Echo Therapeutics: Speculative Stock With Significant Upside Potential

| About: Echo Therapeutics (ECTE)
This article is now exclusive for PRO subscribers.

One factor that makes investing fun is looking for companies in their infancy with great future growth potential. These stocks are sometimes referred to as lottery tickets or home run stocks as they have the potential to double, triple, or even increase 10 times their original price in a short period of time as compared to the overall market. Another thing that is rewarding is looking for companies that make products that improve the lives of individuals. I found a company that has this potential. Echo Therapeutics (NASDAQ:ECTE) is a $48 million Philadelphia, PA based small-cap transdermal medical device company. Echo is working on getting two medical devices and one drug candidate approved through the FDA. Currently, the stock is trading at only $1.20.


With medical devices, a company must submit a 510k premarket notification to the FDA before a product can be marketed in the United States. The approval process typically takes about 90 days, however, Echo's 510k submission was filed in November 2010 and has not yet been approved. This submission was for Echo's Prelude SkinPrep System and 4% Lidocaine Cream. The Prelude System is designed to ablate the skin prior to the application of OTC 4% lidocaine cream for faster-acting local dermal anesthesia. To put it simply, the Prelude System provides needle-free drug delivery. The Prelude system has been tested by Echo over 2000 times, giving the company confidence that it safely and precisely permeates the skin. There haven't been any adverse side-effects with Prelude other than minor red marks that resolve within 24 to 48 hours.

Echo Therapeutics has a license agreement with a private company, Ferndale Pharmaceuticals LTD. The agreement allows Ferndale to "develop, assemble, use, market, sell, and export Prelude for skin preparation prior to the application of a topical analgesic or anesthetic cream for local dermal anesthesia or analgesia prior to a needle insertion or IV procedure." The agreement includes marketing in North America and the United Kingdom.

Echo believes that the Prelude system will be effective in the transdermal drug delivery market. This system has the potential to increase transdermal topical drug delivery up to 100 times greater than with untreated skin. This includes the delivery of a wide array of small and large molecule drugs.

Echo's other promising medical device is its Symphony Transdermal Continuous Glucose Monitoring System (tCGM). Symphony allows for wireless, non-invasive (needle-free) continuous glucose monitoring. This system is designed to provide, accurate, real-time blood glucose data conveniently, continuously, and cost-effectively. Symphony incorporates the Prelude system, a transdermal sensor, wireless transceiver and data display technologies. The product is being designed to be used in hospital critical care units and for diabetes patients.

The Symphony system begins with skin permeation with the Prelude device. Then a biosensor is placed on the permeated site. Finally, after a brief warm-up period, the system provides a wireless monitoring of the patient's glucose level every minute to a remote monitor. The monitor then tracks the patient's glucose level and rate of glucose changes. It then provides visual and audible alarms when the glucose levels move out of the target range, which can be personalized for individual patients.

The advantages of Symphony are that it provides a continuous monitoring of glucose levels, and that it doesn't require the drawing of blood with needle-sticks. The elimination of needle-sticking for glucose monitoring, reduces the risk of infection, inflammation, and bleeding at the puncture site. This should provide a more comfortable experience for patients.

Echo did not yet submit a 510k to the FDA for Symphony's approval. Symphony has been tested over 1000 times in internal studies with positive results. The company plans on filing for approval in Europe next year. As for the United States, Echo is refining its clinical strategy for FDA pivotal trials, and the PMA filing for Symphony.

Echo has granted Handok Pharmaceuticals a license to develop, and market the Symphony tCGM system to monitor hospital patients and diabetics in South Korea. Handok is the leader in diabetes treatment in Korea.

With 25.8 million children and adults with diabetes representing 8.3% of the United States population, the potential for the Symphony system is huge for use in hospitals and in patient's homes. About 2 million new cases of diabetes in those aged 20 years or more are diagnosed each year.

Echo is also developing a drug known as Durhalieve. This is Echo's topical Azone TS reformulation of triamcinolone acetonide for treatment of corticosteroid-responsive dermatoses. The drug has successfully completed Phase 3 studies.


DexCom Inc. (NASDAQ:DXCM) has FDA and CE Mark approval for a CGM system known as Seven and Seven Plus. Seven is a disposable sensor that can be inserted by a patient and used continuously for seven days. Seven PLUS uses additional user interface and has algorithm enhancements that is intended to make its glucose monitoring system customizable.

DexCom also recently received FDA approval for the DexCom G4 Platinum. The G4 provides a 19% improvement in accuracy over the Seven Plus and a 30% improvement in accuracy in the hypoglycemia range.

Medtronic (NYSE:MDT) launched the world's first continuous glucose monitoring device. The company offers the iPro2 CGM system. The iPro2 does not provide real-time data like Echo's Symphony or DexCom's G4 Platinum. Data is only taken from the iPro2 after the sensor is taken off the patient. The data is then downloaded to a computer to view trends and reports. The iPro2 system involves using a needle.

Abbott Laboratories (NYSE:ABT) provides the Freestyle Lite test-strip style glucose monitoring system. The Freestyle involves pricking your finger to draw blood, which is the least comfortable method of glucose monitoring.

DexCom's CGM system is the closest glucose monitoring device to Echo's symphony as it provides continuous, wireless, real-time data. However, DexCom's system involves inserting a needle, which can be a bit uncomfortable for many people. Echo's Symphony, when used with Prelude, strives to have the advantage of being the only CGM system that is non-invasive (no needles needed). Therefore, Symphony has a potential new market advantage to be the most comfortable CGM system. In addition to comfort, there is also less chance of infection with Symphony as the skin is not being pierced.

Currently, according to Echo Therapeutics' CEO Dr. Patrick Mooney, the company is planning on launching its products with of intent of not being acquired by another company. However, he did acknowledge that there may be a point in the future where it makes sense to be acquired.

Echo has recently hired Daniel Sunday as Vice President of Manufacturing and Global Supply Chain. Mr. Sunday has nearly 30 years of supply chain leadership experience. His addition ensures that Echo is positioned for a successful product launch and long-term commercial strategy.

Echo's stock is trading at only $1.20 and has been trickling down since rising to over $4 back in June/July 2011. I think that many investors have become impatient with the impending FDA approval for Prelude. There was a lot of hype with regard to the stock when the 510k was filed, but the hype has worn off and the stock price has been trending lower. I think that Echo's stock has the potential to move significantly after FDA approval is given to one or more of its products.

LifeTech Capital has a $5 price target on the stock. This would represent a quadrupling of the current price. This price target is based on 35x projected 2015 EPS and discounted 30% for risk with a market cap of $200 million.

Although Echo should be considered a speculative stock play, using money that you can afford to lose, I think the odds of the company's and stock's success are in favor for investors.

Disclosure: I am long ECTE. 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.