Once dogged by boardroom drama, Cogentix game plan finds traction

Three years ago, a new name popped onto the Minnesota urology device landscape — Cogentix.

But the company, formed from the merger of a longtime Twin Cities urology company and a New York-based seller of endoscopes, began to wobble soon after the deal was done. At its nadir in May 2016, Cogentix stock sank to 71 cents a share as a nasty proxy fight led to boardroom changes that triggered a delisting warning from Nasdaq and brought the company's future into question.

Minnetonka-based Cogentix is still listed on the exchange today. In fact its stock price is now around $2.80 a share, as management found a way to retire more than $28 million in debt and bring in a fresh $25 million investment from Accelmed, an Israeli private-equity firm focused on med-tech companies. Two investment firms now project the stock will hit at least $4.

Accelmed has deep experience in med-tech. Another company in its portfolio, EndoChoice Holdings, was acquired by Boston Scientific Corp. two years ago in a $210 million deal. But Cogentix Chief Executive Darin Hammers said Cogentix is being run to stand on its own, despite facing some large competitors in the market.

"We're a roughly $60 million public medical device company. We're in a space where our largest competitors are Medtronic, Olympus, and we've more than held our own," Hammers said.

Although Cogentix is aggressively pursuing new urology products to accelerate sales growth, most of its growth today stems from two products: the PrimeSight sterile endoscopy system, and the Urgent PC neuromodulation device.

PrimeSight was formerly owned by New York's Vision-Sciences, while Urgent PC was from Uroplasty in Minnetonka. When those two companies merged to form Cogentix in March 2015, both products ended up in the same catalog, focused on efficient urology care.

The merger also resulted in management conflicts stemming in part from disagreements over the $29.5 million in debt and interest that Vision-Sciences owed to its founder, med-tech entrepreneur Lou Pell. The $25 million investment from Accelmed in 2016 was contingent on Cogentix agreeing to convert Pell's debt holdings into common shares of stock valued at $1.67 per share.

Today, Pell says he's happy with the direction of the company, including having Accelmed co-founder Uri Geiger chairing the Cogentix board. Hammers, who came to Cogentix from Uroplasty, admits Cogentix's first year was "kind of rough."

"As much as it was an unfortunate situation, the end result was that we truly became aligned," he said. "We raised the $25 million, cleaned up the balance sheet. And so then it became, how do we go out and continue to drive execution?"

The answer was to keep focusing on urology.

PrimeSight is a device that a doctor uses to peer deep inside narrow, unsterile passages in the patient's body. Unlike other endoscopes on the market, the PrimeSight system is covered by a thin microbial barrier that is thrown away after each use. Hammers said there have been zero incidents of cross-contamination of microbes between patients in roughly 6 million procedures performed with PrimeSight, which could be a key consideration for doctors and patients.

The Food and Drug Administration has cast a bright light on the challenges of "reprocessing" cameras used inside the body in recent years, following news that a different kind of scope, the duodenoscope, could spread deadly bacteria even after being cleaned according to manufacturers' instructions.

Traditional endoscopes used in urology haven't been hit with the same bad press over reprocessing, but Cogentix officials say PrimeSight's disposable-barrier system was ahead of its time, and now the market has come to it.

"With a traditional endoscope, they reprocess it. It's not sterilization, because they can't get it sterile. With our scope, with the sheath on it, it is sterile," said Cogentix Chief Financial Officer Brett Reynolds, who rejoined the company in June 2016 after leaving amid the proxy fight that year.

Under Vision-Sciences, 11 sales representatives were selling PrimeSight in the U.S. for five different disease states. Today the PrimeSight system is in the hands of 50 Cogentix sales reps who are focused largely on urology.

The result has been sales growth: During the first nine months of 2017, PrimeSight sales grew 26 percent to $13.7 million compared to the same period the year before. PrimeSight sales slipped by 2.6 percent in the most recent quarter, but that was attributed to quarterly variability in the timing of capital orders in the Nov. 7 earnings report.

But Cogentix's biggest product by revenue is Urgent PC — a device that has seen up-and-down revenue since med-tech heavyweight Medtronic launched a device in the same category.

Cogentix's Urgent PC system is used in a doctor's office to treat overactive bladder (OAB) symptoms. It applies a mild electric stimulation to the tibial nerve through a thin electrode placed in the skin just above the ankle, in 30-minute once-a-week sessions over several months. It's seen as a third-line option after conservative medical therapy and drugs.

Past studies show the device has the desired effect in 60 to 80 percent of patients. One 208-patient blinded clinical study, sponsored by Uroplasty, concluded in 2013 that 46 percent of patients treated with Urgent PC had notable improvements, compared to 28 percent of patients who were randomized to get a placebo treatment and reported the same level of improvement.

Sales of Urgent PC systems had been growing about 20 percent a year until Medtronic launched its competing Nuro tibial nerve stimulator in March 2016. In the first nine months of 2017, sales of the Urgent PC declined by about 1 percent, to $15.6 million.

But Cogentix executives say recent sales-force changes at Medtronic lead them to believe the Urgent PC is poised for fresh growth. (Medtronic said in a statement that it still maintains a "small sales force exclusively focused on expanding access to our Nuro therapy by targeting nontraditional care settings" in addition to a large sales staff that sells the Nuro alongside other incontinence devices.)

In the most-recent quarter, Urgent PC sales climbed nearly 3 percent, which was the first quarter of growth for the device since the third quarter of 2016. In an aging population, more than 38 million Americans are estimated to have overactive bladder with undertreated symptoms today, Hammers noted.

"Even if Medtronic and two others launched a product, there is still ample opportunity for us to grow," Hammers said. "I said publicly when Medtronic first launched, I was OK with it because it was going to increase awareness. … It was truly a case of the rising tide lifting all boats."