Sunshine Heart's Pullback Offers Investors A Second Chance

Jul.18.12 | About: Sunshine Heart, (SSH)

With some historic news and impressive price runs recognized over the past week or so, it's apparent that the healthcare sector is the place to be right now for the more speculative, adrenaline-fueled investor. The excitement of the sector is centered around the fact that on any given day a radiant rally or dramatic drop can materialize with an expected (or sometimes not) market-moving event providing the catalyst. Generally, FDA approvals, clinical trial updates and buyouts or large partnerships are the most likely suspects behind the event-based catalysts of the sector.

This week alone we've seen a little bit of everything.

GlaxoSmithKline (GSK) and Human Genome Sciences (HGSI) finally agreed on a buyout price after months of haggling, Gilead (GILD) received an expanded approval for its already hugely popular HIV drug and Lpath Inc (LPTN) has started to move on expectations of a trial-based catalyst due to unfold within a month or two.

All are examples of why investors - and especially traders - love the healthcare sector; big moves can be sudden and significant. Although the monetary gains of the sector attract most of the attention, it's important to not lose sight of the fact that many of the companies that rally do so because of the potentially life-saving or life-extending new drugs, treatments and medical devices that are being brought to market. Any monetary gains, while rewarding, if not addicting, should be considered secondary next to the breakthrough developments in medicine that can change lives.

Sunshine Heart (SSH) is a company that over the past few weeks has become relevant to 'all of the above.' Barely three weeks ago the SSH share price was a mere $2.50, but as news began circulating the wires about the potential of the C-Pulse Heart Assist System - culminating when Reuters picked up the story - shares soared to as high as over seventeen dollars before the day, swing and momentum traders started cashing out with huge profits.

As is generally expected in the healthcare sector after a company experiences such a swift and protracted price increase, shares dropped significantly following the run as the profit-takers left, which offers investors that may have an eye towards the mid to long term an opportunity to re-investigate their investment and potentially initiate - or add to - a long position.

In the case of Sunshine, the C-Pulse system provides a compelling case to look towards the future as the possible breakthrough that many suffering from heart failure have been waiting for.

According to statistics posted by the National Institutes of Health (NIH), heart failure is an all too common condition where the heart becomes unable to pump sufficient blood to meet the demands of one's body. The condition is progressive, effecting over five million people in the United States alone, and leads to over a quarter million deaths per year. Over 1.5 million of these cases fall into the category of Class III heart failure, where current treatments may temporarily relieve a patient's symptoms, but are not fully capable of controlling the effects or symptoms.

That's where C-Pulse comes in because not only have studies thus far demonstrated that the small, implantable device can halt the progression of heart failure, but it may be able to reverse the effects, too. Clinical studies are already underway to investigate these claims and, in fact, the medical authorities in Canada recently granted Sunshine permission to modify its ongoing trial to fit patients with the smaller, and potentially more effective, next-generation C-Pulse driver. Additionally, Health Canada also granted permission to expand the number of patients in the trial to 20. Four are currently enrolled and the improvements of the next-generation device were based on feedback from those who have already utilized the first-generation device.

Sunshine is also looking to receive a CE Mark approval in Europe and submitted documentation supporting the approval request earlier this year. Sunshine has also completed the initial steps in preparation for conducting a pivotal trial in the United States, which could begin as the company registers its first commercial sales later this year. Both of these events provide potential market-moving catalysts for later this year.

Also encouraging, the C-Pulse technology falls well in line with today's healthcare trends of finding cheaper and more effective ways to treat what have previously been known to be very expensive and invasive conditions. C-Pulse is implanted with a minimally-invasive procedure, which alone cuts monetary costs in relation to surgery and recovery. The system has also thus far demonstrated that it can reduce the number of a patient's required visits to the doc while also enabling the target patient group to avoid the extended hospital stays that often accompany treatment - factors that help to reduce monetary costs behind treatment.

Another benefit is that the device is implanted outside of the blood stream, which offers extra convenience for a patient who is able to 'disconnect' the device at will, in order to shower, for example.

Trading volume has picked up very significantly for this stock and with mainstream media outlets circulating the C-Pulse story as SSH shares multiplied in just weeks, it's safe to say that Sunshine Heart is on the map.

The retreat that materialized just as quickly as the run did offers investors a second chance to take a look at a potential breakthrough story in a very popular sector. In keeping with another popular sector theme these days, it's also worth considering Sunshine for its buyout potential. If C-Pulse continues to pile up data that validates the earlier results of being able to drastically improve the standard of care for heart failure, then there's little doubt that a larger pharmaceutical or medical device company would be interested in taking a look at Sunshine.

After the rapid chain of events of the last couple of weeks, it's likely that a new slew of investors is also taking a look.

Still with catalysts pending over the next couple of quarters, SSH is one to keep an eye on and potentially add on the dips.

Disclosure: I am long LPTN.

Additional disclosure: May initiate a position in SSH over the next 72 hours.