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Sunshine Heart: A Promising Treatment for Heart Failure Patients

Another way to look at it Sunshine Heart's market potential: A 10% share of the 650,000 newly diagnosed heart failure patients in the U.S., or 65,000 patients, would yield annual sales of more than $300 million. Throw in Europe and revenue could double.

Or, consider this: The two companies that corner the market for left ventricular assist devices -- Thoratec (THOR - Get Report) and Heartware (HTWR - Get Report) -- have a combined market cap of over $3 billion. Investors value these companies highly despite the fact that the Class IV heart failure patient population is smaller than the patient population that would benefit from Sunshine Heart's C-Pulse device.

Sunshine Heart reached agreement recently with the FDA to begin a pivotal trial of the C-Pulse system using a lighter, quieter and smaller version of the device used in the feasibility trial. This new trial will enroll 388 heart failure patients randomized to treatment with the C-Pulse system or standard therapy. The study's primary endpoint is the reduction of worsening heart failure events leading to hospitalization. Sunshine Heart expects to enroll the first patients soon and the study will take approximately two and half years to complete.

The company has already received a European CE Mark (medical device approval) for C-Pulse. However, in order for the device to receive reimbursement, the company need to run a clinical trial in Europe as well.

What makes the Sunshine Heart story so compelling is its paltry $58 million market cap. At a similar point in its development cycle, Heartware sported a market cap of over $200 million.

Sunshine Heart's market cap is tiny because investors lack patience. The company won't have significant, stock-moving news to report until the U.S. pivotal trial is complete several years from now. Without a near-term catalyst, it's hard to make a compelling case to buy the stock now.

The company also needs to cash at some point down the road. Although Medicare will reimburse patients enrolled in the clinical trial, Sunshine Heart will need $20-30 million to fund both the U.S. and European studies on top of the $20 million currently in the company's coffers.

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