Any 1 of 3 catalysts anticipated this quarter could transform how analysts value shares of Sunshine Heart (NASDAQ: SSH) and cause a sharp upward revision to current price targets. We anticipate these events will renew institutional interest in the name and buoy positive sentiment towards, potentially, one of the most transformative devices for treating heart failure – an opportunity worth upwards of $9 Billion1 in the US alone.
Among 7 analysts actively covering the Company, the average price target is $12.50/share, implying upside of more than 150% from current market prices.
A closer look at assumptions, underlying analysts’ financial models, reveals a consensus that low-to-mid single-digit market penetration and ~25% probability of clinical success is appropriate. This is despite Sunshine Heart’s C-Pulse (1) being the first mechanical assist device to reverse heart failure, not just stop its progression, (2) robust efficacy and safety data from their completed Phase 1b/2 feasibility study, (3) Phase 4 data from an ongoing study in Europe posting low re-hospitalization rates due to progressing heart failure (16.7%) and encouraging safety (exit site infections 8.3% vs 40% seen in the feasibility study)2.
“Heart failure is as 'malignant' as many common types of cancer”, according to a government-sponsored article3, which suggests Sunshine Heart’s C-Pulse device should receive assumptions at least as favorable as those given by analysts to CAR-T immunotherapy developers Juno Therapeutics (NASDAQ: JUNO); Kite Pharma (NASDAQ: KITE); bluebird bio (NASDAQ: BLUE). For instance, JP Morgan assigns Juno a 40%-60% probability of success and market penetration of 33-90% in various indications to arrive at their $66 price target4.
Investors will argue CAR-T drug developers have shown unprecedented remission rates in early stage studies (shown below) in the range of 70-90%. Comparably speaking, Sunshine Heart demonstrated that 17 of 20 patients, or 85%, did not require re-hospitalization in 12 months after being implanted with C-Pulse5 in their feasibility study. Data from the ongoing Phase 4 study in Europe appears to support this impressive feat.
CAR-T Drug Developers/Early-Stage Results
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|Agent (Company) |Indication|# Patients|Results |
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|CTL019 (NYSE:NVS) |ALL |39 |92% Complete Remission|
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|CAR015 (NASDAQ:JUNO) |ALL |27 |89% Complete Remission|
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|KTE-C19 (NASDAQ:KITE)|ALL |24 |70% Response Rate |
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Source: Decision Analytics6
We would further argue that the risk profile of a minimally-invasive mechanical device implanted outside of the aorta and bloodstream is favorable versus alternative mechanical devices (LVADs, discussed below) which [increasingly] cause stroke or blood clot. Further, C-Pulse’s safety profile is more predictable than drugs, such as CAR-T immunotherapies, whose activity is relatively unexplored. This is to say that perhaps analysts have missed the mark in terms of the probability of success assigned to Sunshine Heart’s C-Pulse when valuing the Company’s shares. We believe there are 3 imminent events that could cause a sharp upward revision of these assumptions and consequently the consensus price target.
EVENT #1 - Enrollment Number Could Surprise in Q1 2015, For the 3rd Consecutive Quarter
Sunshine Heart has posted 2 consecutive quarters of increasing enrollment numbers, including higher-than-anticipated figures during the holiday season (Q4 2014). Bears have called into question the Company’s ability to fully-enroll their pivotal Phase 3 study ongoing in the US because of slow enrollment early on. The response to this is two-fold. First, the Company might not need to fully-enroll the Phase 3 study to submit for FDA approval (discussed later in this note); second, an increasing pace of enrollment, including during a typically challenging holiday season, for two consecutive quarters demonstrates enrollment is highly-correlated with the number of sites activated and screening for participants. The table below demonstrates this relationship.
Source: Piper Jaffray7
The consensus among most analysts is that Sunshine Heart is on track to enroll ~20 patients in Q1 2015. Any surprise to this figure, which has been the prerogative of [Sunshine Heart’s] management, may cause analysts to re-think the timeline to full enrollment and how their models value shares today.
EVENT #2 - Analysts Have Not Factored in EU Reimbursement; Possible Start in February
Sunshine Heart guided that German authorities are due to respond to an application by the Company to obtain reimbursement, in February8. Analysts have not modelled for reimbursement in the EU, where C-Pulse has approval or CE mark and is undergoing a Phase 4 study (n=50). Favorable news on this front will cause analysts to begin modelling revenues from commercialization of the product in the EU, perhaps earlier than anticipated. This should favorably affect price target revisions that ensue.
EVENT #3 - Interim Study Analysis Could Support FDA Approval; Cut Time-To-Market in Half
Perhaps the most anticipated event, a response from the FDA on the Company’s petition to perform an interim analysis of the ongoing pivotal study in the U.S., could solicit the most aggressive revisions to analysts’ assumptions. This is because an interim look would effectively cut time lapse to PMA submission for FDA approval in half or 1.5 to 2 years, depending on enrollment trends. Further, enrollment numbers would no longer play a meaningful role at the halfway point if C-Pulse repeats efficacy end-points demonstrated in the feasibility study [see Journal of American College of Cardiology article for details] at the interim analysis.
Sunshine Heart has stated that it expects a response from the FDA in Q1 2015.
Outcome of Meeting with FDA for Fully-Implantable Device Could Be a Wildcard
The outcome of a January 15 meeting with FDA regarding Sunshine Heart’s next-generation fully-implantable C-Pulse device could be transformative. This would presumably be the first fully-implantable mechanical assist device to be put in humans, and completely cut C-Pulse’s main risk of lead-site infection.
Sunshine Heart Added 3 Top Senior Executives from Large Medical Device Companies in 2014
Perhaps the right closing remark is that even if neither of 3 imminent events sparks a revision in analyst estimates on the fair value of Sunshine Heart’s shares, the addition of top executives from Medtronic (NYSE: MDT) and Boston Scientific (NYSE: BSX), as SVP of Clinical Affairs, SVP of Operations and Technology, and CFO at Sunshine Heart, eventually will.
References
1. Calculated assuming C-Pulse ASP of $59,000 multiplied by 1.5 Million addressable patients in the U.S. and 10% penetration
2. Canaccord Genuity Update Jan 12, 2015
3. PubMed article, Stewart, MacIntyre et al.
4. JP Morgan Note Jan 13, 2015
5. Journal of American College of Cardiology Heart Failure, Feasibility Study
6. Decision Analytics Note
7. Piper Jaffray Note Jan 12, 2015
8. Release dated Jan 12, 2015
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Legal Disclaimer: This research note has been prepared by One Equity Research, LLC. An affiliate of One Equity Research, LLC holds an ownership interest in Sunshine Heart. The affiliate does not intend to sell any part of their ownership interest in the current fiscal quarter. One Equity Research, LLC may engage the Company in a research coverage agreement in the future. This research note is not an offer or solicitation to buy or sell the securities of Sunshine Heart. The report is for information purposes only, and is not intended to (and is provided explicitly on the condition that it not) be used as the sole basis to make any investment decision. Investors should make their own determinations whether an investment in any particular security is consistent with their investment objectives, risk tolerance, and financial situation.
