Bulls, Bears: Sepsis and Anti-Infectives in the Public Markets

The threat of infection in hospital and other treatment facilities have dramatically increased over the last few years.  Antibiotics and other therapies have become impotent against certain pathogens and infections, increasing the need for research funding for creating new antibiotics. Equally as important is the development of therapies that dramatically reduce the risk of infection.

An estimated 18 million cases of severe sepsis and septic shock and approximately 6 million deaths occur each year worldwide. However, statistics demonstrate that the number of cases of sepsis continues to rise and physicians believe the incidence of sepsis is heavily under-reported — particularly in impoverished and third-world countries — and that the number of deaths worldwide exceeds 10 million annually. The expansion of this patient population creates a multi-billion dollar opportunity for new technologies and investors to explore. OneMedPlace has profiled three companies, Boston Scientific (NYSE: BSX), Cytosorbents (OTC BB: CTSO) and PLC Medical Systems (OTC BB: PLCSF) have been identified — by investors and by the medical community — as possessing the innovative technology to satisfy this significant unmet medical need.

This sector has created a lot of buzz in 2012 as new public companies are finding success in institutional raisings as well as less traditional financing strategies. We will look at a handful of companies that have shown significant promise in their therapies, and why these will show significant promise for investors.

In September, CytoSorbents (OTC: CTSO) announced that the US Army Medical Research and Materiel Command had selected the company’s Phase II Small Business Innovation Research proposal for funding, a one-year program valued up to $1 million, with an additional option for a $50,000 Phase I extension. The announcement follows the successful completion of a previously funded $100,000 Phase I US Army SBIR award.

This summer, CytoSorbents announced a contract with the Defense Advanced Research Project Agency, DARPA, for $3.8 million over 5 years. CytoSorbents will develop therapies based on a next-generation porous polymer bead. The beads will be used in a dialysis-like function to remove inflammatory agents, toxins and biological warfare agents from the blood that can cause sepsis and ultimately death.

DARPA is best known for developing the network structure (ARPANet) that ultimately became the Internet. DARPA may seem like an unconventional investment partner, however within the industry partnerships of this sort are viewed as major milestones. Special stipulations in the contract suggest this entity anticipates significant clinical developments in the short-term: DARPA has set performance landmarks that must be reached within a year for the first $1.5 million investment for CytoSorbents, a very (uncharacteristically) savvy move for a U.S. Government player, suggesting Uncle Sam may have learned something since Solyndra.

The stakes are raised for CytoSorbents thanks to DARPA’s involvement in the project, and on the clinical side, because of the lack of success in the space.  Recently, big pharma company AstraZeneca (NYSE: AZN) took a $45 million dollar charge on the failure of its sepsis therapy, CytoFab. It failed in mid-stage, with further development of the drug halted.

This also coincides with the withdrawal of Xigris from worldwide markets by Eli Lilly (NYSE: LLY) late last year.  Xigris failed to show survival benefit in a post-marketing study done by the company last year.

Big pharma’s failures show the need to demonstrate true promise, as well as cost efficiency. DARPA’s deal suggests CytoSorbents could be considered a buck to the trend, as the company was awarded significant financing in spite of what could have been a potential stigma in the sector. The players in this space have big pockets, and seem not to be phased by big pharma’s failure.

The company has maintained a decent financial picture by narrowing losses and securing additional financing, which is unique for a bioscience company of its size and age on the OTC markets. The case for the company is also bolstered by the fundamentals, specifically the consistent milestones it has achieved. Early in 2011 CytoSorbent completed an additional round of financing to the tune of $1.25 million. The company also secured its patents, bolstered by the approval of its flagship sepsis therapy CytoSorb by the European Union, a first for sepsis treatments. This allows the company to undertake its trials here in the U.S. along with the first stage in the development of the DARPA project.

If the company can successfully deliver its solutions beyond its initial 14 facility trial in 2009, it is a fair assessment to say that the company is undervalued

With the company’s stock currently trading at $.13 and a head start – strengthened by a lack of competition in this space – any success in its trials or DARPA project would propel the stock into the $.35-.50 range in a very short timeframe.

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Another interesting take on the sepsis story is PLC Medical System’s (OTC: PLCSF) RenalGuard therapy.

Currently in use internationally – approved in Brazil, Israel, and some countries in the EU – RenalGuard is designed to reduce the toxic effects of Contrast-Induced Nephropathy (CIN), a condition that affects the kidneys when certain toxins affect patients during certain medical imaging procedures. The RenalGuard System is designed to maintain healthy excretory functions in patients by the use of a closed loop, software-controlled console and an accompanying minimally invasive single-use kit designed to be used during a treatment session.

Renal therapies – an area of significant unmet medical need – traditionally have a high probability of a patient suffering from sepsis or infection during treatment. PLC’s RenalGuard therapy already has patents filed in the US, Japan and Canada, and has established their business model in the EU.

Speaking with OneMedPlace in November 2011 about PLC’s impact on the market and as a viable solution to CIN in particular, CEO Mark Tauscher said that the company’s research did not focus as much on protocol structures, which he maintained is not the problem – it is the lack of solutions, rather, that is the problem.

“They all have a protocol to stop it,” he said of hospitals and their approach to CIN. “They just don’t have a good solution. We believe RenalGuard is that good solution.”

Tauscher may find that the medical community shares the same optimism. Such was the case at SOLACI 2012, the annual meeting of the Latin American Society of Interventional Cardiology in August 2012 in Mexico City.  Presenting before some 2,000 medical professionals, the company discovered that RenalGuard was very receptive in Latin America among other markets.

Again, acting on fundamentals of valuation for smaller nanocap bioscience companies, PLC does provide a legitimate investment opportunity that may begin to take off in the next 12-18 months. Phase III FDA testing is on the company’s radar, and the subsequent presentation of RenalGuard for approval in some 10-15 countries so far may provide a push for this company. PLC has also secured its patents and has continued trials in both Europe and the U.S.

A round of funding in July was completed for $1 million, and PLC anticipates securing two additional payments of $500,000 each over the next six months through the sale of Convertible Notes and Warrants.  This is separate from an original $4 million round of financing that took place in February 2011, monies that had been available to PLC based upon meeting certain operational milestones or at the investor’s discretion.

In addition to remaining well capitalized it should be noted that the company has engaged in narrowing of losses and more capital infusion down the line should the company’s situation warrant it.

The parallels of CytoSorbents and PLC lie in their small relative size and revolutionary impact that their treatments have on the medical community, as well as with their exponential growth and market breadth.  Both companies have grown significantly and have attracted investor attention.

They have both successfully entered the international market, as well, a barometer in valuing a company’s clinical progress in larger markets and the US.  If the consensus that the SOLACI conference and the numbers behind deaths related to sepsis-related illnesses shows anything, it is that companies like CytoSorbents and PLC need more exposure in the US.

It should be noted that medical professionals utilizing the CytoSorb therapy to treat a patient in Austria spoke highly of the treatment. It should be also noted that CytoSorbents presenting at seven major conferences later this year, as the company makes a grander-scale effort to reach US-based investors.

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As promising as these types of devices and therapies are to patients, one must recall failures and issues that can hamper development truly promising technologies, as Boston Scientifics (NYSE: BSX) ongoing legal troubles would show. Resulting from a challenge from Medtronics – which was recently appealed in favor of Boston Scientific to their ongoing heart stent lawsuits – the legal challenges surrounding Boston Scientific are quite significant.

With the stock down 50% over the past 5 years it has not been a great time for the company nor has it presented any positive prospects.  However, going into 2012, Boston Scientific has said it intends to pursue a strategy of aggressive growth and diversification of its medical device product line.

The announcement by Boston Scientific on September 19th of the purchase of BridgePoint Medical, a company that has developed the CrossBoss CTO Crossing Catheter and the Stingray CTO Re-Entry System, designed to navigate highly diseased (significant plaque presence) coronary arteries as a means of restoring blood flow to the area.

The system has received U.S FDA clearance and CE and as of today is the only crossing and re-entry system cleared in the U.S. for use in CTOs.

This presents a very interesting precedent for alternative growth strategies. With several false starts and non-clinical issues surrounding big pharma and the biggest companies in this space, medical device acquisition and licensing is a very important means of maintaining growth – deploying cash and generating revenue off activity – as the regulatory path is less complicated than therapeutic development. In this sector, when smaller companies enjoy success, they are announcing themselves to both investors and potential strategic partners.

Speaking on the merits of the effects of the BridgePoint Medical acquisition Hank Kucheman, chief executive officer at Boston Scientific commented:

“The acquisition of BridgePoint Medical is expected to build upon our rich product portfolio in cardiology and represents an important part of our growth strategy in this critical market. We believe the BridgePoint coronary devices will provide the Boston Scientific Interventional Cardiology business a dedicated CTO solution, while the Boston Scientific Peripheral Intervention business offers the TruePath CTO Device and OffRoad CTO Device.”

A diverse pipeline and short-term revenue stream have become the nuveau catalysts investors have used – over IP position and long-term valuation of a lead candidate.

Boston Scientific, in turn, may see their fortunes reversed.

severe sepsis and septic shock cases

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