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Shares of Sunshine Heart (SSH) have been trading with increased volatility over the past couple of weeks as investors reacted to a report of new - and bullish - analyst coverage from Canaccord Genuity.  Canaccord slapped a rating of 'buy' and a price target of eleven dollars on Sunshine shares, citing encouraging results of a North American feasibility trial for the C-Pulse Heart Assist system and a firmed-up financial position as key reasons to retain a positive outlook on the company's future.  C-Pulse is a medical device that has thus far proven to halt - and possibly reverse - the progression of heart failure in patients with Class III and ambulatory Class IV heart failure.  It's also considered less-intrusive than other heart-implantable devices since it is implanted outside of the blood stream and was approved in Europe just months ago.

Sunshine plans to launch a US trial within months to confirm the results of earlier studies and that milestone event could coincide with the first commercial sales of C-Pulse, offering investors two potential catalysts over the course of the next few months.

The eleven dollar price tag by Canaccord is significantly higher than the seven dollar value of a stock offering announced by the company last month, but as emphasized by Cannacord, the company's financial position is a lot stronger now than it was before the offering.  The offering positions Sunshine to last comfortably through the mid-way point of the US trial, a key take-away in terms of predicting the implications of a mid-term trial analysis.  Should C-Pulse look to be returning the positive results of earlier trials, that's a point where potential partners and additional investors would likely look to make a move.  In fact, wording contained within an amended S1 following the aforementioned stock offering may confirm that theory.

According to the S1, a major "strategic investor" was looking to come on board during the offering and it was also noted that the investor would also send an "observer" to the Sunshine board.  Such actions are indicative of a firm or potential acquiring company looking to take a 'wait and see' approach regarding the upcoming trial before jumping all-in.  Again, the mid-way point of the trial would be an ideal place for such an investor to reevaluate the way-ahead.

Given the positive results of earlier studies and the approval in Europe, general investor sentiment is leaning positive in regards to the outcome of the US trial.

It's already been an exciting year for this company and its stock, with multiple major milestones met and a mid-year price explosion that launched shares from three to seventeen dollars, but the most relevant news may still be yet to come.  Although approved in Europe, many investors view US FDA approvals as the pinnacle event for a developing company, making this upcoming trial one that will be heavily watched by potential and actual investors.  

The European approval cannot be wholly dismissed, however, and another key item to monitor is how quickly sales can ramp up across the pond.  While few might believe that European sales will alleviate the need of additional financing along the way, a quick spurt of initial sales could lessen the blow of future dilution - unless a strategic partner or buyer decides to jump on board at the mid-way point in the trial, rendering all such speculation irrelevant.

As previously mentioned, 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 investor already looking to jump in; a 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.

With key milestone events still expected before the end of 2012 and a new 'buy' rating initiated on Sunshine by Canaccord, this is still a story to watch.

Disclosure:  No position.

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

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