$Amazing $Biotech & $olid $Microcap $tocks

[value1008]

SSH - kei and ash, not to rain on the parade, but there is a cogent-sounding critical article on SSH over at SeekingAlpha by a guy who's NOT a shortseller on this stock (he has no position either way). He sees more dilution coming along very soon. Btw, i find a ton of good info on companies over there and always check what's been written before i take a position in any companies mentioned here at ihub.

Note that S.Alpha editors state at the end of the article:
"4,640 people have SSH in their portfolio"
--That's a LOT of bagholders considering how far this stock has dropped; i fear that any upward movement will get sold off too soon as folks try to recoup some of their funds or as tax-loss deductions against gains elsewhere.

Sometimes stocks have very low mkt-caps for good reason!

Anyway, here's the piece:

http://seekingalpha.com/article/4040234-sunshine-heart-aint-sunshine-money-gone

Sunshine Heart: Ain't No Sunshine When Your Money Is Gone
Jan. 27, 2017 2:46 PM ET
8 comments

About: Sunshine Heart, Inc. (SSH), Includes: BAX

By Looking For Diogenes (615 followers) Biotech, mid-cap, research analyst, dividend investing

Summary
• This is a company with a long history of burning through cash with no visible results being obtained.
• Its initial medical product has been placed on hold for further development due to their cash position.
• The company is currently operating with a new business model based on a purchased product they obtained for $5.0 million.
• The stock price is not sustainable at the current level.

Investment Thesis:
In 1971, Bill Withers recorded his song "Ain't No Sunshine." The song quickly reached platinum sales. At the time, Withers was working for an aerospace company in southern California. His day job was making toilet seats for 747 airplanes.
The following information is about a company that has been in operation for many years, but as of late they have taken the company in a new direction. The product they were working on all this time, they haven't been successful in getting approved by the FDA.
Based on my research and reviewing the history and background, it is my opinion that current or potential investors should not consider it a viable company for any investment dollars. If one opts for being a contrarian to my opinion, you might be flushing your money down the complete apparatus Withers was involved with in 1971.
My opinion has no negative consideration for the management of this company. My opinion relates only to the product the company initially was developing when the company was created, and now the recently acquired product where they want to redirect their business model. The name of the company is Sunshine Heart, Inc. (NASDAQ:SSH).

Company Background:
Sunshine is based in the Minneapolis suburb of Eden Prairie, Minnesota. The company was formed to work on developing a medical device to treat moderate to severe heart failure conditions. Heart disease is the major cause of death in our country, so new and innovative treatment options are needed. The product that Sunshine was developing is known as the C-Pulse Assist System that works as a counter-pulsation in the heart. This simply means their system involved placing a cuff around the outside of the aorta, where the assist system would inflate and deflate the cuff, thus impacting the rhythm with the natural heartbeat. It was Sunshine's management belief that by applying a "secondary pulse" this would increase the heart's function in a person suffering from a condition were optimal functioning of their heart was declining.
It was hoped that the C-Pulse would assist the heart's function in areas like oxygenated blood flowing to blood vessels, and the heart muscle would be improved. Basically, a diseased heart would not have to work as hard in the process of pumping blood through the body. If this could be accomplished it was felt this would also impact heart symptoms like shortness of breath, dizziness, fluid retention, and a patient's ability to do normal day-to-day activities.
The following two illustrations show how the C-Pulse System would look when implanted into a patient's body. Note in both pictures how the cuff is placed around the body's major artery, the aorta. Then notice the second lead wire placed over the left ventricle, the pumping chamber for the heart. This was to allow the heart to beat and then the cuff would inflate, creating a "second pulse" of blood flow.
(Illustrations shared by Sunshine)

However, the best laid plans don't always turn out to provide the desired results, and when applied to the area of medical science and product development, the preclinical work can face an extraordinary number of problems. When you read about a clinical trial in a peer journal, you need to pay close attention to the safety section discussion. My belief is that you don't want to see the opening sentence stating: "In general, the implant was safe..."
Having an implant placed on your main artery with another lead wire placed on your left ventricle and then having someone describe this as "generally" safe doesn't give me a particularly good feeling toward my willingness for having this procedure done.
My further reluctance was enhanced when I saw the clinic trial involving 32 patients being screened for study inclusion; 20 were confirmed eligible and implanted and 12 were considered as screen failures. Then from the 20 actual trial patients I note that 3 patients died within 6 months of the implant.
Even when one considers the fact that these patients were suffering this debilitating and deadly disease, the nature and cause of death by one of these patients is very troubling, in my opinion. This patient developed a procedure-related sternal wound infection with the presence of Methicillin Resistant Staphylococcus aureus-MRSA. The infection was not resolved after several months of treatment. It was then discovered that a fistula was attached from the sternum to the device cuffed to the aorta. The patient was taken into surgery, however, during the procedure the individual suffered atrial and aortic tears. In further documentation, the trial results reflected the composite device -related adverse event rate through 6 months, was 50%. The major cause being exit site infection rates of 40%.

Current Strategic Realignment of the Company:
On August 8, 2016, Sunshine announced they had acquired the Aquadex product line from an indirect subsidiary of Baxter International (NYSE:BAX). This product serves as a temporary ultrafiltration treatment for fluid build-up where normal diuretic therapy hadn't resolved the patient's issue and hospitalization is required. This need is usually associated with pre-opt and post-opt procedures for heart failure events. Sunshine purchased this product by paying Baxter $4.0 million in cash, and 1.0 million shares of Sunshine stock.
If anyone wants to know the exact amount of the valuation attached to this purchase they might note at the time of the deal, Sunshine's stock was trading for less than $1.00. For simplicity, let's say Baxter got $4.0 million in cash and stock valued at $1.0 million for a total of $5.0 million being the valuation for the deal.
On September 29 th, 2016, Sunshine announced a strategic realignment of the company where they would focus all the company's resources on the Aquadex FlexFlow®System. This decision is further clarified where they announced they were pausing clinical evaluations for the neuromodulation technology.
Based on these actions they anticipated they could cut their cash burn from $2.0 million per month from the fourth quarter of 2015, to a targeted cash burn rate of $800,000.00 per month in the recently closed fourth quarter, 2016. Basically, they are hoping to cut their cash burn rate by 60% on a monthly basis.
How has the market reacted to this redirection in the company? The stock closed today, January 26 th, 2017 at $6.65, up $0.85 or 14.66%. The trading volume for this date-873,604 shares. So, from the purchase date of the Aquadex product on August 8 th, 2016, when the stock was trading for less than a dollar. Great news - the stock is up more than 6x! Not exactly.
On January 12, 2017, where the stock traded as low as $0.26 per share they announced a 30-1 reverse split. The stock opened the next day at $8.96 and has traded as high as $11.03 in the interim. The outstanding number of shares is now a rather minuscule 800,000 shares, simply meaning that today the entire outstanding number of shares were traded.

Reality Status:
Why would a company's stock jump 14% today? Especially when they are cutting their operating expense budget by 60%, issuing secondary stock on a constant basis, and this being based on a product that Baxter International basically gave them considering the total valuation of the deal was a mere $5.0 million.
In the announcement of the purchase, Sunshine projected they would attain a fourth quarter 2016 annualized run-rate for the Aquadex business of $5.0 million and a fourth quarter 2017 annualized revenue run-rate of $10.0 million. This is what I would label as irrational exuberance!
When you consider that Sunshine purchased the product on August 5, 2016, and in their Q3, 2016, SEC filings, they reported they generated Aquadex revenue totaling $484,000. If one applied this revenue rate over the full 3rd quarter, this would have generated approximately $640,000 in gross revenue. When applying this current capture rate to a full calendar year, this would generate about $2,560,000 in gross revenue.
Now consider their 60% cut in operating expenses to $800,000 a month, this means they will have operating expenses totaling $9,600,000 that needs to be covered by gross revenues of less than $3,000,000. At the end of Q3, 2016, they reported cash on hand totaled $792,000.
After the end of Q3, 2016, on October 3rd, they announce a secondary offering that netted them $3,600,000. Based on this they would have held a total of $4,392,000 in operating cash. Based on the proposed burn rate of $800,000 per month, this would imply that at the end of January, 2017, their cash position would be -- ($4,392,000 minus $3,320,000 leaving a net of $1,192,000). Simply meaning they will deplete their cash by the end of February to $392,000. Therefore, one should expect another dilution soon. It is simply my opinion the lofty $6.00 valuation is merely smoke and mirrors!

My Investing Opinion
If my projections are close to being the reality for Aquadex revenues reinventing this company, after years and millions of dollars spent for a product they have placed on hold for future clinical trials, I would not be a purchaser of their stock. As for my normal caveat, I personally don't invest any of my investment dollars in short positions, whether by shorting the common stock or having put options.
With margin accounts needed for one to short a stock, in my opinion, this is a foolish endeavor for the investor that isn't aware of the ability for day traders controlling the direction of a stock on a daily basis. Today's example of the entire number of outstanding shares having been traded with an increase in share prices by nearly 15%, merely verifies this issue. So be cautious with any trades, long or short!
One should do their own personal due diligence that incorporates the criteria you personally apply in making your investment decisions. My comments are strictly my opinion based on my interpretation of available data. My input should merely be used as a starting point for your review and decision. But if I might paraphrase the first line of Wither's "Ain't No Sunshine" - Ain't no sunshine when your money is gone!
Good luck with your future investing decisions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.


Comments (8)
1govols
Comments (238) |+ Follow |Send Message
just think ole John sitting there collecting his 400k and bennies, Molly her 135,000 and bennies, and Claudia her 180k and bennies selling shares at whatever to pay income tax. O yes, filing SEC filings and each has a secretary -- great gig if you can get it and they have - what does board do for 40k. got me coffee KK
27 Jan 2017, 06:02 PM

Simy1
Comments (44) |+ Follow |Send Message
Although the author's conclusion may be correct, this research analysis is not particularly insightful as all it does is summarize historical and publicly available facts....as painful as they may be to existing shareholders.
With a market cap of less than $5.0M, I would argue that the dire liquidity squeeze the company currently faces and the history of over-promising and under-delivering by management is fully discounted in the stock price.
Finally Aquadex was purchased on Aug 5. It appears to me to be a harsh assessment to take revenues from the very first day of purchase to September 30th and project this out for a whole year. Surely you need to give management at least 3 months to get their arms around the business and institute improvements. Management indicated a run rate of $5M annually by year end. Let see what 4th quarter numbers look like.
Once again, the author's conclusion may be correct, but I didn't learn anything new in reading this analysis.
28 Jan 2017, 11:58 AM

CarlSag
Comments (1329) |+ Follow |Send Message
Article was extremely usefully to me. You don't want author to go beyond the available information and begin to speculate on what might happen the stock price. This review cut my research by many hours and allowed me to effectively search and verify presented information. It's unfair to expect anything more. Maybe analysis of pre-post heart surgery treatments market and competitive product would be a nice complement but this would in my opinion warrant a whole new article.
28 Jan 2017, 03:05 PM

Looking For Diogenes, Contributor
Comments (1227) |+ Follow |Send Message
Author’s reply »
SIMY--Thanks for reading my article. However, you drive a hard bargain as for the timeline that you desire. My experience in investing--if the history of a company is bad and they merely keeping issue secondary stock to keep their paycheck coming in as investor's money continues to disappear, if you and others haven't learned a history lesson, then why would you disparage my projection for the future--you don't want 'history' and you don't want predictions about the future for a product that was given to them for peanuts please speculate for me as why Baxter unloaded this puppy? With no money to operate or marketing diddly-squat--why expect anything different?
Again-thanks for reading and maybe next time my analysis will meet your criteria.
29 Jan 2017, 05:33 PM

biobuzz
Comments (3) |+ Follow |Send Message
John Erb made a difficult but intelligent decision in holding off on spending precious capital on the neuromodulation asset. Judging the performance of aquadex in the brief period sales were reported is plain silly. The company needs two quarters at least to transition from Baxter ownership to get up to speed. With Sabby financial support ssh can get the funds needed for working capital and to run a trial to justify reimbursement for outpatient use for aquadex, a substantial untapped revenue source.
29 Jan 2017, 10:21 AM

medmap
Comments (1) |+ Follow |Send Message
But Aquadex is old technology with past sales history that is already available. As has already been said before, SSH is now just a sales outlet and has a completely different focus from what it was initially set up to do.
30 Jan 2017, 01:28 AM

biobuzz
Comments (3) |+ Follow |Send Message
The neuromodulation technology isn't gone. Just needs adequate capital to support investing in it.
30 Jan 2017, 12:37 PM

Looking For Diogenes, Contributor
Comments (1227) |+ Follow |Send Message
Author’s reply »
Based on the conversion price for the 1-30 reverse split, today's activity brings the pre RS price down to $0.17. A minor 35% drop in the price of this mongrel. So much for any enthusiasm about the potential of the money making new product they bought from the dust bin!
30 Jan 2017, 03:42 PM