VFC's Stock House: SanuWave Health Offers Investors Promise And Potential
SanuWave share price could be slated for significant price appreciation in light of pending milestone developments and target market potential for dermaPACE.
According to current trading volume and market cap levels, however, the company's stock could still be trading well below the radar. That could all quickly change with late-stage trials due to initiate in the United States over the short term as overseas marketing and distribution efforts continue to yield results. In the text below we'll take a look at the target market for SanuWave's technology, the potential impact that the technology itself could have on the future chronic wound treatment - specifically for that of diabetic foot ulcers - while also examining the inherent risks of the sector that investors should always bear in mind.
This is an abbreviated report. A full examination of SanuWave's share price and pipeline potential is available at: http://VFCsStockHouse.com
SanuWave has developed Pulsed Acoustic Cellular Expression (PACE), a technology that utilizes 'shockwaves' to incite the healing and regeneration of cells. While the foundations of this technology have been used for decades in treating kidney stones and some orthopedic conditions, SanuWave has applied its shockwave therapies to creating a pipeline of stimulative treatments revolving around the dermaPACE and orthoPACE devices. Both are already CE Mark approved in Europe and have returned a revenue stream from units sold and also from the recurring sales of 'device applicators'. The next target is America, where the company looks to receive an FDA approval after completing a supplemental Phase III trial testing the effectiveness of dermaPACE in the condition of diabetic foot ulcers. The trial is expected to begin enrolling patients within the current quarter, while efforts to mobilize sales on an international level continue, too, as evidenced by recent regulatory approvals in Australia and New Zealand.
The PACE technology encompasses sending 'shockwaves' through damaged cells, an action that stimulates them to heal themselves. This process can be compared to the process in which muscle tissue heals itself and recuperates after being beaten down during workout session with weights, often times coming back stronger. Clinical results and commercial applications overseas have demonstrated the success of these shockwave therapies in treating numerous types of chronic wounds, while the technology also looks to capitalize on some key trends in the healthcare industry - namely the push to introduce to market more cost-effective and less-intrusive methods of treating common ailments.
With the demonstrated ability to fully heal diabetic foot ulcers, thereby eliminating the need for extended and recurring treatments while also avoiding the amputations that result from a significant number of foot ulcer cases, dermaPACE fits directly into this trend. At the same time, however, the target market is growing exponentially, given the alarming growth rate of diabetes world wide.
The sharp - and seemingly irreversible - rise in diabetic cases internationally is alarming to both regulators and budget offices who are estimating the impact and costs on the global health care system. One of the fastest-growing diseases in the world, diabetes is becoming such a huge burden that, in fact, some of the most recent statistics indicate that it is a dilemma that can only be measured in the hundreds of billions of dollars. Over Twenty-three million people in the United States alone have been diagnosed with diabetes and it is speculated that millions more have it and are yet-to-be diagnosed. It is also assessed that fifty seven million people in the US are pre-diabetic, according to statistics posted by the American Diabetes Association. Globally, the diagnosed numbers are much more severe and it's also estimated that a higher percentage of cases go undiagnosed. The burdens placed on the healthcare industry as a result of this growth is obvious.
Moving on, fifteen percent of diabetics will acquire "non-healing" ulcers in their lifetime, including the indication that we've already discussed and the one being targeted by dermaPACE in the upcoming trial - diabetic foot ulcers. According to the above-linked statistics, this market is quickly approaching two billion dollars annually, offering a very significant upside opportunity for SanuWave and its investors - since the company's current market cap is a mere blip on the radar screen in comparison. Given the late-stage development of dermaPACE and the fact that the technology is already commercialized in Europe, SNWV's market cap could appreciate rather quickly, once investors start catching on to the potential while also gaining or regaining - confidence in the upcoming trial.
As discussed above, SanuWave expects to enroll its first patient into the foot ulcer trial within the current quarter. The FDA has already given the green light to start the trial, a key milestone met earlier this year, and also had an influence in the trial design since an earlier trial proved successful, although a missed endpoint kept it from receiving an approval. In the earlier trial, overall success was eventually achieved, just not in the time frame expected by the company. This miscalculation, however, was more due to inconsistencies in patient follow-up than it was to the efficacy of the dermaPACE device, a variable that was factored into the current trial design.
The new trial design, as noted in a publicly-available analytic report, will more stringently monitor the desired guidelines and - as part of an agreement with the FDA - will build on the results from the earlier trial. That fact could greatly enhance the efficiency and speed of the new trial, which is currently expected to enroll its last patient in just under a year from now, and also potentially hasten the approval path through the FDA. If all current milestones are met, then it's highly likely that dermaPACE could see market in the United States by early 2015.
As milestones are met along the way, however, especially if some interim results are announced, too, then the SanuWave share price could appreciate rapidly as investors move in to play the catalysts while becoming more confident in the potential success of the trial. Such action is highly common in the developmental sector, as is the potential for volatile price swings to enter the picture as the milestones play out. Those price swings often times offer investors the opportunity to utilize some trading shares to bank some profits along the way, while still hanging on to and accumulating a position for the long term.
The New Leadership Era
With the initiation of the new trial, SanuWave made some changes at the top to usher in the next era of the company's development. Industry veteran Joseph Chiarelli was appointed as the new CEO earlier this month and will look to reverse the trends of his predecessor, who burned cash at an unexpected and unsustainable rate. That especially became a problem for SanuWave when money and funding dried up for developing companies through the depths of the recession. To ensure a new era of goal-oriented responsibility, Mr. Chiarelli's contract is based nearly exclusively on incentives, a heavy sign of his confidence in the technology and on his ability to bring it through development and to market.
In conjunction with the signing of the new CEO, SanuWave also announced the securing of a bridge financing deal worth two million dollars, significantly higher than the intended cash raise.
As with all still-developmental companies, there is no guarantee that SanuWave will not, at some point in time, conduct a fund-raising event to further fuel the advancement of its technology. There are various means by which a company can raise cash, including the above-mentioned bridge financings or dilutive offerings, and these expectations add to the volatile nature of the speculative sector as investors and traders will play catalyst events to bank some profits before taking advantage of any potential price dips.
Helping to alleviate some investor concern in regards to future financing, SanuWave is already banking significant revenue from its overseas sales and distribution network. In the year 2012 the company banked over three quarters of a million dollars, although that was slightly down from the year prior due to the extensive economic recession in Europe. Additionally, gross profits reached seventy one percent and international growth is expected during the current year, especially in light of the Australia and New Zealand approvals. Losses were also notably lower, but it should be expected that losses could continue through trial development.
The wild card, as always in this sector, would be the landing of a significant partner - one of the key incentives in the CEO contract - or a potential buyout of the company, if an approval is in the bag or Phase III returns overwhelming success.
Positioned ahead of numerous key milestones following multiple quarters of progress and turnaround, SanuWave is positioned nicely as a potential comeback story. The company's current market cap is extremely modest, in terms of the market potential discussed above, and has hardly priced in even the remotest chances of trial success. There are still huge risks at play, given the nature of the sector and the spectre of a failed approval attempt in the minds of some investors, but the collaborative effort with the FDA to improve the trial design greatly enhances the chances for success this time around.
The structuring of the new CEO contract - and the fact that he would agree to such terms - is also a sign of extreme confidence on his part.
Speculative investors often target the next booming market and next generation products that could play a significant role in that market. SanuWave capitalizes on both of those ideals, given the swift spike in global cases of diabetes. It also capitalizes on the trend of having a less-intrusive and more final therapy on the market that could ultimately save billions in health care costs over time, especially given the high rate of amputations that eventually occur from diabetic foot ulcers.
Further on down the road, the expanded use of dermaPACE, if approved, into other chronic wound markets raises the bar even higher, in terms of market infiltration, revenue potential and share price appreciation. For now, investors will key in on the upcoming trial launch. A very noticeable spike in trading volume last month provides an indication that the company is starting to get noticed as these key dates draw nearer.
These developments are well worth watching.
Disclosure: Long SNWV.
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