VFC's Stock House: SanuWave Health Boosts Long Term Potential With Short Term Catalysts Looming
Issuance of key patent expands SanuWave's future potential value with short term catalysts in tact.
In a Tuesday report, VFC's Stock House examines the long term implications of SanuWave's expanding IP portfolio while also emphasizing the developing short term trial catalysts. A full version of is available at: http://VFCsStockHouse.com
For SanuWave, this patent also represents the first for the company outside of those obtained for its initial methods-of-use - which include wound care and regenerative medicine - and provides another solid starting point from which the company can grow.
In today's day and age a solid baseline of intellectual property (IP) is invaluable for a company. Patent wars are seemingly popping up on a near-daily basis in numerous sectors and solid patent protection alone could be worth tens of millions of dollars - at least - to companies looking to protect their respective technologies in settlements. Additionally, patents could also bring in new revenue streams for companies utilizing similar technologies, as was demonstrated by the signing of a licensing agreement between Synergy Pharmaceuticals (NASDAQ: SGYP) and Ironwood Pharmaceuticals (NASDAQ: IRWD) last year, as each company's respective drug used a similar mechanism of action. Amarin Corporation (NASDAQ: AMRN), too, is a company whose patents are day-by-day being tallied by at investors at home, given the continued uncertainty surrounding Vascepa's New Chemical Entity (NCE) status.
In terms of potential mergers and acquisitions, patents are factored into deals just as much as developmental pipelines and some deals are actually consummated on the basis of patents alone. Needless to say, patents may be more valuable now than at any time before - and maybe event to the point of becoming a detriment to progress and innovation. That said, a company has to have them to succeed.
So although the more short-term minded investors may disregard news items relating to the issuance of patents - since they are not often accompanied by trials (at the time) or immediate price catalysts - investors looking towards future value can start to factor in the impact that a patent issuance can have on a particular company's future value.
In determining the potential value of SanuWave putting its technology to use in newly-covered indications, let's take a look at the trends. We've concentrated a lot of time and print these days into identifying growing trends in the healthcare sector and then identifying companies who could be primed to capitalize. For instance, SanuWave itself is already positioning itself to take advantage of the growing boom in the diabetic care market, given the pending diabetic foot ulcer trial, and other companies such as AntriaBio, Inc. (OTCBB: ANTB) and MannKind Corporation (NASDAQ: MNKD) are also looking to capitalize on the growth of that sector. Similarly, Titan Pharmaceuticals (OTCBB: TTNP) and Assured Pharmacy (PINK: APHY) are soundly-positioned in trends relating to the reduction of pharmaceutical abuses and investors who likewise jumped in early were handsomely rewarded.
The next trend into which SanuWave is preparing to enter, according to the issued patent, is the blood purification market. Partly as a result of the already-discussed diabetes epidemic, this market is also moving forward at exponential speeds, leaving in its wake a global shortage of a safe blood supply with which to respond to natural disasters and routine medical procedures.
According to statistics discussed by entities already fully engaged in developing next-generation technology, the blood purification market in the US and Europe alone is can be measured in the tens of billions of dollars, while the market is also growing at exponential rates in other major economies around the globe. Such statistics offer companies looking to gain early footholds - and investors also looking to capitalize - the opportunity to stand ready, positioned and prepared when the growing trends become more mainstream. So although investors are always wise to play the volatility of the still-developmental sector and put some trading shares to use while also potentially building a core position for the long term, news of patent protection should not be taken lightly and could also be used as an insight into a company's strategy moving forward.
For SanuWave, all attention at the current time relates to the diabetic foot ulcer trial, but sometimes those just looking at the tree may miss the forest that could be building out there. Intentions to develop the shockwave technology in the treatment of various indications outside of those already discuss provides the company with numerous avenues for potential success - and a 'Plan B' that longer-term investors like to see before committing for the duration.
It shouldn't be assumed, however, that the only way SanuWave - or any company for that matter - can capitalize on patent protection relates to the initiation of new trials. It's likely that the company could look to develop its own clinical path to infiltrate the blood purification market later on down the road, but another option is to out-license the now-protected technology to another player in the sector who may be willing to fund development itself, in turn for an agreement that may include milestone payments and future royalties. This possibility was briefly discussed in this article's open in relation to Synergy and Ironwood and is not an uncommon scenario in the developmental sector. It may be more realistic, however, to expect such an event after the technology demonstrates more late-stage success in other indications.
It's evident that the long term business plan may be expanding as the short term developments unfold, and while it's always worth looking long term, too, it's the short term catalysts for SNWV that have the potential to move the share price. In that light, all attention is still on the dermaPACE diabetic foot ulcer trial that is expected to begin enrolling patients within the current quarter. If successful, dermaPACE would be positioned to enter into a multi-billion dollar - and still growing - market, therefore investor anticipation of this trial has been heavy and led to a swift increase in the SNWV share price. Positive results, whether they be interim or actual, could lead to further gains and put this company on the map for its potential to enter the next-generation wound care and foot ulcer markets.
Confidence for success regarding the upcoming trial is growing, given previous clinical results and a new trial design. Some investors, however, remain skeptical over the results from the past trial because although it returned encouraging results, the endpoint was not met. This skepticism is likely a large part of the reason why the SNWV market cap remains at still-speculative levels, considering the overall market potential and cap levels achieved during the last trial. Only positive results can combat that skepticism at this point, hence the high amount of interest this company has been garnering and the volatility experienced over the past weeks - both of which indicate both short term and long term investors may be taking up positions ahead of the upcoming catalysts.
As always in the developmental sector, the inherent risks should be noted. Financing is always a concern during the developmental stages and even with SanuWave bringing in revenue in Europe, as discussed in a previous write-up, it cannot yet offset the losses still being realized by the costs of development. There's no guarantee that this company will not at some point need to raise additional cash to fund development, but SanuWave management has undertaken some responsible measures to help offset investor concerns, including basing the latest CEO agreement on goal-oriented milestones (see the above-linked report). International growth is expected during the current year, too, as approvals in Australia and New Zealand can help to augment European sales, although even the most enthusiastic of investors should expect overall losses to continue. The trend, however, has been to see the losses shrink, according to most recent financial reports, while indications also have it that the gross profit numbers behind treatments are also growing, to levels as high as seventy one percent.
Risk still exists, but given recent developments, pending catalysts and an expanding base of IP, SanuWave still looks like a solid rebound story for 2013.
Disclosure: Long SNWV, ANTB, AMRN, APHY.
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