The Shockwave Device That Heals: The SanuWave Opportunity

Includes: SNWV
by: Logical Assessment

There's a specific reason why tech companies such as Apple (NASDAQ:AAPL) and biotech companies like Organovo (NASDAQ:ONVO) bring out the inner bull in us. Whether it's a device that connects you to anything and everything you can think of (the iPhone) or a 3D printer that promises to print out entire living organs in the future [the NovoGen (NVGN) bioprinter], the products churned out by the tech/biotech sector are game changers. They revolutionize the playing field by turning what was once science fiction into reality, and intelligent investors have profited immensely by staking their shares before the crowd.

I believe that SanuWave (OTCQB:SNWV) falls into the game-changer category, with its dermaPACE technology: a shockwave therapy device that accelerates healing.

Now before diving into the details of their technology, let's preface it with a brief overview of its market opportunity.

The Diabetes Epidemic

If you've been following the biotech/medtech space at all, you know that diabetes is the whale every major player is trying to cash in on. Growing at an unprecedented rate, the estimated 285 million people affected by diabetes is expected to hit (if not outright surpass) 438 million individuals by 2030.

The complications created by diabetes make it one of the most costly conditions afflicting society. The American Diabetes Association commissioned a study titled, "Economic Costs of Diabetes in the U.S. in 2012", which estimated the total cost of diagnosed diabetes at a gargantuan $245 BILLION in 2012. A breakdown of the total costs reveals that "hospital inpatient care" is responsible for a good 43% in addition to indirect costs such as:

  1. Increased Absenteeism - $5Billion
  2. Inability to work as a result of disease-related disability- $21.6Billion

It's an excerpted list for a reason; it is precisely these costs that are addressable by SanuWave's dermaPACE device.

Diabetic Foot Ulcers

Diabetic Foot Ulcers (DFU) are a major complication 15% of diabetics (~43Million) must face, one that unfortunately precedes 84% of all lower leg amputations. The Advanced Medical Technology Association states that over 1.5 million diabetic foot ulcers occur annually. The size of the DFU market was $1.2B in 2010, and is expected to reach $2.3 Billion by 2017.

The current standard of care fails to address DFUs in a lasting manner, which in conjunction with DFU's status as a recurrent condition lead to over 82,000 amputations each year. As a result, DFUs contribute greatly to the direct and indirect costs previously mentioned.

Fortunately, Sanuwave's dermaPACE device was designed with this in mind.

Enter The [Sci-fi Ray Gun] dermaPACE Shockwave Therapy Device

Sanuwave's dermaPACE device is a direct offspring of its Pulsed Acoustic Cellular Expression (NASDAQ:PACE) technology. When I read into PACE's mechanism of action, I immediately thought of the ray guns ubiquitous in science fiction. The novel technology "utilizes high-energy acoustic pressure waves, in the shock wave spectrum to produce compressive and tensile stresses on cells and tissue structures to elicit a series of biological responses."

Essentially, their device operates by minimally damaging (stresses) the cells present at the location of a wound. This results in a systemic response by the body leading to an accelerated growth rate at the target site.

To analogize this process, think about exercise: When you engage in physically strenuous activity, what actually occurs at the cellular/muscular level are thousands if not millions of "micro-tears" to the muscles being utilized. These "micro-tears" tell the body to rebuild these areas. The body responds by sending a large amount of nutrients, and by rebuilding through overcompensation, progress is attained in the form of larger/denser muscles.

Sanuwave's PACE technology goes several steps further in terms of the healing process. Research indicates that the shockwave treatment results in additional benefits such as: breaking up the biofilm created by bacteria colonies (which lead to wound infections), an increase in the inflammatory response (a precursor stage to the cell duplication state, which helps creates new blood vessels for nutrient distribution), a reduction in white blood cell infiltration (lending to the shift from a chronic, non-healing condition, to a healing state), finally an increase in growth factors (faster cell duplication). These factors converge to drastically increase the speed of healing in ulcers that fail to respond to current standards of care.

And did I mention that it's completely non-invasive?

So It's A Game-Changer, But Will The FDA Approve It?

Let's start by stating a fact; SanuWave's dermaPACE device has already "received a European CE Mark approval for the treatment of acute and chronic defects of the skin and subcutaneous (deep) soft tissues e.g. post-operative wound healing defects, post-traumatic wounds, deep partial thickness burns, decubitus ulcers, diabetic ulcers, and arterial ulcers." That's quite a feat, not to mention the breadth of conditions that are treatable with the device.

SanuWave's dermaPACE device is in the process of gearing up for its second run at the all-important Phase III trial slated for Q2 2013. Now I'd like to note some key factors regarding the past and imminent Phase III trials.

  1. Although dermaPACE failed to receive FDA approval during its first trial, it showed remarkable efficacy in the treatment of DFUs in comparison to the standard of care (it actually met the overall efficacy endpoint, just not within the allotted time), as a result:
  2. The FDA has allowed for a modified, somewhat accelerated Phase III trial for SanuWave, where a portion of the data collected from the first Phase III trial has been permitted to be used for the upcoming trial
  3. As such, the imminent Phase III trial can be seen as a continuation study, one that has been redesigned to more accurate reflect the efficacy of the dermaPACE device, such changes include:
  4. A streamlined enrollment process, where 90 patients will be inducted on a "rolling" basis, where completion of patient enrollment is expected by early Q1 2014,
  5. A new Contact Research Organization (CRO) to conduct and manage the trial,
  6. Enhanced management of treatment procedures, site/patient management,
  7. A doubling of dermaPACE treatments relative to the last trial, leading a strong demonstration of efficacy.

As part of its second Phase III trial, and perhaps as an indicator of SanuWave's confidence, an Independent Data Monitoring Committee will be present to gauge the progress as defined by the endpoints desired in the trial. This translates into the ability to seek pre-market approval as early as 12 weeks into the study. Provided that dermaPACE demonstrates strong progress in the treatment of DFUs, pre-market approval could come as early as 20 months from the start of the study. (Mid Q1 2015)


Since falling from its 2011 $5.72 peak following its FDA denial in 2011, I believe SanuWave stands on the verge of a complete revival. I say this for multiple reasons. With the concessions allowed by the FDA for its imminent Phase III trial, in addition to the logical restructuring of said trial, I believe approval is likely to occur this time around.

The new design lends itself for an incredible amount of transparency on the progress of the clinical trial. It's an invaluable resource for the cautious investor, the rolling enrollment nature allows for timely releases which will simultaneously act as a litmus test for the strength of the device as well as an repeating catalyst for sustained capital gains as SanuWave regains much deserved visibility on impending positive results reported by the Independent Data Monitoring Committee.

In addition to the potential catalysts of a company, investors can and should look towards the management as a barometer of financial upside.

When a CEO doesn't believe in the strength of the company they run, it's readily apparent. They'll opt for cash compensation, and their lack of enthusiasm will drive the company in the ground. This was the case with Apple's John Sculley, who opted for a $2.2 Million salary and eventually let Apple stumble despite the strength of their products.

SanuWave recently hired a new CEO, Joseph Chiarelli, a veteran of the healthcare finance industry. His former positions include Senior Managing Director for Auriga Capital Management (healthcare hedge fund), Senior Equity Investment Analyst at Oppenheimer & Co., and Senior Investment Research Analyst of three healthcare sectors at JPM, just to name a few. He's been around the block to say the least, with a track record that implies a hound's sense of smell for finding the winners.

So what's his compensation?

It's milestone based, contingent on the completion of a financing, completion of patient enrollment in the upcoming Phase III trial, FDA approval of dermaPACE, and finally the execution of a licensing or distribution agreement. Those are HUGE milestones to reach, so it's safe to say that Chiarelli has immense belief in the future success of SanuWave.

His induction into SanuWave coincided with its bridge financing, it was an over subscribed financing, raising 60% over the initial goal set, illustrating the satisfaction of the original investors in the current direction of the company- The very same investors who bought SanuWave when it was trading north of $3, an incredibly bullish indicator.

If you're looking for an exciting growth play with transparency, I think SanuWave definitely stands as a top contender. With positive conditions for their dermaPACE clinical trial, management that believes in the company, a multibillion-dollar market opportunity, and a clearly defined timeline for future catalysts, SanuWave could prove to be the next Organovo.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.