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Heart breaker

Dale Jackson


TORONTO (GlobeinvestorGOLD) — It was a good summer on the operating table for medical device maker, World Heart Corporation. In July, a 45-year old woman with severe heart failure became the first patient in the United States to be weaned successfully from a World Heart product known as the Novacor left ventricle assist system, or LVAS. The device has been implanted in patients successfully for the past 15 years with the intention of bridging to a heart transplant.

This time was different. Doctors at Yale University were pleasantly surprised when soon after the procedure, the patient's cardiac function stabilized and improved to the point where the transplant was cancelled. The Novacor device essentially allowed her heart to heal itself. Eventually her heart grew so strong that her cardiovascular system no longer needed the help of the LVAS and it was removed.

It's the latest in a series of medical successes for World Heart and for the cardiology sector. Analysts say we can expect more big things in the cardiology field in years to come — spurred mostly by growing demand. Despite recent technical advances, heart disease remains the No. 1 killer of people over 85 years. Research Capital estimates heart disease now costs the U.S. economy $300-billion (U.S.) a year and those costs are expected to keep climbing as the baby-boom generation reaches its senior years.

Unfortunately for World Heart, their success on the operating table this summer has not transferred to the boardroom. The latest financial results for the second quarter of 2005 show a loss of nearly half a million dollars on revenue of a quarter million dollars. The bleeding has been consistent since the company's first quarter of commercial operation in the spring of 2000. In an age when investors are plowing their dollars into commodities, the outlook for future sources of capital for World Heart is pretty grim.

World Heart's performance over 5 years"The most immediate problem for World Heart is cash," says Nigel deGruyther, health and life sciences analyst with Research Capital. He's one of the many analysts who covered World Heart following a period in early 1999 when tech-loving investors drove its shares up to over $180 (Canadian) on the Toronto Stock Exchange. With the stock currently in the $1.50 range, he no longer formally covers the company but sees World Heart's struggle for survival as a race against time.

World Heart has excelled in the area of end stage heart failure — patients at a critical point who are eligible for heart transplants. Tests, known as reliant trials, are currently being carried out to evaluate the safety and effectiveness of the Novacor LVAS. "Everything rests on getting the reliant trial done," says Mr. deGruyther, "The biggest risk is World Heart will run out of money before they finish the trial".

The tech wreck of the early 2000s has hit the entire health care sector hard. Over the past five years, the Globe Health Care Peer Index has dropped in value by nearly 4 per cent each year. But other former World Heart analysts, who asked not to be identified, say it's the company, not the sector, that may be too far gone. "World Heart has a fairly long history of missing milestones on the development side of the business," says one.

Some point the blame directly at former president and CEO, Rod Bryden. Mr. Bryden, who was also a major shareholder, resigned as World Heart's chief executive in July, 2004 after the company restated its first quarter results. Last fall, Mr. Bryden filed for a form of bankruptcy protection to eliminate $59-million in personal debt, which stemmed in part from personal guarantees he made on loans he incurred to purchase the Ottawa Senators and the Corel Centre. A year earlier, Toronto billionaire Eugene Melnyk bought both out of bankruptcy protection.

Under new management, World Heart headquarters has since moved from Ottawa to its original base in Oakland, Calif. — and Mr. Bryden isn't talking to the media. The company recently acquired the assets of MedQuest, a Utah based developer of another type of heart pump. Early this August Maverick Venture Management announced the acquisition of 33 per cent of World Heart shares.

But the fresh capital and planned restructuring hasn't stemmed the bleeding for World Heart stock. The stock's value has been nearly slashed in half so far this year after it flat-lined in August. World Heart's market capitalization has sunk to $86.5-million.

With no signs of fresh financing on the horizon for World Heart, a slumping health care sector, and little to no analyst coverage, the company falls somewhere between a highly speculative buy and the value play of the century. Mr. deGruyther at Research Capital has no rating on the stock, but cautions investors to fully understand the risk.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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