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The dust has settled for shares of Sunshine Heart (SSH), and what may be left is a prime buying opportunity for investors searching the sector for another 'ground floor' technology that could potentially dominate the market for which it is intended to treat.

Earlier this summer, Sunshine shares exploded on heavy volume from three to seventeen dollars, but a pullback in price quickly ensued and a stock offering announced for seven dollars brought shares even further back to earth. Having settled below the offering price, however, and with the hype surrounding some key catalysts also having died down, this company may be worth another look.

Sunshine has made some very significant strides over the course of 2012 - many of which positively impacted the share price at the time - in the development of its C-Pulse Heart Assist system, a medical device intended to treat patients of Class III and ambulatory Class IV heart failure. C-Pulse is considered a minimally invasive implant, mainly because the device is implanted outside of the blood stream in a patient's heart, and could also be considered as having no competition in the intended market. Generally, Class III and ambulatory Class IV heart failure are treated, but disease progression continues and patient productivity and quality-of-life continues to decline.

C-Pulse has demonstrated, at least thus far in development, to not only halt disease progression, but possibly reverse it, too. Early results were encouraging enough to warrant an approval in Europe and an authorization by the FDA to use the next-generation C-Pulse device in an upcoming pivotal trial that will take place in the United States and, of course, be designed with a potential FDA approval in mind. These events are noted keys to the door that leads to a market opportunity that exceeds thirty billion dollars.

The US trial is expected to commence later this year, providing yet another short term catalyst.

Regarding the recent stock offering and an amended S-1 filed by the company, there are two significant take-aways from that event that investors should not miss.

First, the offering came in conjunction with a large investment by an unnamed corporate investor who will also send a "board observer" to Sunshine to "monitor developments." Such actions could be construed as at least the first stages of a significant partnership with a larger company or even an all-out buyout of Sunshine and/or its technology.

According to the S-1:

"A strategic investor, which is not a current stockholder of our company, has indicated an interest in purchasing approximately $3 million of our common stock in this offering at the public offering price. However, because this indication of interest is not a binding agreement or commitment to purchase, the underwriters may determine to sell more, less or no shares in this offering to this investor, or this investor may determine to purchase more, less or no shares in this offering. The underwriters will receive the same discounts and commissions from any shares of our common stock purchased by this strategic investor as they will from any other shares of our common stock sold to the public in this offering. In connection with this investment, we intend to enter into an agreement with this investor pursuant to which it will have the right to designate a board observer, who would be entitled to attend all meetings of our board of directors, and all committees thereof, in each case subject to customary exclusions, as well as the right to review certain of our clinical and regulatory data. The investor would maintain these observation and inspection rights for two years following the date we receive approval from the FDA to sell our C-Pulse System in the United States so long as it beneficially owns at least 50% of the number of shares purchased in this offering."

The second key take-away from the filing is the fact that the company, as a result of the offering, is funded through the expected interim analysis of data (50 patient mark) for the upcoming trial, which plays right into the previous theory that emphasizes the probable strategic interest of a larger company. Although the European approval lends solid validation to the notion that C-Pulse works, a potential acquiring company will want to "monitor developments" of the US trial to gauge the likelihood of an FDA approval. A solid determination to that effect could likely be made at the interim review, at which point any potential buyer could then 'seal the deal,' having already invested three million in Sunshine as a result of the recent stock offering.

Sunshine has all the makings of a success story right now; a novel medical device that treats an indication in a market that is measured in the tens of billions of dollars, a large strategic partner already playing along, one key regulatory approval in the bag in Europe and a pivotal trial just about underway in the US and funding through the halfway-point of that trial, which also happens to be the point that the "large strategic investor" could make a move.

We all know that there are certainly no sure things in the stock market, and especially not in this sector, but there is plenty going on at Sunshine Heart to keep an eye on. Any dips may be worth buying into for those that like the chances of the C-Pulse, especially as shares are trading below the offering price.

For now, only speculation can provide hints as to who could be the new strategic investor who will man a position on Sunshine's board, but given the hints provided already, it smells like a potential partner - or buyer.

One to watch.

Disclosure: No position.

Contact VFC's Stock House: vfc@vfcsstockhouse.com

Originally published at: http://vfcsstockhouse.com

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