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  • Sunshine Heart: 10 Reasons Why This Game Changing Cardio Device Company Could Be Acquired For $50 Share 5 comments
    Aug 5, 2013 10:57 AM | about stocks: SSH

    #1) Huge Market Opportunity: Sunshine Heart (NASDAQ:SSH) is targeting the enormous New York Heart Association's (OTC:NYHA) Class III and ambulatory Class IV Congestive Heart Failure (CHF) market. This is a huge, unmet, untapped opportunity with approximately 1.5m patients in the US and another 3.7M patients in the EU. If the Company merely penetrates 10% of this market, the opportunity could reach over $5bln.

    #2) C-Pulse : The C-Pulse Heart Assist System is a game changing device that has three major distinct advantages over the current device based therapies offered to Class III CHF patients:

    1) Zero contact with the patent's bloodstream.

    2) Much less invasive implantation method.

    3) Ability to temporarily disconnects the device.

    The Company has already completed a twenty patient single arm feasibility study and presented six month data on fifteen of the twenty patients in November 2011. The data showed that twelve of the fifteens patients saw a reduction in NYHA class, seven showed a one class reduction and two patients showed a two class reduction in class. Astoundingly, two of the patients improved so much that they were able to permanently disconnect from the C-Pulse device. Recently the Company announced that "two additional patients have been identified as potential candidates to be weaned from the device based on significant symptomatic improvement".

    On November 20, 2102, Sunshine Heart received unconditional FDA approval for the C-Pulse(NYSE:R) system's U.S. pivotal trial. The Company estimates enrollment for the event-driven pivotal trial will take approximately 2.5 years. The primary endpoint of the trial will be reduction in worsening heart failure events leading to hospitalization, advanced heart failure therapies and heart failure related mortality. A one year safety follow-up is expected. The lead investigator for the trial will be Dr. William T. Abraham, Director of the Division of Cardiovascular Medicine at The Ohio State University Medical Center.

    On May 9, 2103, Sunshine Heart announced the implant of the first patient in the European OPTIONS HF C-Pulse System Multi center Study. The post market study is intended to treat patients with moderate to severe heart failure. "We are extremely pleased to announce the implant of the first patient at the German Heart Institute - Berlin in our European multi center post market study," said Dave Rosa, Sunshine Heart's Chief Executive Officer. "In particular, we are encouraged to see early success of our next generation cuff in its ability to improve the ease of implant and allow for better predictability of proper securement. We anticipate the activation of additional sites in the coming months and look forward to updating the market with our progress as enrollment proceeds."

    #3) Fully Implantable C-Pulse A fully implantable device, using existing transcutaneous energy transfer (TET) has already been proven in animal studies. The Company has recently executed an agreement with Cirtec MedicalSystems, a leader in advanced engineering and manufacturing capabilities, specializing in minimally invasive surgical and delivery devices for development of a fully implantable C Pulse Pump. The Company is targeting the completion of a chronic animal trial in late 4Q13 for the pump and intends to provide more information as progress is made.

    #4) Re-hospitalization Rates In October 2012, the Affordable Care Acts Hospital Readmission Reduction Program was instituted and includes a penalty system to incentivize hospitals to ensure their heart failure related re-hospitalization rates meet a defined benchmark rate of less than 24.7% at 30 days. If hospitals exceed this benchmark, they risk repayment reimbursements as a penalty. In the Company's pilot study, at least 17 of the 20 patients had been hospitalized due to worsening heart failure in the year prior to receiving the C-Pulse implant. Post implant, the re-hospitalization rate was only 15%, at 12 months. In addition, the average number of days stayed in the hospital was nine compared to nineteen for patients who received LVADS. As a note, the patients who received the C-Pulse device using the minimally invasive manner vs thoracotomy, only required a hospital stay of four days.

    #5) Management: All proven winners whom have vast experience in grooming companies for a successful buyout. The management team is led by Mr. David Rosa, CEO. Prior to joining Sunshine Heart, Mr. Rosa was Vice President of Global Marketing for Cardiac Surgery and Cardiology at St. Jude Medical, Inc. While at St. Jude, he directed the launch of twenty seven new products within the Company's cardiovascular division.

    William Peters, MD, serves as Medical Director and Chief Technical Officer invented the proprietary C-Pulse technology and served as Sunshine Heart's initial CEO upon co-founding the Company in 1999. In addition to C-Pulse, Dr. Peters has developed a number of other successful cardiac technology innovations, including an endovascular cardiopulmonary bypass system for minimally invasive cardiac surgery, which was commercialized by Heartport Inc., a NASDAQ-listed company that later was acquired by Johnson & Johnson.

    The Board of Directors is headed by Mr. John Erb who was appointed Chairman on September 13, 2012."Mr. Erb currently serves as the Chairman of Vascular Solutions (NASDAQ:VASC), Chairman ofOsprey Medical (ASX:OSP), and current Chairman and CEO of U.S. based Cardia Access. He has been part of recent acquisitions such as SenoRx (C.R. Bard), CryoCath Technologies(Medtronic Inc.), CHF Solutions (Gambro) and IntraTherapeutics (Sulzer Medica). Mr. Erb has also served in Senior Management roles with Schneider Worldwide, a leader in the cardiovascular space prior to its acquisition by Boston Scientific".The other members have significant connections with major global medical device companies, including; Johnson & Johnson, Medtronic and Boston Scientific

    #6) Unmet Need Despite the current therapies (LVADs, Pacemakers, CRT-D and drug therapies) heart failure morbidity and mortality remain high. Five year mortality rates range from 15-50%, depending on the severity of the disease. There is a huge need for additional therapies, especially for patients with advanced heart failure. Current devices only work to slow the progression of the condition and either shock the heart or perform the work for the heart. The C-Pulse system employs extra-aortic counter pulsation technology which actually reduces the workload of the left ventricle and increases the blood flow to the heart thereby allowing the muscle to undergo a level of recovery.

    #7) Potential Suitors Currently, the M&A activity in the biotech sector is at running at a fevered pace and the market is richly rewarding companies that engage in strategic acquisitions. Sunshine Heart is trading at an absurd valuation and would be an ideal fit for many players in the cardiac device space. The C-Pulse system has serious potential to become the standard of care in the massive and fast growing Class III and ambulatory Class IV CHF market. There are many potential suitors, among them; Thoratec, Heartware, St. Jude, Medtronics and Johnson and Johnson, all of which are most likely salivating over this opportunity right now.

    #8) Strategic Investor A Little known fact to most investors is that according to page 91, of the S-1 filed on August 8, 2102 the Company has a "strategic investor"

    A strategic investor, which is not a current stockholder of our company, has indicated an interest in purchasing approximately $3 million of our common stock in this offering at the public offering price. However, because this indication of interest is not a binding agreement or commitment to purchase, the underwriters may determine to sell more, less or no shares in this offering to this investor, or this investor may determine to purchase more, less or no shares in this offering. The underwriters will receive the same discounts and commissions from any shares of our common stock purchased by this strategic investor as they will from any other shares of our common stock sold to the public in this offering. In connection with this investment, we intend to enter into an agreement with this investor pursuant to which it will have the right to designate a board observer, who would be entitled to attend all meetings of our board of directors, and all committees thereof, in each case subject to customary exclusions, as well as the right to review certain of our clinical and regulatory data. The investor would maintain these observation and inspection rights for two years following the date we receive approval from the FDA to sell our C-Pulse System in the United States so long as it beneficially owns at least 0% of the number of shares purchased in this offering.

    #9) Poison Pill On June 14, 2013, Sunshine Heart adopted a stockholder rights plan and declared a dividend distribution of one right for each outstanding share of Sunshine Heart. The Rights Plan is intended to protect the Company and its stockholders from efforts to obtain control of Sunshine Heart that its Board of Directors determines are not in the best interests of the Company and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Sunshine Heart. The Rights Plan is not intended to interfere with any merger, tender or exchange offer or other business combination approved by the Board of Directors. Obviously, the fact that they implemented this Rights plan signifies that there are plenty of potential suitors sniffing around the Company.

    #10) Market Cap At the same stage of development, Heartware (NASDAQ:HTWR) (current market cap of $1.5b, $49.2 Q1 revenues) was valued at $200m vs Sunshine Heart's current market cap of $93m. Sunshine Heart is targeting a much larger CHF market segment ($5bln) than Heartware, at $7.50, SSH is trading at an unprecedented level in relation to its long term potential. Many recent acquirers of developmental biotech firms have paid in excess of $1bln for assets with much less potential. What most investors don't realize is that Sunshine Heart only has 12.3mln shares outstanding, so while a takeover at $50 share might seem outlandish, it would still only value the company at approximately $600mln.

    Conclusion: In the near term, the excitement will start to build for Sunshine Heart's shares as additional patients are weaned off the C-Pulse system (i.e."cured"), new clinical trial sites are activated in the U.S., the completed feasibility study data is published in a major medical journal, clinical updates are given on the open label European study, progress is given on the development of the fully implantable version of the device and additional research houses initiate coverage. If the C-Pulse system were an investigational new drug, (based upon the early feasibility study, which results should only get better with device enhancements etc,) the pundits would be hailing this as one of the biggest potential blockbuster drugs of all time. I believe the reason Sunshine Heart is currently trading at such an obscene low valuation is that investors simply think that for the time being, this is "dead money". They believe they will have to wait many years for the phase three trial results to report and therefore will have to wait for a corresponding time for a significant rise in share price. I think this is a huge miscalculation as I believe one of the big players in the field will step in (possibly causing a bidding war) well in advance of the phase three trial readout and make a takeover bid of at least $50 share/$600m. The Company wont be able to refuse it.

    Disclosure: I am long SSH.

    Themes: Biotech Stocks: SSH
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Comments (5)
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  • tpim
    , contributor
    Comments (32) | Send Message
     
    Great article!
    5 Aug 2013, 12:12 PM Reply Like
  • JosephAZ
    , contributor
    Comments (55) | Send Message
     
    This is an excellent summary of the potential of SSH. I've been watching SSH for the last several months, and everything I learn about this company has further convinced me that it's a great opportunity. I am long SSH. And very happy to be so.
    6 Aug 2013, 01:56 AM Reply Like
  • biohawks
    , contributor
    Comments (5) | Send Message
     
    Great article, have you heard anywhere on potential pricing of the device? With hospital readmission reimbursement penalties set to rise to 3% next year and the better performing hospitals receiving a share of the penalty pool this could turn out to be a revenue generator for many hospitals. Long SSH.
    7 Aug 2013, 05:00 PM Reply Like
  • coolhand79
    , contributor
    Comments (204) | Send Message
     
    The c-pulse device pockets SSH $59'000. And, per the trial of 388 patients (half of which are using the device), SSH is looking to take cash for the majority of the 194 units it will be providing. Potentially netting them $11 million over the course of the trial.
    11 Sep 2013, 11:16 AM Reply Like
  • RunwayResearch
    , contributor
    Comment (1) | Send Message
     
    Author’s reply » Thanks for the nice comment.
    Currently, C-Pulse is priced at approx $60k.
    12 Aug 2013, 09:16 AM Reply Like
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