Following the publication of Glen S. Woods' article, "Novartis And NeoStem: Developing Therapies To Extend The Quality Of Life For Heart Disease Patients", I have been asked if these therapies have the potential to make Sunshine Heart's (SSH) C-Pulse system obsolete.
The simple answer is an emphatic No!
Novartis' (NYSE:NVS) drug Serelaxin, NeoStem's (NBS) AMR-001, and Sunshine Heart's C-Pulse system have very different but complementary roles to play in treating Congestive Heart Failure (CHF), also referred to as heart failure.
I will describe these complementary roles further below. But first I will provide some background information on congestive heart failure.
About Congestive Heart Failure:
Congestive heart failure is a chronic, progressive disease and the currently available therapies (pharmaceuticals, brady, CRT-D, and LVAD) only slow the progression of this disease.
From time to time, the condition of CHF patients will become acute, requiring hospitalization.
The American Heart Association in an article, "Heart failure patients living longer, but long-term survival still low", describes Acute Heart Failure (AHF) as follows:
Unlike chronic heart failure, in which patients are able to live at home, acute de-compensated heart failure involves a severe deterioration in health. Fluid backs up in the lungs, breathing becomes difficult and the heart is unable to supply the body's necessary oxygen.
A description of the complementary roles of Serelaxin, AMR-001 and C-Pulse:
The complementary roles could be briefly described as follows:
Serelaxin is a drug that has been shown to improve by 37% the survival rates of CHF patients admitted to hospital for treatment of acute de-compensated heart failure.
It has been shown to not reduce re-hospitalization rates so it cannot be claimed to halt the worsening of heart disease long term. However, it should continue the trend towards ever increasing rates of survival of CHF patients in acute episodes of heart failure.
From above article by Glen S. Woods:
AMR-001 therapy has shown to increase micro vascular blood flow in the heart muscle by angiogenesis, which is the development and formation of new blood vessels. This means that AMR-001 has the potential to reverse post-heart attack induced restriction of blood supply and rescue tissue from eventual cell death.
We are talking here about CHF brought on by damage done to the heart following a heart attack. But heart attacks are only one of many causes for the onset of CHF.
Also, there is a very narrow window of opportunity of 7 to 10 days after a heart attack to potentially improve heart function using stem cell therapy (see here). For the millions already suffering CHF the opportunity for improvement of their situation with stem cell therapy might already be lost.
This is unlikely to be a complete solution, even in the case of heart attack, because the progression of CHF results from the inability of an already weakened heart to pump sufficient blood to the heart and other organs and the body generally.
While stem cell therapy might look very promising, it is still at the investigation stage and is not an established treatment. The current Phase II trial is not scheduled for completion until June 2016 and even if successful in showing safety and efficacy, there would be many more years for Phase III trials and marketing approval beyond that time.
Sunshine Heart's C-Pulse system:
The Sunshine Heart C-pulse system is a medical device to treat congestive heart failure by assisting the natural heart's pumping function. To further explain:
- The C-pulse system is not blood-contacting and does not take over from the heart. It employs proven counter-pulsation technology, to reduce the workload of the heart, and to create additional blood flow to the heart muscle. This provides ongoing permanent support and allows a tired heart muscle some opportunity to rest and recover, in a measurable way (NYHA Heart Failure class improvement). For further information see here.
Some results from the C-pulse 20 person feasibility study (Data sources - Prospectus filed with SEC August 10, 2012 and Sunshine Heart Corporate Presentation October 2012):
- NYHA Heart Failure Class improvement - 12 patients (60%) at 6 months. (Subsequent to completion of the feasibility study 2 patients became asymptomatic and were weaned off the device and another 2 are being considered for weaning);
- Re-hospitalizations at 6 months 5% (compares to recent trial published control group re-hospitalization rate of over 40% with similar patient population at 6 months);
- Medication Reduction: Diuretics -discontinued, reduced or unchanged for all patients; Inotropes - 4/4 patents successfully weaned (within 48 hours).
Following on the successful completion of the feasibility trial, the FDA has approved a 388 patient pivotal trial with targeted marketing approval in early 2017. The C-Pulse already has CE Mark approval for commercial sale in the EU.
Summary of complementary roles together with conclusions:
- Serelaxin might assist CHF patients to survive acute episodes of heart failure. These patients might then go on to receive long-term therapy in the form of C-Pulse as a stand-alone therapy to halt or reverse the symptoms of heart failure;
- AMR-001 might improve the vascular system of the heart but the heart will likely require C-Pulse to assist the heart's recovery of its pumping ability by providing the necessary additional blood flow to the expanded vascular system while at the same time providing some lessening of the heart's workload. Also AMR-001 trials are only for patients suffering a heart attack and this is just one segment of a much larger CHF population that C-Pulse addresses; and
- C-Pulse is showing itself to be the only stand-alone answer to the potential halting and reversal of CHF in NYHA Class III and ambulatory Class IV. Serelaxin might increase the pool of patients able to take up C-Pulse by improving survival rates in acute episodes. AMR-001 might also assist the repair and recovery of a heart damaged in a heart attack but possibly only in conjunction with the use of C-Pulse.
Comparing these therapies from an investor's point of view:
Novartis AG is a large cap company, so success with Serelaxin will not have the same huge impact on future earnings and market cap as would be the case for NeoStem and Sunshine Heart with their opportunities. It is not going to be a 10 bagger or even a 2 bagger.
2012 earnings were ~$10bn. Realization of the Serelaxin opportunity should contribute to achievement of good earnings growth rates going forward.
NeoStem, in pursuing its objectives, had accumulated losses through end of 2012 of ~$197M. Additional losses of ~$17M were incurred in the six months through 30 June 2013. Cash balance at end of June 2013 was $14.7M. Issued shares increased by over 20% to 19.6M at June 30. With AMR-001 just entering Phase II trials, future revenues from this segment of the business are quite uncertain and possibly 6 to 10 years away.
Market cap at 13 September 2013 was $188M.
Sunshine Heart, in pursuing its objectives, had accumulated losses through end of 2012 of ~$79M. Additional losses of ~$9M were incurred in the six months through 30 June 2013. Cash balance at end of June 2013 was $21.5M. Issued shares increased by ~33% to 12.4M at June 30. C-Pulse has CE Mark and is already approved for commercial sale in the EU. Revenue is expected to be generated in the EU once reimbursement arrangements are in place in early 2014. In the US, C-Pulse implants in its FDA approved 388 patient trial are eligible for reimbursement. So revenues will be generated during the course of the trial which has already commenced. Success in the pivotal trial will lead to marketing approval in the US by early 2017. Its primary target market of NYHA Class III and ambulatory Class IV CHF patients is estimated at 1.5M in the US and 3.7M in the EU.
Market cap at 13 September 2013 was $137M.
Conclusions on these therapies from an investor's point of view:
A solid blue chip investment with a good pipeline of new products, including Serelaxin.
A micro cap with an exciting potential product. A lot of additional expenditure and capital raising will be required to achieve a product with proven efficacy and safety. And there still has to be considerable uncertainty that end point will be achieved. An interesting speculative play.
A micro cap with a product that addresses a large unmet need. Already in a position to generate substantial revenues in the EU commencing 2014. Based on the successful feasibility trial, good expectations can be had for success in the current pivotal trial which is expected to generate ~$10M in revenue. With full marketing approval in early 2017, very substantial revenues could be expected to flow in the US from 2017 onwards. There will likely be a need for additional capital raising but not at the levels required for NeoStem.
Compared to NeoStem's AMR-001, Sunshine Heart's C-Pulse is much further advanced in the approval process. It already has commercial marketing approval in the EU and product reimbursement approval in the US pending full marketing approval targeted for early 2017.
With a current market cap of $137M versus NeoStem's $188M it would seem that the market is very significantly undervaluing Sunshine Heart.
This under valuation could be the result of investors' fears that C-Pulse will be completely overtaken by drugs such as Serelaxin and stem cell therapies such as AMR-001.
I trust that this article will provoke discussion and understanding that C-Pulse is not in any particular danger from any identified competing technology.
Caution: The information above is not intended to replace the advice of a doctor. I disclaim any liability for the decisions you make based on this information.
Additional cautions: As always, 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.
Investing in micro cap companies is not suitable for all investors and can be risky. It's important that investors thoroughly perform their own due diligence and analyze the potential risks. Due to illiquidity, share prices can fall despite strong fundamentals and possible inability to raise sufficient additional cash to continue to fund ongoing operations is always a serious concern. Fuller details of risks associated with Sunshine Heart as identified by the company may be found with their form 10-12B/A registration filing with the SEC and their other SEC filings.
Disclosure: I am long SSH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.