Ondine Biomedical — Proprietary platform testing standard of care

Ondine is a life sciences company specialising in the field of photodisinfection-based therapies. Photodisinfection involves the use of light to destroy pathogens, thus inactivating associated virulence factors, in a process that takes just five minutes. The company’s main strategic focus is to reduce the spread of infections across the healthcare spectrum with technology that is easy to use, while reducing strains on healthcare systems. With more than 20 years of experience, the company has carefully invested in the technology and tailored its messaging and market entry. The more than US$200m investment to date has enabled the company to build its proprietary photodisinfection platform, which it hopes will play an important role in combatting the global challenge of AMR.

Ondine’s lead product, Steriwave, is designed to kill bacteria and inactivate viruses within the nose, which is the body’s natural filter against a host of diseases. This means that the nose becomes a reservoir for many types of pathogens. We believe that hospital groups are arguably more interested than ever in the adoption of new products and protocols to prevent the spread of infections. This is a topic that has been in the spotlight to mitigate risks exacerbated by the COVID-19 pandemic, and we note that universal decolonisation approaches (as opposed to targeted decolonisation approaches) in surgeries, ICUs and general hospital environments are likely to be increasingly adopted. Ondine’s photodisinfection technology platform has many potential applications, such as patented formulations applied with syringes, sprays and bandages, with specific light dosing delivered by balloons, fibres and panels. The company ultimately intends to leverage this proprietary platform to treat multiple anatomical sites in healthcare and industry settings. (Further details of this will be discussed in a subsequent note.)

Ondine’s unique approach to preventing the spread of infections has been shown to eradicate pathogenic microbes such as Gram-positive and Gram-negative bacteria, viruses and fungi. The technology is safe, minimally invasive and efficient, as shown in Canadian studies to date. The underlying process and mechanism for Steriwave nasal photodisinfection (Exhibit 1) can be broadly described in three steps:

This overall process is quick (five-minute treatment time) and effective, such that the pathogens have little or no opportunity to resist or adapt to the oxidative stress, thus the process is believed to eliminate concerns of AMR.

We note that, based upon an analysis of current standard-of-care options (Exhibit 2), Ondine’s Steriwave nasal photodisinfection technology has the potential to offer significant market differentiation.

In 2018, Steriwave received a qualified infectious disease product (QIDP) designation, and shortly after, in 2019, fast-track designation was awarded by the FDA. We believe that this will support efforts for regulatory approval in the US, a key near-term goal for Ondine. The company is currently conducting clinical trials in collaboration with HCA Healthcare, one of the largest private hospital groups in the US, with approximately 182 hospitals and 2,300 ambulatory sites of care. HCA reported over 2m admissions, over 37m patient encounters and 9m emergency visits in 2022 alone. Given the size of HCA in the US, we view the attention from the group as encouraging for Ondine and Steriwave, and the company has communicated that it will focus its initial commercialisation strategy across HCA hospitals and sites of care, if successful with US regulatory approval. This relationship also has the potential to provide significant and practical insight into the delivery of new products, while addressing the pressure points faced by HCA hospitals. The collaborative arrangement may enable Ondine to assist HCA with the effective adoption of new protocols to solve such challenges, leveraging solutions from proprietary platform technologies, potentially resulting in fruitful outcomes for both groups.

Following comprehensive preclinical research, Steriwave was first approved by Health Canada in 2009, and the product has since been commercially tested and validated for over 10 years in the country. This encompasses real-world data from over 80,000 patients in Canada, and Steriwave has demonstrated both efficacy and safety, with no reports of serious adverse events since approval. Ondine has established a partnership with VGH, one of Canada’s largest hospitals, and since adding Steriwave photodisinfection to presurgical protocols, the SSI rate was reduced by 84% (Exhibit 3). This has translated to more than US$4m saved in infection costs annually by VGH, and an average of over 550 bed days saved each year. While we recognise that implementing new protocols can be a key challenge and barrier to entry in healthcare settings, management has reported that the uptake of Steriwave was associated with high compliance, nursing support and negligible impact on overall hospital workflows.

The potential to replicate these results in the US represents a major opportunity, in our view. With an approximate average SSI rate of 3% in the US and an average cost of US$20k per patient, this corresponds to over more than US$550 in average preventable costs for every patient undergoing surgery. Consequently, with approximately 40m major surgeries taking place in the US every year, this translates to a total addressable market for SSI prevention of over US$20bn (Exhibit 4).

In addition to the net savings that may be achieved by incorporating Steriwave into the standard of care for surgical procedures, a long-term vision for Ondine is to see Steriwave included as a standard protocol for all in-patients across the US. While we note that it is a complex process to quantify this, the number of annual discharges from the c 6,000 hospitals in the US is estimated to be approximately 35m. More specifically, the global infection control market was valued at US$50bn in 2022 by Markets and Markets. If Ondine is successful in capturing even a small portion of the infection control market, this could result in potentially significant future revenue.

In the US, the successful launch of new products typically relies on thoughtful messaging and establishing relationships to foster trust with key stakeholders within hospital groups, along with robust clinical data supporting the product’s use. As such, if successful with the US regulatory approval process, the company has communicated that it intends to execute its commercial strategy without a commercial marketing partner (at least initially), with an aim to effectively communicate the company’s clinical data and experience with educational programmes.

The initial launch in the US, if successful with regulatory approval from the FDA, will be focused on working with Ondine’s clinical trial collaboration partner, HCA, which has approximately 182 hospitals. Ondine also plans to approach other major US hospital and buying groups to demonstrate the clinical and financial benefits of using Steriwave nasal photodisinfection for universal decolonisation. In addition, Ondine will need to work closely with surgeons and nurses, as good relationships and understanding from these stakeholders is crucial for driving the uptake of new products and protocols.

We note that improved approaches for infection control are a significant area of interest for hospitals and sites of care, as fines (or payment reductions or clawbacks) may be incurred for high infection rates, for example through the Hospital-Acquired Condition Reduction Program. Safeguarding against infections is therefore an important goal for large hospital groups such as HCA, especially since SSIs are the leading cause of readmissions into hospitals after surgery, and approximately 3% of patients who contract an SSI die from these infections. We also note that surgeries are usually associated with bundled payments, regardless of additional expenses incurred by hospitals for potential infections that may occur and require further treatment, providing additional incentive for the uptake of effective disinfection technologies. Therefore, reducing SSIs is not only an obvious and significant benefit for in-patients, but also for hospital groups to meet these targets, and save unnecessary costs associated with infections.

2022 was a challenging year for the US healthcare system, with rising workforce-related and input costs weighing on hospital margins and profitability. According to a report published by Kaufman Hall on behalf of the American Hospital Association, 2022 was the worst financial year for hospitals and healthcare systems since the start of the COVID-19 pandemic, with c 50% of hospitals ending the year with negative margins (i.e. losses), as expenditure growth outpaced revenue increases. This compares to 34% of hospitals reporting losses in 2019. The downward pressure on margins has been driven by increases in input and labour costs as workforce shortages resulted in hospitals hiring more expensive contractual labour. Importantly, increased lengths of stay were also cited as another reason for the margins being affected, resulting in increased pressure on hospitals to reduce expenses wherever possible. One of the areas where hospitals can look to generate cost savings is healthcare-associated infections (HAIs), with the National Institutes of Health estimating that HAIs cost the hospital system US$28–45bn annually due to a combination of increased treatment costs and longer hospital stays.

According to the Centers for Disease Control and Prevention, HAIs affect about one in 31 hospitalised patients in the US. HAI prevalence in the UK is even higher, at 6.4%, with a global average of 7–10%. Moreover, HAIs are often resistant to at least one antibiotic used to treat them, highlighting the growing concerns around AMR. SSIs account for c 20% of all HAIs, extending the average hospital length of stay by 9.7 days, with the cost of hospitalisation increasing by more than US$20,000 per admission. This highlights the increasing need to reduce avoidable infections, readmissions and SSIs, both from a patient health perspective and as a means of reducing the healthcare cost burden. We therefore see Ondine’s unique photodisinfection capabilities as potentially well positioned to address this issue, with scope to gain acceptance as part of hospital screening protocols, if significant benefits are demonstrated in large patient populations, in terms of lowering infection incidence.

Ondine attests that it has carried out significant groundwork and produced real-world evidence demonstrating ease of use of its technology and reduced HAIs and hospital stays. It also has backing from referential hospitals and key opinion leaders/champions, which together could help support Ondine in gaining endorsement from value assessment committees, which typically manage medical and surgical product usage in hospitals.

In Q422, Ondine reported that its US Phase II nasal disinfection study met the primary endpoint of eliminating or significantly decreasing nasal Staphylococcus aureus in 86% of carriers and the secondary endpoint of a materially lower SSI rate than the US national average (0.6% vs 3%). The study was conducted at HCA Healthcare’s Memorial Health University Medical Centre. Preparations for Phase III trials, in collaboration with HCA, are already underway, and will involve c 15 hospital sites and recruit larger populations of up to 10,000 patients. We note that Ondine is also currently conducting pilot trials in other regions, such as in Europe where it obtained CE mark approval in 2020, and the company believes that these could support the processes and clinical data packages that may lead to regulatory approval in the US.

Infections are typically treated with antibiotics. However, many drug development companies have exited the antibiotic space due to a lack of profitability. It has been estimated that the cost of developing a new antibiotic can be over $1bn and can take 10–15 years, and ultimately, only one in 30 of these drugs will receive FDA approval. On the other side of the approval barrier, we note that there is also a push within the medical field to be more selective in the use of antibiotics, since excessive uptakes of such drugs is a major contributor to the global issue of AMR. Some countries have even implemented antibiotic stewardship programmes to encourage doctors to only prescribe these medicines in extreme circumstances in order to combat what is being described as a ‘silent pandemic’.

It is estimated that more than five million people die from AMR globally each year, outnumbering deaths from HIV, tuberculosis and malaria combined. By 2050, it is expected that the projected number of annual deaths attributed to AMR will have doubled to 10 million, with a cumulative economic cost of up to US$100tn. Further, from 2017 to 2021, just one new antibiotic, cefiderocol, was approved. It is effective against strains of Acinetobacter baumannii, Pseudomonas aeruginosa and Enterobacteriaceae, three superbugs considered to be a significant threat, according to the US Centers for Disease Control and Prevention. Consequently, the healthcare community finds itself in a post-antibiotic era, and we recognise that there is significant opportunity for Ondine to address this worldwide challenge by preventing the spread of infections across the healthcare spectrum.

Ondine’s vision for Steriwave is to have the product incorporated into the standard of care for all hospitals, as a default infection control modality in an era of rising AMR threats where antibiotics are struggling to keep up. This in turn may result in better compliance with antibiotic stewardship programmes by reducing the necessity of using such drugs. We believe that the most significant investment case for Ondine revolves around the need for novel approaches to prevent the spread of infections in a post-antibiotic era.

The company attests that the initial relationship with hospital groups is key for commercialisation. Following the implementation of pilot programmes, Ondine intends to arrange long-term contracts for the purchase of the equipment (laser – one-off purchase), and ongoing purchases of the disposables (tip and formulation – single use per patient). In hospital settings, management anticipates that Steriwave will initially be of optimal use in preparation rooms, and hence large hospitals may require approximately four units, while smaller hospitals may require approximately two units. This represents a potentially sizeable opportunity, even if only a low portion of the total addressable market is captured.

The World Health Organisation recognises that caution must be exerted in interpreting current SSI data due to a possible heterogeneity of definitions used, surveillance methods, risk stratification and reporting. However, such data may become more transparent once the challenge is more globally recognised, and this may enable government initiatives to support novel approaches to address the issue, such as Ondine’s photodisinfection technology.

In this note, we have discussed Ondine’s vision of establishing Steriwave as a potential standard of care to prevent the spread of infections and address the global challenge of AMR. In collaboration with HCA, Ondine is preparing for Phase III FDA studies in the pursuit of US regulatory approval. Provided Ondine is successful with US regulatory approval, it intends to execute its commercialisation strategy, starting with HCA hospitals in the US, and aims for Steriwave to be incorporated in all healthcare settings. The near-term plan is to commence clinical pilots across 15 HCA hospitals and an additional 12 sites in Canada, the UK, Spain and Mexico (regions where Steriwave is already approved). Together these countries have a population of more than 600 million, with over three million HAI cases per year, highlighting the sizeable market opportunity. In the long term, the company’s vision is that the Ondine brand will be synonymous with the best infection control, and to leverage the present focus on HAIs and hospital relationships into other areas where this photodisinfection technology can be used. We plan to discuss this expandable product pipeline in our next note.