Cost Initiatives Bearing Fruit
Brian Marckx, CFA
Q1 RESULTS / FDA GREEN LIGHT'S SUPPLEMENTAL
TRIAL
On May 14, 2012
SANUWAVE Health (
SNWV
)
announced financial results for the first quarter ending March 31,
2011. Results, including an anticipated meaningful decrease
in expenses as a result of cost-reduction efforts, were very much
inline with our estimates. Just days prior to the earnings
release SANUWAVE announced that the FDA gave the green light to the
company's IDE Supplement for an additional clinical trial for
dermaPACE - essentially providing a second, and perhaps better,
chance to show statistically significant effectiveness in wound
closure of diabetic foot ulcers. As best-guesses regarding
size, costs and timelines of a supplemental trial as well as
estimates in regards to when dermaPACE could be FDA approved and
launch in the U.S. remain unchanged from our prior assumptions, we
have made no material changes to our outlook or financial model
since our last update (3/15/2012). We continue to believe the
stock trades significantly cheaper than warranted and are
maintaining our Outperform rating and $2.00/share price
target.
Q1 revenue came in at $239k compared to our $285k estimate.
Operating expenses were $1.84 million, just about dead-on with our
$1.89 million estimate. Following the December 2012 FDA major
deficiency letter, when it was evident that dermaPACE would not
make it to the market in the near-term, management announced that
they were implementing cost-cutting initiatives to preserve
capital. These initiatives already bore fruit in Q1 and are
expected to continue to do so in the coming quarters.
Q1 net loss and EPS were $1.84 million and ($0.09), also dead-on
with our $1.85 million and ($0.09) estimates.
Cash
Cash used in operations was $1.49 million in Q1. Excluding
changes in working capital, cash used in operations was also
$1.49. Cash burn is down from $1.84 million ($1.60 million
ex-changes in w/c) in Q4 2011. SANUWAVE exited Q1 with $2.42
million in cash and equivalents, down from $3.91 million at
12/31/2011.
While SANUWAVE has already started trimming expenses to conserve
cash and streamline for the initiation of the supplemental clinical
trial, the current cash balance represents less than six months of
operating funds. We had fully anticipated (especially
following the December FDA letter) that SANUWAVE would need to
raise additional financing - although we only speculated on when,
how, how much, or what kind of financing it might be. While
we still don't have any concrete answers to most of these
questions, SANUWAVE has retained Canacoord Genuity to "explore
capital fund raising and/or strategic options for SANUWAVE to fund
the Company while we complete this additional clinical trial
work". As a placeholder for now, our model continues to
incorporate the assumption that SANUWAVE raises financing through
the regular sale of equity - although, again, we have no particular
insight.
FDA Approves Supplemental Trial
On May 8, 2012 SANUWAVE announced that the FDA approved its IDE
Supplement for an additional clinical trial for dermaPACE.
Aside from being smaller than the than the initial 206-patient
trial and also incorporating treatment "boosts", the trials will be
very similar. The statistical methods (Bayesian) apply sequential
analysis allowing for the supplemental data to build on the
positive results from the initial larger study. Importantly, the
FDA typical approves Bayesian methods when there's already
compelling data to build upon (the totality of which will
presumably show statistical significance on the primary endpoint).
As we've noted previously, the pivotal trial data already indicated
dermaPACE was effective in healing diabetic foot ulcers - the
hurdle to clear hitting the primary endpoint (100% wound closure),
while not attained in the pivotal study, may very well be able to
cleared with additional dermaPACE treatments. Safety was also
excellent in the initial study, which was obviously a consideration
of the FDA in allowing for more aggressive (i.e. - treatment
"boosts") treatment with dermaPACE.
SANUWAVE believes the new trial can be completed (including data
analysis) in as early as 20 months following initiation. Enrollment
is projected at 90 patients (~45 treatment / ~45 control). Similar
to the initial study, the treatment group will receive four
dermaPACE procedures during the first two weeks. In order to
improve on the efficacy from the initial trial (which just missed
statistical significance on the primary endpoint) up to four
treatment "boosts" can be delivered during weeks four and ten. The
primary endpoint, 100% wound closure at week-12, will be the same.
Assuming statistical significance is met on the primary endpoint,
the data will support an amendment to SANUWAVE's existing PMA which
could potentially happen sometime in early-to-mid 2014 with FDA
approval possible before the end of that same year.
SANUWAVE hopes to initiate enrollment in the coming weeks. They are
currently finalizing selection of clinical sites and getting IRB
approvals. As we noted previously SANUWAVE will also need to raise
additional capital to fund the trial, which is another prerequisite
to full initiation of this study - which we assume is also in the
works.
As we noted in our last update, the supplemental trial (which was
still in the proposal stage at that point) should provide a much
less ambiguous decision-point for the agency than if SANUWAVE had
decided to just use the original data to go in front of an advisory
panel - a final decision from which can end up being a long,
drawn-out affair which may not have come out in SANUWAVE's
favor. Clearly avoiding the potential pitfalls of an
advisory-panel review played a major role in management's decision
to pursue a supplemental trial.
Importantly, safety was excellent in all studies to date which
opened up the door for more aggressive treatment within the
standard 12-week treatment window in this supplemental trial.
These treatment "boosts" may very possibly increase efficacy and
get them over the primary endpoint hurdle. Very important is
that the 12-week treatment window used in the initial trial will
also be used in the supplement trial. If this supplemental
study achieves 100% wound closure with the help of these treatment
boosts, that would be an obvious major positive for
SANUWAVE.
As best-guesses regarding size, costs and timelines of a
supplemental trial as well as estimates in regards to when
dermaPACE could be FDA approved and launch in the U.S. remain
unchanged from our prior assumptions, we have made no material
changes to our outlook or financial model since our last update
(3/15/2012).
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