A Few Takeaways from Our Interview with Sunshine Heart

On Tuesday September 3rd, we hosted an interview and Q&A with Sunshine Heart (SSH) CEO David Rosa; a transcript of the call is available at Seeking Alpha (see here). Our readers will be aware of our bullish stance on SSH, and you can read our prior coverage here, as well as the reasons why the stock should continue to appreciate this year alongside anecdotal evidence of the C-Pulse System’s effect on late-stage heart failure patients.

Here are a few key takeaways from the event:

1. Perhaps most importantly, Mr. Rosa ended the interview session of the call by briefly discussing an entirely new indication for the fully implantable version of the C-Pulse Device – unstable angina. While we won’t be attributing much, if any, value to this indication given that the fully implantable device has yet to enter animal trials, the company has never mentioned this indication before.

Angina describes chest pain or discomfort that occurs if the heart muscle doesn’t receive enough oxygen-rich blood. Stable angina occurs in regular patterns of chest pain, and triggers, like physical exertion, are identifiable. Unstable angina, meanwhile, follows no pattern. It may occur more often and be more severe than stable angina. Unstable angina can also occur with or without physical exertion, and rest or medicine may not relieve the pain as it does in stable angina. Mr. Rosa envisions using the fully implantable C-Pulse to increase blood flow only when angina occurs, increasing oxygen flow to the heart muscle when necessary. He believes there’s an opportunity given the comparatively simple implantation procedure and minimally-invasive qualities of the transcutaneous drive with the new system. Although years from commercialization, unstable angina effects some 10 million patients in the U.S.; even a minute segment of that population would generate meaningful revenue for SSH.

2. Rosa noted that SSH anticipates existing cash to last into the latter half 0f 2014. The company burned $1.4M on a monthly basis this year, or approximately $17M annually. Sunshine Heart ended the second quarter with $21.5M in cash & equivalents.

Along the same lines, remember that Sunshine Heart will receive CMS reimbursement on at least some C-Pulse devices implanted in the ongoing pivotal trial (3 trial sites with qualifying LVAD programs have received regional CMS reimbursement for the C-Pulse procedure). As an experimental product, Sunshine Heart cannot turn a profit on these devices. However, at $59K per device, if CMS reimburses for every single C-Pulse used in the trial, the company will book revenue of $11M over the course of the trial (half of the 388 patients in the trial at $59,000 each). Rosa suggested that similar trials run by competitors have cost in the range of $30 to 35M. With reimbursement, the company could be effectively slashing the cost of its registration trial by 30%. It’s worth noting that Mr. Rosa mentioned the company has had interest from three potential distributors in the last year.

3.  Sunshine Heart could have results from the new, fully implantable device in animals before the end of the year, with initiation of acute trials in the next 30-60 days. These acute trials essentially evaluate the device for 24 hours, while chronic trials, which are typically 30 days or longer, will follow. The company expects to have started and possibly completed chronic trials by the end of the year. With acute trials in the next two months and data available rapidly from the 24-hours studies, SSH may be able to release some of these results before December, another incremental catalyst.

4. Sunshine Heart previously reported three deaths in the 20-patient pilot study, although all were unrelated to device. We had some concerns about these deaths, one of which was due to aortic rupture during surgery to treat a repeat infection; one was caused by a drug reaction; and one was caused by respiratory issues. Regarding the aortic disruption, we were concerned that repeat pressure on the aorta could damage the tissue. Rosa says that site investigators actually took tissue samples, one on either side of the aortic cuff and one directly under, following the use of C-Pulse in a number of patients, and plan to publish this data within the next six months. The death associated with aortic disruption was deemed unrelated to device, but we’ll be interested to see the forthcoming data regarding the impact on aortic tissue. Mr. Rosa also addressed the respiratory death, which he described as due to a “lung snot,” and the trial investigator deemed unrelated to device. Likewise, the allergic reaction to a particular drug and subsequent death were deemed unrelated to device. Given the limited data available for C-Pulse and that major trial results are still three years out, we’ll simply have to watch for trends in the ongoing and open-label 50-patient European trial.

SSH touched a new 52-week high of $13.80 on August 26 and has since been pulling back on decreasing volume. We continue to like the stock as a long-term holding, and current weakness presents a welcome entrance and addition point. Furthermore, traders should take note of upcoming catalysts in the form of medical presentations, results from the open-label EU trial, new patient weaning protocol, and progress on the fully implantable device. These events will drive value for SSH, and we suspect a re-test of the new 52-week high before the year is out. On Wednesday, SSH hovers just above its 20-day simple moving average at $10.08.