Report From Paradigm Capital on EDT
Joining the Fight Against COVID-19
Investment Thesis. Spectral Medical is a clinical-stage medical device company focused on addressing significant needs in critical care. Its lead product is PMX, a therapy that filters septic shock-causing endotoxins from the blood. While PMX has been used for 20 years in Japan and Europe, EDT is performing the trials required for FDA approval and commercial launch in the US. Septic shock is the leading cause of death in hospitals and impacts 330,000 American patients a year. EDT is currently running a Phase 3b trial of PMX that, if successful, would make it the only FDA-approved treatment for septic shock patients, and the only player in an over $2B market.
Event
Spectral Medical announced that the FDA has approved a supplemental Investigational Device Exemption (IDE) for the use of PMX in treating COVID-19 patients.
Highlights
Immediate Benefit for Severe COVID-19 Patients | This supplemental IDE will allow physicians to treat severe COVID-19 patients with the PMX blood filtration device. Published reports of COVID-19 patient outcomes have highlighted that septic shock is a leading complication from COVID-19, contributing to excess inflammation and organ damage [Lancet][NEJM]. As with EDT’s non-COVID-19 patients, these patients will be some of the most severe in the ICU and experiencing multiple organ failure. EDT is not charging for the PMX cartridges and won’t have significant costs to roll out this program, so the major impact in the near term will be to patients. Leveraging Extensive Clinical Use | PMX has been used across Japan and Europe for 20 years in treating severe critical care patients. Spectral has significantly expanded the clinical data on PMX with its prior Phase 3 trial, demonstrating significant reductions in ventilator use and reduced 28-day mortality for septic shock patients with multiple organ failure and endotoxin levels from 0.6 to 0.9 [Intensive Care Med]. There are also published case reports of PMX improving blood oxygen levels and other outcomes in patients with other respiratory viral infections, including H1N1 and H5N1 [Intensive Care Med]. Therefore, considering the array of drugs and devices that are being used to treat COVID-19 patients, PMX has a strong history of clinical benefit. Increased U.S. Awareness Could Accelerate Market Uptake | Longer term, this program could provide significant exposure for the company and the PMX treatment. If the ongoing Phase 3b trial is eventually successful and PMX is approved by the FDA, it will have more physicians who have used the therapy and seen its benefits, potentially accelerating uptake.
Valuation & Conclusion
COVID-19 is highlighting the need for effective treatments for excessive inflammation, including septic shock. This announcement means that EDT will have the opportunity to make a significant impact on COVID-19 patients’ lives while increasing the U.S. exposure for its PMX therapy. The company is also awaiting similar authorization in Canada for use in COVID-19 patients. We reiterate our Buy rating and $4.00 rNPV.