Last week we identified Sunshine Heart (SSH) as one of five share price dips that were worth paying attention to for the potential of each stock to experience a quick rebound, given their respective pending catalysts. Although not all of those picks has yet to rebound, it didn't take long for Sunshine shares to bounce back as the company released another round of milestone news this week announcing the conditional approval for an Investigational Device Exemption (IDE) of the C-Pulse Heart Assist system by the FDA. C-Pulse is a medical device that has thus far in development proven to halt - and possibly reverse - the effects and progression of heart failure in patients with Class III and ambulatory Class IV heart failure and the conditional approval allows the company to move forward with its planned US trial later this year. Already this year the company has received an approval in Europe for its flagship product and positive results from a North American feasibility study have paved the way for the upcoming US trial that will be geared towards receiving an FDA approval.
This week's IDE approval by the FDA provides investors another round of validation for the technology. While the European approval met a huge milestone for the company, investors often look to an FDA approval as the 'holy grail' achievement for a product as the US market often produces a drug or medical device's largest revenue returns. The milestone is still a ways away for the company, but the conditional approval puts the company's previously-advertised timeline on track. With the expected fourth quarter trial initiation date, it is wholly possible that Sunshine can coincide this milestone catalyst event with the registering of its first commercial sales as the result of the European approval. Such possibilities sparked some bullish analyst coverage of the company last month and helped fuel this week's SSH price run, which once again approached the ten dollar mark.
The analyst coverage came from Canaccord Genuity, who slapped an opening rating of 'buy' on the SSH stock with a price target of eleven dollars. Canaccord also cited the encouraging results of the feasibility trial, the European approval and a firmed-up financial position as key reasons to retain a positive outlook on the company's future. The eleven dollar price tag by Canaccord is also significantly higher than the seven dollar value of a stock offering announced by the company in August, but as emphasized in the analyst report, 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.
Although Sunshine shares spiked higher following the FDA news earlier this week, they have already retreated back towards the eight dollar mark. Such up-and-down action has been common for this stock over the summer, especially following an explosive run to seventeen dollars from three as the aforementioned key developments started to play out. Such as action should also be expected over the course of the near future, too, as many will continue to view the company as highly speculative until they see encouraging results from the US trial, should they pan out that way, and/or building momentum on the European sales front. Given those prospects, some investors will continue to use these volatile moves to bank quick profits at opportune trading points, while possibly holding some shares for the long run. Such a strategy is a wise one, in my opinion, and often allows investors to come out on 'house money' or better before the major catalysts unfold. Shares again dipped below the eight dollar mark on Tuesday following the run towards ten to open the week, potentially offering investors another range to play as a trade - or long term hold.
Each and every one of these milestone events solidifies the potential for this company, which intends to launch its C-Pulse system into a multi-billion dollar market. As is always the case in this market, however, nothing is a done deal until it's a done deal, so always have an entry/exit strategy before any investment and protect any potential gains.
With multiple catalysts still pending this year and into early next, namely a potential pickup in commercial sales overseas, this is a story still worth watching.
Disclosure: No position.
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