COMPANY NOTEJanuary 31, 2013
Sunshine Heart, Inc. (SSH)Overweight
Intriguing Technology For Attractive Market: Initiate at Overweight
PRICE: US$5.93TARGET: US$10.00
30% discount rate on 6.0x CY17 Sales of $44.8M (assuming 9.2M shares outstanding)
Thomas J. Gunderson
Sr Research Analyst, Piper Jaffray & Co.612 303-6467, email@example.com
RatingOverweightPrice TgtUS$10.00FY13E Rev (mil)—US$2.4FY14E Rev (mil)—US$8.7FY13E EPS—US$(1.88)FY14E EPS—US$(1.63)52-Week High / LowUS$22.90 / US$2.50Shares Out (mil)9.2Market Cap. (mil)US$54.6Avg Daily Vol (000)66Book Value/ShareUS$1.78Net Cash Per ShareUS$1.90Debt to Total Capital0%Yield0.00%Fiscal Year EndDec
Price Performance - 1 Year
Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-1220151050
We are initiating coverage of Sunshine Heart with an Overweight rating and a $10/sharetarget price. SSH has developed a type of ventricular assist device (VAD) that is designedto enhance the efficiency of the heart for patients suffering from heart failure. We viewSSH as having passed a number of development and regulatory hurdles including IDEapproval for a pivotal trial in the US for ultimate FDA approval. Overall we like the VADmarket; it is large, underserved, and technological advances are providing clear benefit.Two key issues will dictate the future valuation for SSH: timing of FDA approval and theefficacy and safety that can be established in the multi-center trials. All in, we believethe current risk-reward for shares of SSH is positive and we recommend purchase of theshares at current levels.
Unique Product And Benefits.
We are intrigued with SSH's C-Pulse™ device giventhe device's minimally invasive approach to enhancing the heart's pumping action,while implanted outside of the blood stream. This approach avoids complications withstroke or thrombus which have emerged with traditional VADs, and represents a keyclinical benefit. An additional benefit relates to up front and total cost of treatment,with an anticipated ~$60K ASP relative to LVADs which are priced at $100K+, shorterhospitalization times, and a lower incidence of re-hospitalization post-implant.
Expansive Market Opportunity.
According to the American Heart Association thereare 5.1 million Americans suffering from CHF. Clinical literature puts the proportionof NYHA Class III heart failure at ~20% of that number or roughly ~1.0M potentialpatients. Assuming a 10-20% applicability hurdle for potential implants, based oncomorbidities, cost/reimbursement, and a $60K ASP, we project a $6-$12 billionaddressable market for C-Pulse.
Near-term catalysts include initial patient enrollment in US andEuropean clinical trials expected in 1Q13. Importantly, additional clinical data shouldbe forthcoming from SSH's 50 patient European post market surveillance study bymid-year 2013. Management has estimated a ~2.5 year enrollment period for their 388patient US pivotal trial. However, with site reimbursement by CMS and most privateinsurers, and relatively few competing trials, that timeframe may prove conservative.
We assign our high growth/unique technology 6.0x EV/NTM Salesmultiple to our estimated FY17 sales of $44.8M, and we apply a 30% discount rate toaccount for clinical trial uncertainty to arrive at our $10 price target.
RISKS TO ACHIEVEMENT OF PRICE TARGET
Clinical and regulatory risks, as well as competitive threats from alternative device andpharmacologic treatments of heart failure.
Sunshine Heart is an early-stage medical device company, focused on developing,manufacturing, and commercializing C-Pulse Heart Assist System for treatment of CHF.
REVENUE (US$ m)
EARNINGS PER SHARE (US$)
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