CPTS Conceptus, Inc. (MM)

The manufacturer of Essure permanent birth control system, Conceptus (CPTS) recently received the US Food and Drug Administration (FDA) nod for including 10-year data on effectiveness of Essure in the Essure procedure US Instructions for Use (IFU) and Patient Information Booklet (PIB). On top of that, FDA also allowed the company to include full five-year clinical study results and effectiveness rate of 99.83% in the IFU and PIB. With this approval, the clinical trial for Essure, which was initiated in 1998 and showed zero pregnancies over five years will close.

Amidst several recent headwinds, especially related to the tough competitive landscape and difficult macroeconomic conditions, this latest FDA approval came as a relief for Conceptus. Earlier, in January 2012, the company received an unfavorable ruling in a lawsuit related to its request to prohibit its competitor Hologic(HOLX) from selling its permanent birth control product Adiana system in the US. Moreover, with such a verdict, Hologic will no longer be required to pay any royalty to Conceptus on future sales of Adiana.

Moreover, Conceptus remains challenged with limited revenue and earnings visibility arising from tough macroeconomic conditions including high unemployment rates that hampered the market for non-urgent procedures like Essure. During the fourth quarter of fiscal 2011, domestic sales of Essure plunged 5.6% year over year. International sales also declined 18.8% on a year-over-year basis.

Apart from these setbacks, Conceptus declared a 15% drop in its US field sales organization, which resulted from its decision to discontinue its Gynecare Thermachoice Uterine Balloon Therapy System’s promotion in the US. This decision was primarily based on the company’s intention to focus on driving sales of its key product Essure. Also the company is presently working on new product development which may supplement Essure procedure going ahead.   

Besides, OB/GYN office visits slowed down leading to soft growth in the trans-cervical sterilization market. Moreover, Conceptus is facing severe challenges as Hologic’s Adiana, which is a direct competitor of Essure, is being trialed by many physicians. This has become a real concern for Conceptus as it lacks the resource to re-educate existing customers on the efficacy of Essure.

We are concerned about the penetration of Hologic’s Adiana in the US, which has increasingly cannibalized Conceptus’ market share. Although Conceptus is undertaking several initiatives to recapture market share, the outcome remains unimpressive as growth in the hysteroscopic sterilization market has been decelerating for three consecutive quarters. We also believe that the current hindrances will further deteriorate the already gloomy situation. However, the recent FDA approval to include 10-year data is expected to act in favor of Conceptus’ regaining its position in a still underpenetrated US hysteroscopicsterilization market.

Presently, Conceptus retains a Zacks #3 (short-term ‘Hold’ Rank), which also corresponds to our long-term ‘Underperform’ recommendation on the stock.

 
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