s leave that one on a high note.

The dog for me is the vaccine business. I don’t like it. The products don’t jump out at me as being particularly innovative or leading-edge. The HSV-2 strategy is fundamentally flawed. The HPV strategy is too early and comes across as little more than a way to capture and direct a little Ian Frazer star-power. Gardasil has had plenty of controversy relative to Prof. Frazer’s public profile, but there is no doubt that his (deserved) reputation has huge marketing clout, and AHZ harnesses this on just about every web page and press release. Frankly, the way AHZ positions the “immunotherapy” business looks more like the exploitation of a personality cult than something grounded in science that has the potential to produce a market-leading product. I don’t want to be too petty or unkind about it, but it doesn’t turn me on.

However, what I really don’t like about the vaccine business isn’t the slightly squiffy marketing veneer, it is the resource utilisation relative to the other business segments. Here we have a potentially nice little company that is actually making some money (FY2015, maybe $10-12m?), has a few novel products that it is (arguably) successfully selling. It has a decent bit of cash on the balance sheet, it has the potential to bring in other products (particularly devices) either for late-stage development or as a regional manufacturer/distributor. But then the company turns around and takes all that value creation and cash flow, and sinks it into a product development activity that is extremely expensive, high-risk, probably undifferentiated and a poor fit with a medical device company.

If I were a shareholder, I would be asking “why?”

Personally, I would spin-out the vaccine business into a private company where the development doesn’t sit so strongly in the public domain, and where every little wart and blemish needs to get reported. I’d probably drop the HPV program and focus on HSV-2 (that is if you really think a HSV-2-only vaccine is a commercially competitive gameplan). By all means AHZ should remain a shareholder, perhaps even capitalise the company by taking the distribution rights (i.e. there is a bit of a financial engineering opportunity there), and possibly even have a preemption right to take it back. But let other capital – if AHZ can find it – share the risk of a product development exercise that doesn’t match the rest of the portfolio whatsoever. If Prof. Frazer really does bring scientific star-power to this program, then there will be no problem accomplishing this.

BUT if AHZ can’t cornerstone a round of financing for that separate company – i.e. bring in other investors to share the risk – then this is a meaningful signal that the asset(s) aren’t all that interesting. That being the case, I would then prefer to see AHZ focus on using its financial resources and accomplishments to date, to build a more evolved device/tissue portfolio where it could possibly be a strong niche player. Especially around AHZ’s investment in manufacturing (not having visited the AHZ site, I can’t attest how “state-of-the-art it really is, but it’s a sexy story).

To conclude this rather long-winded analysis, I would say that I see potential in AHZ. There are some interesting accomplishments there, and at least the company is generating some revenue that seem to have good margin. Cash is king and if the management team could focus on a device/tissue play (combined with the manufacturing capability) they could really build a nice business that would be worth investing in. I personally wouldn’t put a dime into this company until it distances itself from the vaccine activities because right now, all the company is doing is directing all that “good” value creation into something that is not only speculative, but underwhelming.

I would rather AHZ built value through revenues and product focus, than spruiking the hypothetical valuation contribution of a massive but unlikely opportunity.

*erratum: I note that the patches are bovine, not porcine. 

24 thoughts on “The Admedus Mystery Box Challenge

  1. You display a complete lack of understanding re. the company’s ADAPT process and the competitive advantages of CardioCel…..

    “Objectively, the “ADAPT” technology (process) has almost no discernible scientific oomph”

    Nonsense. The CardioCel patch produces no immune response in the patient and does not calcify, eventually forming native tissue. This means that it does not need to be replaced.

    The great majority of other tissues will show marked calcification <18 months post implantation (as they induce an immune response) and so need to be replaced regularly. On one hand you have a patient who will have to undergo repeat heart surgeries throughout his/her life and on the other a patient who will very likely never have to re-undergo the same surgery throughout his/her life…. "no discernible scientific oomph" you must be joking.

    As to Frazer's technology, here we are talking about the world's leading immunologist applying two patented methods of codon modification and protein ubiquitination in order to create a vaccine which is both prophylactic and therapeutic….. Time will tell whether he is successful or not although for now I'm backing his opinion over yours.

    Nick Mason.


    • Hi Nick,

      Thanks for your note – also for identifying yourself transparently.

      Nick, I understand CardioCel perfectly. It is a humdrum product that is challenging to differentiate. Collagen/soluble-elastin scaffolds are doing a great job at providing “calcification”-free performance. Do your homework. I also never said it was a bad product, I just couldn’t get that excited about it, though I like it a lot more than the “immunology” products. The only way you really need to judge product performance is by sales vs market opportunity. On that basis, CardioCel speaks for itself.

      Please don’t rabbit me company propaganda. I can read too.

      As for the HSV-2 product, you and I are in agreement on one point: Prof. Frazer is a brilliant immunologist. However, this product will simply commercially fail if all it does is address HSV-2 (which it does). So you see, it has nothing to do with science, just business. Speaking of “just business”, please understand that this site is probably not for you. You have probably already bought into the company’s vision and therefore, to a very large extent, I’m not really that interested in your opinion. This site is for people thinking about investing in a company like Admedus and is intended to provide a balance of opinion.

      You will note that I don’t ever tell anyone NOT to invest (in fact, some of my comments about Admedus were reasonably positive), rather my goal is to provide a counterbalance.

      But since you asked (sort of), here is a succinct summary of my position on the company :

      1) Admedus has a cardiac product that is marginally differentiated, doesn’t sell particularly well and is based on a process that is probably more marketing than science.

      2) Admedus makes most of its revenues (and thereford derives most of its enterprise value) from (re)selling commodity devices. Therefore its current valuation is tough to justify.

      3) It’s “blue sky” opportunity is indeed based on the science of one of Australia’s most accomplished immunologists (as we are constantly reminded) but Admedus’ product vision simply will not deliver a competitive product for herpes.

      Thanks for reading


  2. Hi Cbehrenbruch,

    I’m taken aback that you still display such ignorance on the importance of the CardioCel patch after I took the time to explain it to you…..

    “Nick, I understand CardioCel perfectly. It is a humdrum product that is challenging to differentiate.”

    CardioCel is neither a humdrum (boring, monotonous) product nor is it challenging to differentiate…. so two out of two errors after claiming perfect understanding. Perfect misunderstanding more like it and I’ll explain why (again.)

    CardioCel has created great excitement in the field of cardiac surgery for the reasons I gave above (no immune response, no calcification, no repeat surgeries) this is revolutionary. Previous to CardioCel patients had a lifetime of re-ops to look forward to, post CardioCel patients face the prospect of a single surgery. For this reason alone (and there are many others re. valve reconstruction opportunities instead of replacements, a topic for another day….) CardioCel has already created high levels of optimism amongst many of the world’s leading surgeons who are now adopting it as their patch of choice. As per the last ASX release there are >90 centers internationally using it.

    “Challenging to differentiate” again, perfectly wrong for the reasons I gave above which affect patient outcomes although also wrong from the perspective of the surgeon using the patch during the operation as it has been reported numerous times by surgeons that the handling characteristics of the patch during surgery are superior. Also CardioCel can be used off the shelf and doesn’t require the time consuming rinsing that other patches need prior to implantation.

    We do agree on one thing though….

    “The only way you really need to judge product performance is by sales vs market opportunity.”

    This is correct although has to be taken in context (how long has the product been on market for?)

    And for their first year (the manufacturing facility made its first shipment in August 2014 )CardioCel has performed admirably and (from center penetration and resulting clinical literature) it’s reasonable to expect that CardioCel will grow massively year on year.

    I also agree that in center penetration and revenues “CardioCel speaks for itself.”

    If you think that medical device companies make explosive sales from novel products in their first year of international sales you are incredibly naive and need to learn more about the industry.

    Nick Mason


    • Nick,

      Thanks again for repeating yourself and for re-hashing the company’s marketing claims again. Maybe if you keep doing it, they’ll offer you a job. This site is not an alternative marketing site for a company product but given the effort you went to, to educate me, I’ll let the post go through. Having been involved in introducing several new products during my career, I am aware of the dynamic of new product introduction – nothing naive here at all.

      1) There are plenty of competing processed bovine “patches” to CardioCel that make the same marketing claims. The cardiac ECM market has several dominant players as you may know (like, for example Edwards :, but also a lot of small companies competing for their own little slice of what is expected to be a $25-30Bn market by the end of the decade (for all cardiovascular tissue repair applications). I have never seen a competitor analysis presented by Admedus in any of their investor presentations (a red flag for an investor, by the way) but I will be happy to send you one if you need it to understand the space.

      2) Differentiators like “calcification” is mostly marketing spin. Early BP product had excess glutaraldehyde (a biocide) and may have caused some calcification. Most modern prepared BP/ECM products or “patches” don’t have this issue. Rinsing, similarly (though it always amuses me when I read this “differentiator” because it invokes the image of everyone standing around in the OR whistling for 3-6 minutes while the surgeon massages and rinses a bit of ECM – of course that isn’t how it works). Again, several available BP products are “rinse-free”. The calcification issue is also somewhat complex because depending on the pathology, a degree of calcification is always possible irrespective of what ECM is used.

      3) I guess we will both be watching to see how the product performs. But let’s not get carried away – the initial usage of the product is for fairly simple applications. They are not repairing heart valves anytime soon.

      (note: by this I mean they need to get traction for simpler applications first, not that the material isn’t suitable).

      To conclude, I don’t have a problem with this product. I am sure it is a good product and if a surgeon is willing to say that one bit of BP feels nicer than another bit of BP, that’s great for the company. But it is, at the end of the day, just a bit of processed BP and it has to fight in the market with plenty of other bits of processed BP with similar marketing claims. That’s why I don’t get excited about it.

      At a bigger picture level, we probably wont be using BP in 10 years time, so in a way, Admedus is already going to market with a product that has a fairly short horizon line.

      Thanks for reading.


      • ” They are not repairing heart valves anytime soon.”

        Time to do some research, pretty ordinary for someone with a phd.


      • Terry, I didn’t say it couldn’t be used for that application (and I am aware of their public positioning) I am saying that to date, this has not been the principal application focus.


      • They have FDA approval for valve repair and has been extensively used. See Berlin heart publication. Currently have an aortic valve study underway using the ozaki method. As you would know the aortic valve has the highest pressures within the heart and has been unable to be repaired using standard ECM as it cannot withstand the pressures. This is showing excellent results and they have major centers wanting to use it for this application. Hope this helps you


      • Hi Terryzarmzoff,

        I don’t understand why everyone has their knickers in a twist about my post.

        I never said it was a bad material, I said it was undifferentiated. Nor did I indicate that the company wasn’t interested in using this material in valve repair applications. But for a new cardiac ECM product, adoption usually takes place fairly incrementally and starts with easier applications first (like maybe a septal defect).

        To be clear:

        1) Admedus did not get “FDA approval to do heart valve repair” as you have implied. Admedus got a 510(k) Class II marketing clearance on the basis of substantial equivalency to the Edwards patch and the CV peri-guard patch. Please feel free to read :

        2) 10s if not 100ds of thousands of patients have had annuloplasty with some sort of prosthetic support, including extensive experience with BP ECM (the first experience was in the late 80s).

        Everything you need to understand about Admedus’ product is in the FDA equivalency analysis. It is – to be clear – “equivalent” to two leading products in the market place. Companies, incidentally, that make their own claims about issues such as calcification.

        Thanks for reading.


      • PS: Don’t come onto my site and stick your finger up my ass and expect to have a “pleasant” conversation after you personally attack me on HotCopper.

        Hope this helps you. Unless you are a cardiovascular surgeon, in which case nothing I have said will be new to you.


      • You are joking, right?

        Tell you what, Big Man, just for you I will write a follow-up and detailed analysis of this product. I wasn’t all that interested in the CardioCel product and I actually sort of like the company, so I didn’t see the point on over-egging the pudding.

        But for all the Admedus shareholders who abused me the last 2 or 3 weeks, I will make an exception.


      • Said my view just like you have. What you do from here is your choice and what you write won’t bother me now. Although this has been good exposure for your website and will help with advertising revenue so you probably owe me a beer really.


      • Dear Mr. Riethmuller,

        Had you bothered to understand what this site is about, you would know that I do not monetise it in any way. I don’t collect advertising revenue, I don’t charge subscriptions. I don’t get paid for it. There aren’t any sponsors.

        I write these articles to counterbalance people like you who wax lyrical about products on trading forums without any integrity or impartiality, simply to pump your shareholding in a company. I am especially incensed by guys like you that will bully and pick on people, anonymously (as you have done here – but also as you have done many times on HotCopper), simply to attempt to suppress any opinion that might counteract the movement of your investment (though you currently claim not to be holding AHZ?).

        My goal is simply to provide an alternate viewpoint when none seems to exist.


      • Pump my holdings. Ah have you seen where the sp has gone in the last 6 months? That would be akin to having a counter opinion just for the sake of it, futile!


      • Again, you miss my point. This site is not a stockmarket trading forum. You already have HotCopper for that. Also cardiovascular tissue engineering, though a bit like plumbing, also has some differences.

        Thanks for reading, Brett.


      • Great to have a mature debate Christian, I hope you’re not too upset by a contrary opinion. If you present facts most will not have a problem. I guess a few ahz holders saw a few holes in your argument and wanted to reply.


      • Yeah, mature debate here. Digital rectal examination on HotCopper. Right?

        All of your posts related to thought-leader sites, and they are great. Again, you keep thinking that I am “against” the product, I am not. But nothing you have told me makes this a slam-dunk product.


    • Admedus Limited (ASX:AHZ) has released the abstract of a study that shows
      its lead regenerative tissue product CardioCel® is finding broader markets than
      originally perceived.
      It is demonstrating the utility of the product beyond the use in congenital heart
      disease in a number of different valve repair procedures.
      The study reports on the use of CardioCel for different congenital heart disease
      applications between February 2014 and August 2014 in 37 patients.
      These applications include valve lesions (bicuspid aortic valves, Ebstein
      anomaly, common AV-valve), septal defects (V SD), conotruncal lesions
      (tetralogy of fallot, TGA) and univentricular hearts (hypoplastic left heart
      CardioCel was used for valve reconstruction in 21 patients, for closure of septal
      defects in 5 patients, for patch enlargement of great arteries in 18 patients and
      for creation of venous anastomoses in 2 patients.
      It found there were no intraoperative difficulties implanting the patch material.
      In addition, echocardiography at discharge showed excellent patch function, no
      signs of device calcification, thrombosis or device failure of the presented
      The study will be presented by Dr. Sarah Nordmeyer, part of congenital heart
      disease team at the Berlin Heart Centre, on 10th February at the 43rd annual
      conference for the German Society For Thoracic and Cardiovascular Surgery.


  3. Hi Cbehrenbruch, I was a little taken aback by your 3rd point especially…..

    “I guess we will both be watching to see how the product performs. But let’s not get carried away – the initial usage of the product is for fairly simple applications. They are not repairing heart valves anytime soon. ”

    Are you unaware that Dr. T Sloane Guy has already been using CardioCel for the repair of the mitral valve? Please see video….

    Are you also unaware that Mr Olivier Ghez from The Royal Brompton Hospital has been using CardioCel for the repair of the mitral valve and presented on his experiences at the EACTS, which were very favorable, back in October 2014?

    Are you also unaware that Dr. Joseph Lameslas (Chief of Cardiac Surgery at Mount Sinai Medical Center, is a board-certified cardiac and thoracic surgeon practicing in Miami Beach, Florida. He has performed more than 10,000 open-heart procedures and more than 2,500 minimally invasive valve surgeries. In addition to his involvement in training surgeons in advanced and innovative surgical techniques, he has participated in national and international operative surgical symposia and has lectured nationally and internationally) recently published his experience with CardioCel and mitral valve repair on his blog and commented that….

    “The last of the 35 cases that I performed an anterior leaflet augmentation was with CardioCel. I found it very comfortable to work with. It is very flexible and soft and it is easy to pass a 5-0 needle through it. A saline test of the valve can be performed with this material as opposed to bovine pericardium which is very stiff and competency of the repair can only be assessed once the heart is beating.”

    concluding that “I think that this will be my go to patch for now” for, amongst other reasons the handling characteristics which I gave above although which you said….

    “if a surgeon is willing to say that one bit of BP feels nicer than another bit of BP, that’s great for the company. But it is, at the end of the day, just a bit of processed BP and it has to fight in the market with plenty of other bits of processed BP with similar marketing claims. That’s why I don’t get excited about it. ”

    You don’t get excited about the handling characteristics although Dr. Joseph Lamelas does.

    I’ll go with Dr Joseph Lamelas!

    Nick Mason.


  4. Pingback: CardioCel : Calcium binding sites, beware… | The Long Tail

  5. Evaluation of a tissue-engineered bovine pericardial patch in paediatric patients with congenital cardiac anomalies: initial experience with the ADAPT-treated CardioCel® patch
    William M.L. Neethlinga,b,c,*, Geoff Stranged, Laura Firthe and Francis E. Smitc
    + Author Affiliations

    …. etc.


    • Hi “Russtrades1”,

      Thanks for the paper. Not sure if you noticed, but I did in fact reference this paper (positively, I thought) in my last post, so not sure what your point is. I also cannot “reproduce” the entire paper here on my site, that would be an infringement of copyright.

      Did you want to make a point, or were you just doing the electronic equivalent of rolling up a document into a tube and ramming it up my arse?

      Thanks for your contribution.


    • Again, not sure what your point is.

      Some of the nicest people I know are bipolar.

      So again, the question, was there a point to your post or were you just helping me to commit copyright infringement?


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