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  Intrinsic Value Asset 

  Management, Inc.
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  Malibu, CA 90265

Conceptus Shares Look Promising As Sterilization Product Advances

Medical-device manufacturer Conceptus is moving toward pivotal clinical trials of its female-sterilization product, sparking interest from investors.

The San Carlos company hopes to start Phase III trials in midyear of its so-called Stop system, designed to prevent pregnancy by permanently plugging a woman's fallopian tubes with tiny metal coils. The bulls say it's a promising alternative to tubal ligation, the standard sterilization procedure for women, because it doesn't require surgery and targets a huge world-wide market.

"When you see the market -- that's why we're in this thing," says Ken Luskin, head of Intrinsic Value Asset Management in Malibu, which owns 1.7 million shares, or a 17% stake.

The Population Council in New York estimates an average of nearly 16 million women were sterilized world-wide in the 1990s. In the U.S., estimates range from 650,000 to 800,000 a year. Various methods have been tried over the years on women's reproductive systems, from freezing to chemical scarring to silicone plugs to "super glue." But the most successful and accepted is tubal ligation -- or having one's "tubes tied."

The procedure is usually done under general anesthesia in a hospital or surgery center. In most cases, a doctor reaches and closes the fallopian tubes through a small incision in the woman's abdomen. The tubes are usually cut and tied, or sealed, often with a clip or band. Patients usually require several days for rest and recovery.

In the clinical trials for Conceptus's Stop procedure, sterilization is done in doctors' offices and clinics under local anesthesia. The coils are implanted using a device called a hysteroscope and a catheter, which reaches the tubes through the vagina and cervix, rather than an incision. Cost is estimated at $1,500 a procedure, including about $500 Conceptus would charge for a disposable kit. That compares with about $2,500 for a tubal ligation.

To date, 122 women who have been implanted are part of the Phase II trials, says Steve Bacich, the company's chief executive. He says some were implanted as long as two years ago and that no pregnancies or complications have been reported.

Talk of the Phase II results has pushed Conceptus shares up to near $6, after they languished near $1.50 most of last year. Despite the run-up, Mr. Luskin says he is looking to buy more.

"My analysis is there are millions of women who would like a tubal ligation if it didn't [involve] general anesthesia...if it didn't have pain involved," he says.

Larry Haimovitch, a medical-technology consultant in San Francisco, is also bullish on the prospects, but he initially invested in Conceptus when it was down and out. The company went public in 1996 at $14 a share on the strength of products to diagnose and treat infertility. But it had trouble with distribution. In 1998, executives hired an investment bank to shop it around and began focusing on the Stop procedure.

When Mr. Haimovitch got in, the company's market capitalization had fallen below its cash reserves. He picked up shares for 65 cents apiece, while the company had about $1.80 a share in cash. Conceptus was betting that its technology and its cash would make it an attractive takeover target, and Mr. Haimovitch agreed.

"I knew that Stop was alive, but I hadn't heard anything [new] about it" around that time, says Mr. Haimovitch, who declined to disclose his stake. "Then three to four months ago, the story changed dramatically when all of a sudden we started getting good results on the Stop trial."

To be sure, even Mr. Haimovitch acknowledges that Conceptus faces many obstacles. The company is awaiting Food and Drug Administration direction on Phase III trials. Mr. Bacich, the CEO, says indications are that the FDA will require less than 1,000 participants, with one-year follow-up data. The company will also pursue approval overseas, he says.

Conceptus is losing money -- $4.7 million in the first three quarters of last year -- but Mr. Bacich says it has enough cash to carry it through enrollment in the pivotal trial. Then it will look for funding through a private placement or licensing of Stop.

The system also faces the marketplace test. One obstacle there: Many gynecologists don't have or use hysteroscopes, the device used to place the coils. While that might be overcome relatively quickly in some countries, it could be more of a problem in the Third World.

The "technical complexities [might be] enough to prohibit [Stop's] use beyond developed countries," says Amy Pollack, an obstetrician and gynecologist and president of AVSC International, a nonprofit based in New York that provides reproductive training and services, mainly in underdeveloped countries.

Another obstacle: winning reimbursement approval from insurance companies and the government so patients wouldn't have to cover the procedure out-of-pocket.

But after regulatory approval, the biggest test is whether women will want it. Some may be resistant to having a foreign object left in their bodies, even though many tubal ligations employ clips, and the materials used in the Conceptus coils have been used in other implanted devices for years. Still, "this country suffered from the experience of the [Dalkon Shield intrauterine devices], unfortunately, and I don't think we're over that," says Dr.
Pollack. Those IUDs, made during the 1970s, caused infections, infertility and some deaths.

Anita Nelson, a professor of obstetrics and gynecology at the University of California-Los Angeles medical school, says the growing number of contraceptive options gives sterilization increasing competition. "We have today things that vie with sterilization for efficiency and convenience," says Dr. Nelson, including improved IUDs and hormonal shots that last for three months. On the horizon: patches that release hormones into the system, self-administered injections and vaginal rings that are worn for three weeks.

She says the Conceptus procedure "would be a show-stopper if it were reversible." While many women do choose sterilization, she says, changing life patterns, such as second marriages, cause "upwards of 10%" to request a reversal, a costly and not-very-effective procedure.

But Dr. Nelson and Rhoda Nussbaum, an obstetrician and gynecologist for Kaiser Permanente in San Francisco, agree that the more choices, the better. "What this [could] add to the horizon of birth-control choices is that it's a permanent method so people who know that they don't want to have any more babies don't have to go to the operating room" for sterilization, Dr. Nussbaum says.

It also could be seen as an alternative to vasectomy, which, like the Conceptus procedure, is done in a doctor's office under local anesthetic. Cost is about $250 to $500.

"This will certainly put another item up for discussion" between couples, says Charles Carignan, a consultant to Conceptus and former medical director of AVSC, the group headed by Dr. Pollock.

Mr. Luskin, the investor, says Conceptus's approach "fits the big wave" in health care. "It's less-invasive, doctor-controlled, patient-friendly, [has a] lower risk profile," he says. "It fits all those parameters where medicine is trying to go."