Sunshine Heart (NASDAQ:SSH) announced a public offering of 3.8M shares at $10.5/share last week. SSH now has about $54.4 million cash after the offering. Given its current cash burn rate at $4.2M per quarter, the company is funded well into late 2016. Currently the intuitional ownership is about 44.2%. After the offering, the institutional ownership could be well above 60%.
The multi-billion market potential of C-pulse has been elaborated upon several times by different SeekingAlpha authors. You may think that such huge potential reward in Sunshine Heart must come with great risk as well. It appears so on surface. Up to today all we have are the data from 20-patient feasibility study. The study is not a randomized trial and has no control arm. How could we, as skeptical biotech investors that have seen so many failures in bio-land, have much faith in the future success of this device? In this article, I will try to make a comprehensive analysis of the clinical risks of C-pulse and you may be surprised that the clinical risks may not be as high as you originally thought.
Although it's a small 20-patient trial, there is little doubt about the efficacy:
- Among the responders, 4 Class III improved to Class I, 7 Class III to Class II, and 1 Class IV to Class II;
- 3 inteterminate patients are those non-complaint with device use < 80%;
- 0% re-hospitalization rate within first 30 days, 5% at 6 months, and 15% at 12 months. The increase of hospitalization rate was actually due to patient non-compliance;
- MLWHF (quality of life score): 100% responder rate at 12 months;
- 6-minute hall walk: 83% responder rate at 12 months;
- Two super responders permanently weaned from C-pulse;
- Two additional super responders have been identified for weaning.
Among the above evidences, 4 super responders out of 20 patients are the definitive signal of efficacy. These patients improved so much that they became asymptomatic and returned to all their normal activities in their daily livings. "Patients with chronic heart failure that is severe in nature after many years of development just don't suddenly get well on their own", said Dr. William Abraham, the PI of the feasibility trial and the U.S. pivotal trial, "such dramatic improvement can't be attributable to placebo effects or spontaneous recovery." As the matter of fact, the C-Pulse design is based on proven balloon counter-pulsation technology that has been used in 1960's. The mechanism is well studied and understood. Efficacy is the least thing I worry about among all the clinical risks.
Now let's turn to safety. C-pulse is not a drug, but a mechanical device. This would make safety analysis a bit easier, as we all know simple physical process usually is more predictable and transparent than chemical reaction. I will try to make a comprehensive list of potential sources of risks and analyze each of them one by one.
1) Risks of implantation operation.
During the feasibility trial, Sunshine Heart improved the implantation procedure by moving from open chest operation, or full sternotomy, to minimally invasive procedure. This minimally invasive procedure only takes 2-3 inches of incision among the ribs and doctors can implant the cuff through the incision. This new procedure shortened the hospital stay and reduced the infection risks. I see little risk involved in the implantation operation. According to Dr. Thoralf Sundt in Mayo Clinic, with today's technology, even the sternotomy incision is generally well tolerated, and patients are surprised a day or two after surgery that they really are not having much discomfort at all from it.
2) Risks of device failure/loss of power.
Although C-pulse is a new device, each of its component has been around for many years. The inflation/deflation is synchronized to the patients ECG, just like a pacemaker. The balloon counter-pulsation technique has been used in intra-aorta way for many decades. These are all mature technologies. Even if C-pulse stop working for some reason, it does not pose any immediate threats to patients, as the device does not replace the heart functions like LVAD device. The device can be turned on/off at will. In my view, C-pulse has a much larger margin for error/failure than LVADs.
3). Risks of infections at exit site.
This risk is real and very common for devices with exit through the skin. 8 patients had infections in the feasibility trial. The company gave very close attention to this issue. After the feasibility trial, they re-designed the device by adding a so-called "C-Patch" that mobilize the tube to reduce or minimize the gap between the tube and the skin when patients pull the tube. They even formed a special committee to oversee this issue. They asked patients to take pictures of the exit site once in a while and send them back to doctors to preempt the potential infections. I believe with such aggressive infection management strategies, this risk can be minimized.
4). Risks of Neurological events
This is actually the strength of C-Pulse. So far there has been zero neurological events recorded that is related to the device. C-Pulse is non-blood contacting and no need for blood thinning medication. All these reduced the risk infection and potentially stroke risk.
5). Risks of aorta damage/disruption
Based on recent interview with the company's CEO, two physicians that took tissue samples from patients right underneath the balloon and the samples 1cm to the right and 1cm to the left. They compare the tissues and found there were no differences. The earliest patients in the feasibility trial have been using the device safely for over 2-3 years. It appears that at least in short term, the cuff and balloon show no sign of damage to the wall of aorta. There has been no long term study of the effect on the aorta. Honestly, the long term aorta safety issue is the only issue I am not highly confident about. But we need to put this issue in the perspective. In the long run, we are all dead. The 5-year mortality rate for Class III/IV heart failure patients is over 50%. These late stage patients are usually very old already. For them, "long term" may be as long as you think. If C-pulse can give them over 5 years' high quality of life with improved heart function, I would say it is well worth the potential "long term" aorta risk.
6) Risks of other unidentified risks?
Maybe. Any MAJOR unidentified risks? I don't think so. Again, this is a mechanical device that just has so many touch points to patients body. It's not like a drug with unknown mechanism of actions.
To summarize, Sunshine Heart offers the best risk/reward ratio that I have not seen in biotech companies for many years. It's critical for investors to understand the clinical risks involved in the device, particularly as we are entering the phase that we will frequently get updates on European Option HF trial from Sunshine Heart. On Oct 28, the company will present initial EU clinical data at TCT conference in San Francisco. Even though this clinical update will probably only cover 4-5 patients, it's still a highly significant catalyst. According to 2nd quarter earning call, Germany reimbursement decision only requires clinical data from 5 patients. If the data are good, the company will very likely get favorable reimbursement decision in Feb 2014. That would mark the official start of the commercialization of C-pulse in Europe.
Caution: Please do your own research before any buy or sell decisions. Use of information and research in the article above is at your own risk. It's always risky to invest in development stage micro-cap biotech companies. SSH is a highly illiquid public company. The share price could be very volatile. Please check the full list of risk factors in the company's annual report.
Disclosure: I am long SSH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.