Boston Sci's Watchman hit by restrictive CMS coverage decision, recall over blood leakage

The Watchman device--Courtesy of Boston Scientific

Boston Scientific's ($BSX) stroke-preventing Watchman was just hit by bad news on multiple fronts. The FDA revealed that the Watchman is the subject of two Class 2 recalls, while the Centers for Medicare & Medicaid Services has just deemed reimbursement of the device "not reasonable and necessary."

The Watchman implant is designed to reduce the risk of stroke by plugging the heart's left atrial appendage. Under its Coverage with Evidence Development policy, CMS proposed reimbursement only for non-valvular atrial fibrillation patients who are not on warfarin and enrolled in a national registry.

Leerink equity analyst Danielle Antalffy commented that "in the near-term the CMS coverage proposal introduces uncertainty not just for investors but also hospitals, which could disrupt near-term implant trends," in a research note.

Deutsche Bank's Kristen Stewart wrote the CMS decision will likely cause St. Jude Medical ($STJ) to abandon its left atrial appendage closure plans. Although the company has such a device in the pipeline, it has not yet decided whether to proceed with development, she said.

As such, Coverage with Evidence Decision is a common reimbursement policy prescription, and Antalffy wrote that Boston Scientific expected such a decision from the proposed National Coverage Analysis. But she also said a closer analysis of the particulars of the ruling reveal unexpected restrictions on reimbursement, namely the contraindication for patients on the blood thinning drug warfarin--a contradiction of the FDA's indication for use.

"The warfarin contraindication requirement for patients did come as a surprise given that this is the precise opposite of both the FDA label and the patient population studied in clinical trials--all of whom were warfarin-eligible. However, the uncertainty lies in how CMS is defining 'contraindication with warfarin', and BSX noted that they need to work with the agency to gain clarity. Deeming a patient as contraindicated to warfarin could skew more subjectively, and--depending on CMS' definition--could include those patients that are either non-compliant on warfarin or refuse to take warfarin."

It's worth noting that the device industry is increasingly complaining about CMS' penchant for excluding patients from reimbursement who are eligible for a device under the FDA-approved indications for usage. Luckily for Boston Scientific, the ruling is only a proposal, and the company will surely be in discussions with CMS, which will issue a final decision in 3 months, or 60 days after the conclusion of the public comment period.

Antalffy continues to expect Watchman sales around $75 million in 2015, but said that if the issue around warfarin does not resolve itself, "it could at the very least limit upside to current 2016 WW (world wide) Structural Heart guidance of $175M-$200M". She believes the device has the potential to earn $500 million a year.

More broadly, the proposal adds to doubts about the necessity of Watchman given the effectiveness of blood thinners like warfarin. Boston Scientific counters that about 40% of patients at high risk of stroke are contraindicated for or do not take warfarin due to the risk of uncontrolled bleeding. Critics fire back that the Watchman's implantation procedure is complicated and risky. Its clinical trial found that about 2% of patients suffered from bleeding in the pericardium sac due to a laceration to the left atrial appendage.

In fact, the FDA just revealed that Boston Scientific in August sent out an urgent field correction to guard against undesired blood leakage during the implantation procedure. The notice does not require the return of any of the 29,169 units affected across the globe, but it does highlight the safety concerns stemming from the difficult transcatheter implantation procedures that led the FDA to reject or delay the device's in approval in 2010 or 2014.

"Cross-threading of the hemostasis valve may occur if it is tightened with the dilator in place, possibly preventing subsequent sealing of the valve when desired. This Field Correction reinforces the Directions for Use (DFU) and gives further guidance on correct use of the hemostasis valve to avoid cross-threading and to securely seal the valve, minimizing potential for undesired blood leakage," the FDA said in its recall database.

Boston Scientific explained in an emailed statement: "On September 2, Boston Scientific received approval from the FDA to update the Directions for Use (DFU) for the Watchman Left Atrial Appendage (LAA) Closure Device with Delivery System and the Watchman Access System (WAS). Boston Scientific requested permission for this voluntary action in late August, as the company was made aware of occasions in which the hemostasis valve has been tightened while the dilator is inside the WAS – which was not directed in the existing DFU. As such, we updated our DFU to explicitly instruct implanters to avoid tightening the valve while the dilator is inside the WAS, as well as indicating what action can be taken if cross-threading (an outcome of inappropriate tightening) does occur."

The FDA deemed the corrective action as two separate Class 2 recalls, one for the Watchman implant and delivery system, and other for its Access System Access Sheath with Dilator. Class 2 recalls are reserved for situations in which "use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote," according to the FDA.

CMS' unfavorable reimbursement decision has sent Boston Scientific's stock down 4% as of market open. To be clear, the agency's decision was driven by concerns about necessity and cost-effectiveness, not safety.

Studies on its cost-effectiveness discussed at this week's American Heart Association meeting were contradictory, so CMS' decision to collect more evidence before making a more comprehensive yes or no decision makes sense and is not surprising.

But the contraindication of patients on warfarin is a blow to Boston Scientific. As such, the initial ruling highlights uncertainly over the Watchman's role within the broader stroke prevention paradigm. That's the central issue that will determine the device's success of failure, and it will be ultimately determined by the medical community, not the government.

- read CMS' proposed decision memo
- here are several analyst comments on the decision
- here's the FDA's recall notice | the second recall notice
- here's more about the Watchman from the American Heart Association meeting