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LVADs are primarily used where Congestive Heart Failure (CHF) has progressed to the desperation stage and an implant is required as a medical emergency to avoid imminent death.

Sunshine Heart's C-pulse™ is designed for earlier intervention to halt and in some cases reverse the progression of CHF thus preventing the progression to a medical emergency.

Despite many informative articles (including here, here and here) written about the Sunshine Heart (NASDAQ:SSH) C-pulse system, I still have a feeling that the market does not fully understand nor appreciate this investigational device for what it potentially is and is not.

In seeking to clarify, I make the statements below, followed by detailed justification:

  1. If C-pulse were a new drug in the investigational stage, based on its feasibility trial data, it would be hailed as one of the greatest potential "Blockbuster" drugs of all time;
  2. The C-pulse system is a potential replacement for ineffective Congestive Heart Failure drug therapy addressing a market in the tens of $billions;
  3. C-pulse system's operation and purpose and its target market are quite different to the LVADs from Thoratec (NASDAQ:THOR) and Heartware (NASDAQ:HTWR).

1. C-pulse equivalent to a "blockbuster" drug

The following is an extract from an article in the Chicago Tribune of November 06, 2012 about Novartis AG's (NYSE:NVS) experimental heart drug, Serelaxin:

Doctors say there is an enormous need for a treatment for acute heart failure, with few available options for the condition in which the heart is unable to pump enough blood.

"If it was approved we would not only use it, there would be a mandate to use it because we don't have anything for acute de-compensated heart failure," said Dr. Milton Packer, a prominent cardiologist from the University of Texas Southwest Medical Center in Dallas, who was not involved in the study.

"If that mortality finding is real, boy are we going to get excited," said Packer, who has been a member of FDA advisory panels for heart drugs.

If Serelaxin is regarded that well, then how good is C-pulse based on its feasibility trial results compared to those reported for Serelaxin in the Chicago Tribune article as detailed below?

Serelaxin clinical study (1161 person):

  • One goal met - Relief of Dyspnea (CHF symptom - shortness of breath) reduced by 19%;
  • Second goal not met - Reduction in re-hospitalizations - (failure to meet attributed at least in part to a non-goal outcome of a 37% reduction of deaths from any cause at 6 months resulting in more patients alive for re-hospitalization); and
  • Led to a marked reduction in worsening of heart failure symptoms during hospitalization.

C-pulse study (20 person) (data- sources - Prospectus filed with SEC August 10, 2012 and Sunshine Heart Corporate Presentation October 2012):

  • NYHA Heart Failure Class improvement - 12 patients (60%) at 6 months;
  • Re-hospitalizations at 6 months 5% (Recent trial published control group re-hospitalization rate of over 40% with similar patient population at 6 months);
  • Medication Reduction: Diuretics -discontinued, reduced or unchanged for all patients; Inotropes - 4/4 patents successfully weaned (within 48 hours).

Surely, if both were drugs, the C-pulse results would give it blockbuster status.

2. C-pulse to largely replace heart failure drug therapy

There are many precedents for the replacement of a drug therapy with a surgically implanted device or a surgical procedure.

The following are extracts from an article in the Wall Street Journal of May 28, 2012 titled "Medical Devices as Drug Replacements":

Here's an interesting idea. If drug makers are finding it difficult to develop new medicines, how about they use medical devices as a form of treatment instead. It's not quite as mad as it first sounds. And there are examples where this approach is already being used, successfully.

and

Two venture capital firms are on the lookout for medical devices that can replace drugs. Morganthaler Ventures and Advanced Technology Ventures (ATV) say this investment thesis helps to expand the possible alternatives for exit by attracting interest from both device manufacturers and pharmaceutical companies.

Their first and biggest success with the thesis to date was Ardian Inc., which pioneered renal denervation (RDN), a device technology to control hypertension by severing nerves connecting the kidney to the sympathetic nervous system.

and

After a randomized clinical trial demonstrated the success of RDN on patients resistant to drug therapy, Medtronic agreed about a year later to acquire Ardian in full, for an upfront payment of $800 million and commitments to contingent payments that, combined, implied an enterprise value of about $1 billion.

Notably, Medtronic was not the only bidder. "One of the last three bidders was a large pharmaceutical company without any medical device presence," says Hank Plain, Partner, Morgenthaler Ventures. "Because the therapy had the potential to replace drugs, pharmaceutical companies bid."

And some history about the first pacemakers is illuminating:

Non-availability of effective drugs for halting worsening CHF could lead to a similar success story for Sunshine Heart's C-pulse™ system.

3. C-pulse system is different to and does not compete with LVADs

Here is part of the description of the C-pulse system included in the Sunshine Heart feasibility study IDE application:

It is important to point out that a counterpulsation device is aimed to augment native heart function and is fundamentally different from total artificial hearts, left ventricular assist devices and heart transplants which are meant to be a total replacement or an alternative to the native heart. Thus, the counterpulsation device is considered non-obligatory and not life-supporting.

Heart failure is a progressive disease and the currently available therapies (pharmaceuticals, brady, CRT-D, and LVAD) only slow the progression of this disease. One of the benefits of the C-Pulse device is that it employs external counterpulsation which reduces the workload of the left ventricle and increases blood flow to the heart muscle. It is believed this combined reduction of workload and improvement in blood flow allows the heart muscle to undergo a level of recovery. Pacemakers and CRT-D devices shock the heart to beat but this works the failing heart muscle even harder. LVAD devices perform the work for the heart which reacts like any other muscle that gets no exercise.

When will Sunshine Heart's potential be more fully recognized?

So why is there not the same recognition for C-pulse as there is for a drug such as Novartis's drug Serelaxin?

It could be the low number of 20 in the C-pulse IDE feasibility study compared to 1,161 patients in the Serelaxin study. But it is more likely the leap of faith required for patients and their medical advisers to change from a pill as a remedy to undergoing surgery. This contention is supported by the history of LVADs mostly only being implanted where there exists a medical emergency requiring implantation to avoid imminent death.

So, can the Sunshine Heart C-pulse system overcome this obstacle to become the new standard of care for CHF patients, largely replacing the present use of heart medications?

The answer is contingent on whether:

A. the C-pulse system can demonstrate that it does not have any of the attributes that cause even late stage CHF patients to baulk at LVADs;

B. the current FDA approved Pivotal trial meets its endpoint of significantly reducing hospital re-admissions compared to patients on maximal drug therapy; and

C. The C-pulse system becomes patient friendly enough that it is universally accepted in a similar way to a pacemaker implant or a bionic ear implant. I say "patient friendly enough" because patients in consultation with their medical advisers will still have to opt for surgery in place of medication (as ineffective as their optimal drug therapy might be).

In answer to A. above, the table below compares the attributes of the Sunshine Heart, Thoratec and Heartware devices. If Sunshine Heart could just eliminate the need for a percutaneous lead then the only "X" against the Sunshine Heart device would be eliminated (and feasibility of fully implantable has already been proven in animal trials).

FEATURES of DEVICESSSHTHORHTWR
NYHA Classes applicable -
... Class iii - early stageYesn.a.n.a.
... Class iii - late stageYesYesn.a.
... Class iv - ambulatoryYesYesYes
... Class iv - other late stagen.a.YesYes
In the short and long-term able to -
... Turn on and off at willYesX*X*
... Detach power/controls for periodsYesX*X*
... Disconnect for showeringYesX*X*
No explantation needed if heart recoversYesX**X**
Stroke from blood contacting devices -
... Non-blood contacting deviceYesXX
... No blood thinning medication requiredYesXX
... No incidents of device related strokesYesXX
Device effect on natural heart action -
... Counter-pulsation for heart healthYesXX
... Supports hearts natural pulsatile actionYesXX
Minimally invasive surgeryYesXX
Operates without percutaneous lead***XXX
Patient disconnect from lead for periodsYesXX
Progress with fully implantable version (percutaneous lead not required) -
... Feasibility in animal trials****YesXX
... No implanted battery needed****YesXX

* Any loss of power or device malfunction is an immediate and extreme life threatening emergency.

** Invasive/dangerous/complex process to wean off LVAD including necessary explantation.

*** Percutaneous leads have a high incidence of exit site infections. Rigorous hygiene and dressing requirements are extremely onerous especially for the elderly and infirm and generally require nursing assistance. Even more difficult when unable to temporarily disconnect.

**** As Dr William Cohn of Texas Heart Institute has reported based on a successful animal study.

It is not suggested that all the "Yes" ticks against Sunshine Heart and all the "X's" against Heartware and Thoratec mean that Sunshine Heart C-pulse is a competitor to these companies' LVAD devices. Quite the contrary as explained above and LVADs have a legitimate place in late stage heart failure.

LVADs are primarily used where CHF has progressed to the desperation stage and an implant is required as a medical emergency to avoid imminent death.

C-pulse is designed for earlier intervention to halt and in some cases reverse the progression of CHF thus preventing the progression to a medical emergency.

In answer to B. above, the Pivotal Trial has only to reflect similar results to the completed feasibility trial for hospital re-admissions to be significantly reduced after implantation of C-pulse system compared to continuing optimal drug therapy which is the current standard of care. Re-hospitalization rates due to worsening heart failure represent the highest and most costly re-hospitalization rates plaguing the U.S. healthcare system today. Clearly, a C-pulse system device that is proven to significantly reduce re-hospitalization rates when compared to the current standard of care should have the healthcare system pushing for its adoption.

In answer to C. above, it is my belief, for the C-pulse system to have similar wide acceptance to pacemakers and bionic ear implants, it must progress to fully implantable, removing the need for a percutaneous lead (the only "X" against C-pulse in the table above).

The wonder of it is that the feasibility of fully implantable has already been proven in animal trials and as envisaged in the original design stage, human implantation of a fully implantable system will undoubtedly follow (see also).

THIS IS HUGE! And, I believe, largely unrecognized to date.

It provides the potential for the C-pulse system to become the standard of care, the treatment of choice, for eligible NYHA Class III and ambulatory Class IV CHF patients and to become as common as Cochlear Implants and Implanted Pacemakers.

Don't expect fully implantable in the current FDA approved Pivotal trial (management would likely be wary of engaging in any experimentation that might in any way skew trial results after such successful feasibility trial results) but fully implantable could conceivably be introduced later on as an improvement and approved by FDA without further trials as has already been done with many improvements to the overall C-pulse system.

Some issues for the Pivotal trial

  1. Risk of as yet unidentified side effects arising - Negligible to nil as this is a non-blood contacting mechanical device, not a drug. With drugs, side effects might only be identified with different sets of patients (genome and phenome differences) or even post approval (see here) when very large numbers are taking the drug. I do not think this applies in the same way to mechanical devices.
  2. Risk of device or device components faults/failure - The cuff itself is a relatively low-tech device (better mousetrap) made from, I understand, externally supplied high-tech and well-proven long-wearing material. For bought-in accessories, percutaneous leads etcetera, I imagine similar risks apply as for any other device.
  3. Risk of non-compliance by patient - The convenience for the patient of being able to disconnect from the C-pulse system for periods to shower etc. is a two-edged sword. Just as patients can for various reasons not take their medication, so too can patients not stay connected for the minimum 80% of the time that is considered necessary for effective halting and reversal of symptoms.
  4. Risk of exit site infections - This and non-compliance were identified by management in the feasibility study as matters to be given very close attention in the pivotal trial. Fully implantable will eventually eliminate this risk.

In summary, I think it is not unreasonable to conclude that the Sunshine Heart C-pulse system has every chance of becoming the standard of care for the treatment of mid to late stage Chronic Heart Failure (NYHA Class III and ambulatory Class IV) in place of optimal drug therapy, particularly where such drug therapy is not halting disease progression.

Takeover target

Much has been made of the potential for Thoratec (market cap $2.2bn) or Heartware (market cap $1.3bn) to make a bid as it would broaden out their range of products to cover all eligible NYHA Classes; St Jude (NYSE:STJ) (market cap $11.8bn) has also been mentioned (see here).

If one concludes that Sunshine Heart C-pulse system could become the standard of care for CHF treatment, then one has to consider whether the likes of medical device companies such as Johnson and Johnson (NYSE:JNJ) (market cap $200bn) and Medtronics (market cap $44bn) might not be interested.

These two companies might not look at Thoratec or Heartware heart assist devices, with their product related stroke risk for patients, but would look at a low risk device with the potential to become the standard of care in a massive and growing market segment.

Johnson and Johnson likely would not come in too early. Expect them to wait to see good confirming results coming from the larger pivotal trial or even later. They will not care that it costs more to wait. They are about getting good returns from running businesses with the right fundamentals. Whatever they might pay, a Sunshine Heart C-pulse system business in their hands would immediately be worth many times what they pay simply due to the impact of brand name, their large sales force, and access to medical facilities around the world. They would pay what they have to pay for a business with a huge competitive edge and huge growth prospects (see here re JNJ medical device acquisitions).

Medtronics is another medical device company with similar ability to Johnson and Johnson to hugely leverage a business based on the Sunshine Heart C-pulse system.

And if the Wall Street Journal article referred to above is any guide, pharmaceutical companies such as Novartis could be interested.

In conclusion

The fundamentals for this company might be summarized as:

  • Potential to meet an "unmet need"
  • Unlike the LVAD market it is difficult to discern any serious competitor for SSH in the particular space in the short to mid-term or longer (but never say there is no competition - think stem cell therapy which is probably far off but who knows what sudden advances might be made)
  • Large and growing market (much larger than the hotly contested LVAD market).

Caution

Sunshine Heart is a micro cap company. Investing in micro cap companies is not suitable for all investors and can be risky. It's important that investors thoroughly perform their own due diligence and analyze the potential risks. Due to illiquidity, share prices can fall despite strong fundamentals, and possible inability to raise sufficient additional cash to continue to fund ongoing operations is always a serious concern. Fuller details of risks associated with this early stage company as identified by the company may be found with their form 10-12B/A registration filing with the SEC.

Source: Sunshine Heart: When Drugs Don't Work And LVADs Are Too Risky