Sunshine's Short Squeeze Play Warms Bullish Investors Print E-mail
By M.E.Garza   
Wednesday, 06 February 2013 04:58

icon_medicaldeviceShares of Sunshine Heart Inc (NASDAQ:SSH) hit a high of $6.99 and closed the day + 7.24% at  6.81 +0.46 on Tuesday after we told our premium subscribers that shares showed potential as both a speculative trade and short squeeze candidate. Both those points still hold true.

Days ago, Piper Jaffray's serior analyst Thomas J. Gunderson initiated coverage of Sunshine Heart Inc (NASDAQ:SSH) with a $10/share price target, letting clients know that the firm was anticipating shares to outperform relative to the median of the group of stocks covered by the analyst.

"SSH has developed a type of ventricular assist device (VAD) that is designed to enhance the efficiency of the heart for patients suffering from heart failure. We view SSH as having passed a number of development and regulatory hurdles including IDE approval for a pivotal trial in the US for ultimate FDA approval," wrote Gunderson in his report.

The Piper Jaffrays report indicates: "We are intrigued with SSH's C-Pulse™ device given the device's minimally invasive approach to enhancing the heart's pumping action, while implanted outside of the blood stream. This approach avoids complications with stroke or thrombus which have emerged with traditional VADs, and represents a key clinical 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+, shorter hospitalization times, and a lower incidence of re-hospitalization post-implant."

"According to the American Heart Association there are 5.1 million Americans suffering from CHF. Clinical literature puts the proportion of NYHA Class III heart failure at ~20% of that number or roughly ~1.0M potential
patients. Assuming a 10-20% applicability hurdle for potential implants, based on comorbidities, cost/reimbursement, and a $60K ASP, we project a $6-$12 billion addressable market for C-Pulse."

After faltering a bit in mid-January-- thanks to now "verified as false" street rumors that the firm would do a major dillutive financing-- SSH shares had begun to bounce back steadily on relatively low volume. Quietly over the past few sessions, shares have regained momentum to the upside and could go higher as the shorts who had sparked short interest in the stock rise 20% without any other catalyst, continue to cover.

There is chatter and speculation on Wall Street among some bankers that the company has caught the attention of industry giant, Medtronic, Inc. (NYSE:MDT) whose market cap is nearly $47B. The takeover rumors were fueled on Monday, after the former Chair of Medtronic's Corporate Research and Development Council, Mr. Warren S. Watson, was suddenly inserted into the Board of Directors- replacing Dr. William Peters, who gave no indication about his departure, other than to say that the "resignation was not based on any disagreement with the Company." 

We continue to feel optimistic that shares, who currently trade well off from their 52-Week highs of $22.90, may continue their climb higher given the number of near-term catalysts-- including initial patient enrollment in US and European clinical trials expected this quarter (1Q13). We also note that additional clinical data should be forthcoming from Sunshine Heart's 50 patient European post market surveillance study.

SSH continues to look like an attractive trade candidate as a short-squeeze play and we like the potential growth outlook that is well above the general medtech average.

Furthermore, given the strong bounce off support levels, we like he play's risk-reward ratio for higher upside from current levels.

Technically speaking, there are a number of indicators that catch our attention as we look at the most recent stock chart as well:

To learn more about Sunshine Heart's ground-breaking C-Pulse® Heart Assist System, watch the videos about the implantable, non-blood contacting, heart assist therapy on the firm's website. This innovative device for the treatment of moderate to severe heart failure can be implanted using a minimally invasive procedure and hearing some of the patient testimonials provides insight and perspective.

Disclosure: I may initiate a long position in the stock within the next 72 hours.

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