Patients Are Outperforming on Sunshine Heart’s Treatment for Heart Failure

Sunshine Heart (SSH) in its quarterly earnings report and conference call on Wednesday provided anecdotal evidence that its C-Pulse device is  benefitting late-stage heart failure patients. The stock subsequently climbed 9% during a weak trading session. In addition, SSH revealed a number of upcoming events that should pique investor interest in this micro-cap name through the end of the year. PropThink profiled Sunshine Heart and suggested buying the stock in May of this year following a $14M capital raise. SSH is up 70% since then, and we continue to believe it’s an equity worth holding for the long-haul. While many investors vacated the name earlier this year with the realization that the company’s ongoing pivotal trial won’t be complete until 2016, continued anecdotal results from a recently initiated open-label European trial will drive the stock in the interim. PropThink Premium subscribers were alerted to a breakout this Monday – a trade that’s been good for 15%.

Sunshine Heart continues to make progress in the development of its C-Pulse Heart Assist Device in Class III and ambulatory Class IV heart failure patients. Unlike existing heart-assist devices that improve blood flow by implantation of an impeller within the patient’s blood stream, C-Pulse uses counter-pulsation technology to increase coronary artery blood flow and reduce the heart’s pumping workload. Given the lack of blood contact, C-Pulse offers a safety advantage over existing therapies, which we detail in our previous report. The company is evaluating C-Pulse in the domestic 388-patient COUNTER HF trial (NCT01740596) and a 50-patient European Study, OPTIONS HF.

Most exciting to the markets was the granular detail with which CEO Dave Rosa described the first four patients who have been implanted with C-Pulse in the OPTIONS HF study. Similar to patient testimonies on the company’s website, C-Pulse has been transformational. We expect this anecdotal evidence to continue providing catalysts for SSH as the open-label EU trial progresses and the company presents updates at medical conferences. Management has made clear that presenting results from the ongoing study will be a regular occurrence (details below).

Four patients have now been implanted with the C-Pulse device in the OPTIONS HF trial. According to the company, after three months on device Patient 1 reported weight loss of 20 pounds and has become far more physically active. Patient 2 was doing well on the device for the first few days following implantation, but required ablation due to atrial fibrillation on day three, although “counter-pulsation demonstrated to be very effective during the period.” The Berlin Heart Center and treating physicians expressed that the event was not related to the C-Pulse device. Patient 3 has been on C-Pulse for 30 days and is reportedly “feeling excellent, extremely active, has expressed great satisfaction with the outcome so far.” Patient 4 was implanted just last week. Rosa said the patient, a 79-year old man, is doing well. None of the patients have been re-hospitalized due to worsening heart failure, the primary endpoint of the ongoing Phase III trial.

It’s this granularity that we expect to drive SSH over the course of the OPTIONS HF trial while investors await key data from the COUNTER HF trial, not due until 2016. The European study is open-label, and according to the company, investors can expect updates regularly at medical conferences. In addition, SSH is evaluating two more patients (the company revealed this in a prior presentation) for weaning from the C-Pulse Device and will offer an update on the weaning process in October. Recall that Sunshine Heart previously weaned two patients successfully. Furthermore, Sunshine Heart plans to begin animal testing of a 2nd-generation, fully implantable device in the fourth quarter.

We’ve outlined these events below:

1. Presentation at the German Heart Failure Society meeting. September 26. Again, details from the European trial.

2. Presentation at the Transcatheter Cardiovascular Therapeutics Conference. October 27-November 1. European details and update on patient weaning.

3. Presentation in the U.K. December. European update.

4. Presentation at the European Mechanical Circulatory Support Summit. December 4-7. European updates, possibly a live case (C-Pulse recipient).

5. Initiation of fully implantable animal trial. Fourth quarter.

While Sunshine Heart’s biggest inflection point isn’t due for another two years, we expect that continued and widely publicized success in the open-label European trial will offer a clear glimpse at the C-Pulse Device’s benefit to patients. And with four more updates before the end of the year, not to mention guidance on quarterly calls, Sunshine Heart isn’t as devoid of catalysts as it appears.

Sunshine Heart also explained some unexpected delays in the COUNTER HF trial on the conference call. Due to multiple, competing and ongoing device trials (and stem cell studies) examining Class III heart failure patients, COUNTER HF sites are taking an average of six months from trial commitment to activation, longer than expected. In response, the company plans to hire a Chief Medical Officer, a VP of Clinical Research, a Patient Recruitment Director, and a consultant to supplement in-house patient recruitment and enrollment efforts

Three new sites were activated in the second quarter, with a total of seventeen committed to participate in the trial. Since June 30, one additional site was activated for a total of five active sites in the trial as of Wednesday’s conference call. Sunshine Heart is waiting to hear from an additional eight centers about participation in COUNTER HF and expects to have 22 total sites by year-end 2013. Management also outlined plans to lengthen the driver lead assembly on the C-Pulse device to alleviate stress on the lead exit site.

In the second quarter of 2013, Sunshine Heart reported a net loss of $4.2M, and $8.6M in 1H13. More importantly, the company posted cash burn from operating activities of $7.6M in the first half. Sunshine Heart ended the second quarter with $21.5M in cash. Given an incrementally increasing burn as trial sites come online and the company expands its patient enrollment efforts, existing cash should be sufficient for over a year of operations. Note that a common stock purchase agreement with Aspire Capital for an additional $25M should extend that ramp materially.

We encourage investors to read our original report, here.

In connection with SSH, PropThink has taken a long position.