This week Hancock Jaffe Laboratories Inc. (HJLI:NASDAQ) announced a partnership with the Texas Heart Institute, a world-renowned leader in cardiovascular disease. This partnership, which is for the development of their CoreoGraft™ product, is very significant for the company. In my opinion, having Texas Heart on board underscores the likelihood of a successful product development cycle and commercial launch, a process that is now proceeding on a definitive timeline, with the backing of a major research center, but, at the same time, without any real appreciation from the investment community.
Coronary Artery Bypass Grafting (CABG)
The CoreoGraft is a graft designed for use in coronary artery bypass surgeries. Coronary artery bypass grafting, more commonly referred to as CABG, is a type of surgery that improves blood flow to the heart. Surgeons use CABG to treat people who suffer from coronary heart disease. Basically, if the pipes leading into the heart are too clogged to work properly, this bypass surgery puts new, clean ones, in place.
CABG surgeries are a very common procedure. There are over 150,000 of them performed annually in the U.S. Since most of these involve multiple bypasses; the number of grafts used annually is in excess of 375,000.
Despite the frequency of the procedure, there has been little effort put into developing artificial grafts. Presently, there are no FDA approved grafts for coronary artery bypass procedures. Instead, surgeons have used human grafts by performing a procedure known as vein harvesting, taking veins from a different location on the patient's body and using these to replace the clogged arteries.
Although it is standard of care, vein harvesting is not the optimal solution in CABG procedures. Many complications arise from vein harvesting. The most obvious of these surround the need for a second, invasive, surgical procedure. This is not only a large expense (using a different surgical team and requiring OR time), but complications from vein harvesting by open method can be a major source of postoperative morbidity.
Equally important, the veins used in CABG, if they are available, are truly suboptimal for bypass. In 95% of these procedures, surgeons use the Great Saphenous Vein. This vein has an average diameter of 5-6mm, versus 2-3mm average diameter in the coronary arteries. This difference in diameters creates abnormal flow patterns, which leads to frequent occluding, or clogging, of the arteries. This plays out in actual numbers where, according to Texas Heart, 20-25% of bypass grafts are occluded before the patient even leaves the operating room!
This mismatch in diameter between the saphenous veins and coronary arteries, along with not requiring a second surgical procedure, is the problem that the CoreoGraft is designed to solve. With a diameter that matches the patient's vein size, blood flow through the bypass should be more laminar or smooth, leading to less likelihood of occlusion or clotting. And, by being a man-made graft, not a harvested one, it is a much simpler and cheaper procedure to perform.
But, what exactly is the CoreoGraft and why do I believe it has a very simple and straightforward path to FDA approval? The CoreoGraft is an artificial vein produced from bovine mesenteric veins, which means they are taken from cows. These veins are then processed by the company to create a product that is suitable for CABG procedures.
Hancock Jaffe has actually been doing this for years. In fact, the CoreoGraft is developed from the same material used for the Class III ProCol® Vascular Bioprosthesis, which was previously developed by Hancock Jaffe. The ProCol bioprosthesis, which has a 6-millimeter diameter as opposed to the 3mm diameter of the CoreoGraft, is a product that was created and brought successfully through the FDA approval process by Hancock Jaffe.
The CoreoGraft is simply a corollary product to the existing ProCol. The ProCol product uses the same material and has been approved for, and used, in human procedures for several years. ProCol is used in the different surgical procedure of kidney bypasses (hence the products' different diameters), but the concept is the same. With the CoreoGraft, Hancock Jaffe has created a smaller version of an FDA approved product that is going after a much larger indication.
The Regulatory Pathway
With its brother product, ProCol, already approved by the FDA, the regulatory pathway is one with which Hancock Jaffe is familiar. It's a very straightforward process, a process that should be much quicker and more manageable with a strong partner like Texas Heart on its side.
The first part of the process is a Feasibility Study, which will be animal studies. In these preclinical trials, the CoreoGraft is implanted into animals to test effectiveness and safety. This is a 30-day study and is expected to be launched in fairly short order.
Pending a successful outcome from the Feasibility Study, HJLI would then move on to a formal GLP (general laboratory practices) study. GLP studies are non-clinical laboratory studies that support or are intended to support application for research or marketing permits for, among other things, medical devices for human use. The GLP study is expected to take 90 days.
Once the GLP study is concluded, the data must be assembled and presented to the FDA in order for the Company to receive an investigational device exemption (IDE). An IDE will allow the CoreoGraft to be used in a clinical study in order to collect safety and effectiveness data. All clinical evaluations of investigational devices, unless exempt, must have an approved IDE before the study is initiated.
Hancock Jaffe expects to be able to apply for an IDE early in 2019. As these applications typically take a few months to receive approval, the company should be on track for first in human testing of the CoreoGraft in about one year's time from today.
As mentioned earlier, there are approximately 375,000 CABG procedures performed in the U.S. each year. If the CoreoGraft is adopted in all of these, at a price of just over $5,000 per graft, the market potential approaches $2 billion per annum.
It is unlikely, however, that CoreoGraft will supplant all saphenous vein harvesting immediately upon approval. As with most new products, it takes time to gain market share and have surgeons switch over from prior practice. However, with the potential benefits from lower clotting, combined with the cost savings and other benefits of removing a harvesting procedure, one can make a compelling case for significant market share over time.
Meanwhile, there are some procedures that would be considered low-hanging fruit for an approved CoreoGraft. These would be cases in which a patient is going in for a second CABG surgery. In these situations, patients have already had their saphenous veins harvested and surgeons would be eager to accept a suitable replacement.
Also, in women who have had breast cancer, there is an issue with harvesting saphenous veins. Sadly, breast cancer survivors are more likely to require CABG surgery at some point, and CoreoGraft would be very helpful in these cases.
In my opinion, the goal is the $2 billion market potential. However, it's nice to know that there are many situations in which a surgeon would be happy to go with a recently approved product, like CoreoGraft, as they are lacking alternatives. This early adoption is what is needed to get a product noticed and will likely lead to faster uptake for the overall market as more use cases bring positive results to the marketplace.
Thus, I believe that Hancock Jaffe has a very interesting product on its hands. The CoreoGraft is well positioned, as a corollary product to an approved graft, to have successful trial results. With Texas Heart endorsing this product and working to help it through clinical trials, they have a very strong and well respected partner. I expect to see CoreoGraf in human trials about a year from now, and approved not too long thereafter.
With a potential $2 billion market for the CoreoGraft, with its VenoValve getting ready for first in human trials, and with its stock sitting at a $27 million market cap, Hancock Jaffe represents a compelling risk/reward opportunity for forward-looking investors.
Daniel Carlson is the founder and managing member of Tailwinds Research Group and its parent company DFC Advisory Services, which is a licensed registered investment advisor (CRD # 297209). Tailwinds is a microcap focused research company that provides research on and consults to over 20 emerging growth companies in the technology and life sciences arenas. DFC Advisory Services is an RIA that manages money dedicated to investing in the companies covered by Tailwinds. For more information on these two companies and their track record, please see www.tailwindsresearch.com. Prior to founding these two entities, Dan spent many years working with small public companies, having been CFO of two public companies and helping finance many others. A 1989 graduate from Tufts University with a degree in Economics, Dan’s formative years in business were spent as an equity trader, first on the Pacific Coast Stock Exchange then on the buyside at several multi-billion dollar firms.
This article was submitted by Tailwinds Research. For more information on Tailwinds Research or on Hancock Jaffe Laboratories, please visit www.tailwindsresearch.com.
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