mercedesman wrote: The Bottom Line…
(In addition to an exciting
new section on timing, numerous links have been added to back up statements/
assertions/etc.. I will continue make revisions when I have accumulated about 10 or more corrections/
fact changes/ new insights/ ideas/ links etc.). As always Do your own Due Diligence (DYODD).
Comments welcome.
Spectral’s PMX hemoperfusion filter is the only device/drug even close to
proving (to the FDA) that it
addresses the # 1 ICU killer (DYODD) Sepsis afflicts 1.7 M Americans annually (See CDC) with 20%
mortality = 340,000 deaths. (See presentation). Recent estimates suggest that Sepsis afflicts as many
as 30 million people worldwide each and every year (DYODD)
Septic Shock affects 330,000, ( 40 % mortality = 132,000 deaths). Increased organ dysfunction is also
a major downside of SS. 50 % + present with high endotoxemia. (see latest corporate presentation)
Septicemia is now the most expensive condition treated in U.S. hospitals.
https://www.hcup-us.ahrq.gov/reports/statbriefs/sb204-Most-Expensive-Hospital-Conditions.jsp?utm_source=AHRQ&utm_medium=AHRQSTAT&utm_content=Content&utm_term=HCUP&utm_campaign=AHRQ_SB_204_2016 “…many patients requiring prolonged care for multisystem organ failure in intensive care units. Researchers
with the federal Healthcare Cost and Utilization Project found that sepsis, also called septicemia, cost $23.7
billion to treat in 2013.”
https://www.statnews.com/2018/06/14/fighting-sepsis-bolder-approach/ Results to date show
“targeted” therapy is the only way to go, given the high cost of the treatment.
(see Ronco, see J.L. Vincent, and other KOLs, see Euphrates results) also e.g.
https://www.jccjournal.org/article/S0883-9441(17)30081-3/fulltext “
The best treatment for sepsis starts with rapid detection. The sooner it is diagnosed, the sooner doctors
can start antibiotics and fluids in an effort to get the infection under control before the body’s immune system
goes into overdrive.”
https://www.statnews.com/2018/06/14/fighting-sepsis-bolder-approach/ How do you target SS patients without Biomarkers/diagnostics? How do you measure, for example,
the presence of elevated endotoxins? Enter the EAA. Years ago, Spectral developed the only FDA approved
diagnostic that measures Endotoxin levels – a known precursor for a large percentage of Septic Shock patients.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3672550/ “
Significant features of these studies include the high
negative predictive value of the assay (98.6%) for rule out of Gram-negative infection, ability to risk stratify
patients progressing to severe sepsis (odds ratio 3.0) and evidence of LPS release in patients with gut hypoperfusion. Preliminary studies have successfully combined the assay with anti-LPS removal strategies to prospectively
identify patients who might benefit from this therapy with early evidence of clinical benefit.”
Also, time to diagnosis (and therefor treatment) is of the essence. An earlier diagnosis, means earlier
treatment (first with Anti-biotics, and where appropriate, with PMX) and ultimately a better outcome.
EAA results can be obtained in 30 min.
“the best treatment for Sepsis starts with rapid detection”
https://www.statnews.com/2018/06/14/fighting-sepsis-bolder-approach/ Regarding the efficacy and safety of PMX (the cornerstone of the theranostic solution), Spectral’s Euphrates
RCT Trial (n=450) got close to the answer/proof needed in 2017 – but it did not quite get there
statistically A data subset approach (where a subgroup of the patient population was shown to benefit significantly) was
not sufficient to satisfy FDA (statistically speaking) following the multi-year PMA process. The overwhelming
NEED to do something to address the unacceptably high death rate, was also not sufficient to get the Trial
over the finish line (in terms of approval). The primary Endpoint “miss”, did
NOT however, result in the
dismissal or an outright refusal to approve, nor a “start again” mandate. Rather the FDA seemingly has suggested/offered/encouraged a low cost pathway to show statistical significance for a targeted subgroup
of patients. And with that, presumably ultimate FDA approval – should the data subset result shown in
Euphrates be confirmed/reproduced (this time with statistical validity) “
Today with this communication from
the FDA, we see Spectral as being much closer to obtaining approval of PMX in the United States“ – Walker
https://www.stockhouse.com/news/press-releases/2018/03/19/us-food-and-drug-administration-fda-provides-communication-to-spectral “
The goal is to add more information to data already obtained in the EUPHRATES trial. In the EUPHRATES
trial, a specific group of patients showed a 40% reduction in relative risk for death at 28-days.”
Read more at
https://www.stockhouse.com/news/press-releases/2018/05/30/spectral-provides-corporate-update#JorxgTCGdlzWXCxG.99 Tigris…is a Single Arm , “low threshold” study. The FDA has thus recognized the difficulty (cost and time) in
conducting a second randomized Trial. (see presentation)
In this Study, Spectral will be able to l
everage existing data from Euphrates (both control and treated arms) as
opposed to facing the time consuming prospect of starting from scratch with a new, protracted and expensive
RCT (See presentation).
“Goal is to recruit minimum amount needed to show significance” (see latest corporate presentation)
10 hospitals participating. Dr.’s in US ICU’s apparently have eagerly signed up for Tigris (DYODD).
So while we await the final Tigris Study Design, and results (in 2019)….
Let’s chew on some numbers….
The Company will have spent
$ 50-$60M on Phase 1 thru 3 testing in the last 10 years, including the most difficult hurdle of a RCT. Cheap by any standards. (See FS)
$ 60-$70 million CAD $. = the Current Market Cap. Of the Company (See Yahoo). Coincidently perhaps, close to total amount spent on Trials thus far.
Bringing any Device or Drug to market in the US probably costs on
average ½ B to $ 1B these days (DYODD) This creates barriers to new solutions “
While there are potential therapies that might work, testing them in clinical trials is very costly. In addition, there aren’t really any incentives to entice the companies developing these drugs to work with those developing diagnostic technologies.”
https://www.statnews.com/2018/06/14/fighting-sepsis-bolder-approach/ Spectral states that the market for
PMX is $ 1.5B US . This reflects the reduced “targeted” sub group (see presentation). (IMO the market is well in excess of $ 2B +, but I will save that math – see below*)
Market size
does not include worldwide estimate of EAA Sales, or worldwide Sales of SAM Pump + peripherals (DYODD).
A note about the SAM pump. It was recently approved for use by the FDA and Health Canada.
https://www.stockhouse.com/news/press-releases/2018/02/15/spectral-announces-health-canada-approval-of-its-proprietary-stand-alone-pump In Canada the Spectral Apheresis Machine (“SAM”) was approved
“for use in continuous renal replacement therapy ("CRRT"), therapeutic plasma exchange ("TPE") as well as for Hemoperfusion (HP), a modality specifically designed to facilitate patient treatment with the Toraymyxin™ (“PMX”), cartridge used for endotoxin removal in patients with septic shock.” https://www.stockhouse.com/news/press-releases/2017/12/18/fda-grants-510-k-clearance-for-spectral-s-proprietary-stand-alone-pump The pump completes the theranostic solution trifecta (EAA, PMX, pump). Once PMX is approved there is now an easy way for hospitals to use PMX in the ICU without having to borrow in-demand CRRT (kidney dialysis) equipment from other departments in order to use the PMX filter. The pump, in theory, can be used for CRRT purposes, but it ultimately has been designed for hemoperfusion (an emerging trend )
“
Because SAM was designed to be user friendly and to be built on a small footprint, the Company believes that there is an opportunity to pursue use of SAM in the broader CRRT market (not just potentially for PMX). The global CRRT market is projected to reach USD$1.5 billion in 2022”
https://www.stockhouse.com/news/press-releases/2017/12/18/fda-grants-510-k-clearance-for-spectral-s-proprietary-stand-alone-pump “
The Company has exclusive license rights for SAM in North America for all CRRT applications and has worldwide exclusivity for any hemoperfusion applications.”
Why would hospitals not purchase dual/triple purpose equipment going forward in order to save on costs ? (rhetorical)
Other factors to consider… Euphrates (and other studies) showed that PMX treatment significantly improved organ function. There is an important
quality of life argument that often gets overlooked in a 28 day mortality study (i.e. the usefulness of PMX extends need beyond just mortality considerations). If Septic Shock Survivors can not only survive but sustain less organ damage in the process of fighting off the disease, their long-term quality of life will improve. Beyond Quality of life considerations, this has the added benefit of reducing both short term ICU costs (of Which Sepsis is one of the major contributors) & long term costs to medical system (e.g. for SS survivors). “
many patients requiring prolonged care for multisystem organ failure in intensive care units. Researchers with the federal Healthcare Cost and Utilization Project found that sepsis, also called septicemia, cost $23.7 billion to treat in 2013.”
https://www.statnews.com/2018/06/14/fighting-sepsis-bolder-approach/ For example – fewer patients/survivors would need future ICU visits, ongoing kidney dialysis, etc. Don’t think that Insurance companies will not consider this in their cost/benefit analyses and their decisions about whether or not to fund PMX treatment. But if one thinks about the insurance aspect, how can hospitals refuse to provide the new Standard of Care for legal liability reasons ? And hospitals are typically required to fund the cost of treating hospital acquired infections, a major contributor to SS, are they not? (DYODD)
What about
increasing column usage in the case of extremely high Endotoxin levels? “Seems logical” but as yet this has to be proven. Until it is proven (if it is) will not more than a few Dr’s opt to try PMX at levels > .9 EAA, or additional cartridges if EAA’s are still super elevated, rather than sit idly by while a patient dies? (Note: this has major implications for expanded usage of PMX in the future, and as a result much higher potential revenues to the owner of the PMX rights). Note trials elsewhere in the world are continuing to add to the body of evidence in favour of the extended use of PMX (DYODD) e.g.
https://www.ncbi.nlm.nih.gov/pubmed/29672307 Speaking of expanded use of PMX what if some Doctors decide it is prudent to take precautionary measures and treat patients with PMX where EAA levels may be bit outside of the Trial range (e.g. EAA >.05 and < .06)? If Endotoxins are a risk factor, wouldn’t some doctors seek to reduce or eliminate this risk? In fact, Trials in the far east are now experimenting with the use of additional columns, and usage of PMX where EAA levels are below .06. (DYODD)
PMX has been used not just for treating sepsis but for other uses as well – for example to reduce the possibility of endotoxemia following certain operations, etc. What Company has the rights to PMX in North America? (rhetorical)
Here is a great link to
326 papers/studies/clinical analyses worldwide, ALL using PMX !! A read through may convince you of its usefulness/efficacy/safety in treating a variety of conditions
https://www.readbyqxmd.com/keyword/99324 There is
extremely high Insider Ownership of Spectral Shares. Much higher when one factors in Friends and Family. (DYODD). Very small retail participation. The AGM was a ghost town when it comes to outside Retail investors (i.e. there was only a handful of people in the room according to sources). And yet there was a quorum of over 60% represented at the meeting. What does that tell you? Further, insiders & major shareholders are not pushing Mgt. to promote (ala CTSO) What does that tell you? Perhaps “they” want to keep more of the “end game” spoils for themselves? If they saw poor odds of ultimate FDA approval, wouldn’t the strategy turn to one of greater stock/Company promotion in order to elevate the stock price ? and: (1) preserve the Insider’s capital, (2) lock in some gains (3) spread the risk/pain if there was an anticipated loss, or (4) exercise some additional options, before they expire ? (DYOSpeculation on this)
With upwards of 30 million cases of Sepsis annually worldwide, and as many a 6 -7 million deaths (DYODD), consider the
impact a gold standard FDA approval on PMX (and its theranostic approach) might have the acceptance/usage of EAA worldwide as a diagnostic tool. Remember the EAA can/should be used as an inexpensive way to quickly rule out Endotoxemia.
What if just 1 % of the worlds Septic patients got just one EAA reading (at a cost of $200 USD?) – 1 % X 30 million = 300,000 EAA’s. At $ 200 USD = $ 60 M annually ($80m CAD $). Remember this doesn’t even include people that present as possibly Septic (e.g. high fever, but are not Septic). Nor does it include the 5 -10 EAA’s that might be expected to be consumed in tracking the progress of a SS patient receiving ongoing PMX treatment. $ 200 M in USD revenue is added per 1 million EAA’s consumed. This is > $ 1 per share Cdn.
Spectral has the rights to PMX for Canada as well. Canada’s population is approximately 10 % the size of the US.( DYODD) This would suggest that it would be prudent to increase all revenue projections relating to PMX sales by another 10 %.
*The math when it comes to Market size, and potential share value – considering only PMX Sales and in the US market only. * Lets consider the unreconciled/unsubstantiated “total market” math.
When valuing stocks it’s all about long term revenue and profit potential.
Full disclosure of the potential is vitally important to investor decision making.
The latest presentation suggest a market potential (for PMX alone) to be $ 1.5B. It doesn’t say, but the implication is that this is stated in USD$.
I would suggest that this figure is
understated based on the following.
Using the Companies own (finally updated Sepsis statistics ):
330,000 Septic Shock patients/yr. 50%+ with high endotoxemia (per presentation) = 165,000+ possible treatments. @ $20k/treatment = $ 3.3B. Reduce by 17% for non-measurable >.9 EAA = $ 2.7B USD
Note this presumes all gram-negative Septic Shock patients are a target, but also note that PMX is being studied for use in other circumstances, and likely will be studied for extra use in cases of severe endotoxemia (extremely high EAA).
In addition, some studies have even shown a benefit of using PMX in cases of gram-positive infection (DYODD).
Is $ 20k per treatment (two columns ) still realistic? Spectral has modelled $ 20k USD for many years. They have not changed this estimate as far as I am aware.
$ 2.7 B USD should be converted to CAD $. $ 2.7B USD x 1.33 = $ 3.59 B CAD $.
Valuation Considerations (based on success = FDA approval of PMX) Option 1 Revenue Multiple Apply a valuation factor. 1 X revenue? 10 X revenue? 14 X ? (DYODD and prepare to be surprised at the valuation multiples in the market especially for high margin Biotechs)
Apply a market penetration % factor. 5 %? 10 % ?
For example a 5X revenue multiple and a 7% market penetration assumption suggests the following per share revenue target within 5 years.
[$ 3.59 B x (.07) x 5 ]/250 mill shares = $ 5.02 CAD/share
(remember these revenues
do not include Pump and EAA revenues which should add hundreds of millions in incremental value should PMX approval happen)
Also consider, would a big player looking at the potential to add billions in market revenue assume only a 7 % market penetration for a device/treatment that had become FDA approved, and the Standard of Care (SOC)? (rhetorical)
And might they also consider tax loss carryforwards, worldwide diagnostic sales revenues, SAM pump revenues, Canadian PMX sales, the potential for expanded usage, etc. in their buy/ valuation decision ?(rhetorical)
Option 2 EBITDA Multiple If one preferred, one could look at EBITDA models/multiples, in order to arrive at a reasonable per share value.
First factor in high margins and calculate 100 % market penetration EBITDA per share.
For example, assuming 7% market penetration and 70 % EBITDA margins, = .70 per share in annual earnings ([$3.59 B x .70 x.07]/250m)
How does one then arrive at a fair share Price?
Most would apply an EBITDA multiple (DYODD)
4 X EBITDA? 10 X EBITDA? 20 X EBITDA ? 50 X EBITDA ? (DYODD on what Biotech public companies are currently valued at and prepare to be surprised)
For example a 7% market penetration and a 10X EBITDA multiple suggests the following per share revenue target within 5 years
.70 per share in annual earnings x 10 multiple = $ 7.00/share
Once again, you should also consider, would a big player looking at the potential to add billions in accretive EBITDA earnings assume only a 7 % market penetration for a device/treatment that had become FDA approved, and the Standard of Care (SOC)? (rhetorical)
And might they also consider tax loss carryforwards, worldwide diagnostic sales revenues, SAM pump revenues, Canadian PMX sales, the potential for expanded usage, etc. in their buy/ valuation decision ?(rhetorical)
Consider Risk and Probabilities. The Next logical step for investors? To Buy/sell or hold?
To realize a success based revenue multiple or EBITDA multiple, one presumes (1) ultimate approval and (2) a motivated Buyer comes along.
The smart investor will assign a probability to the case of (1) ultimate FDA approval (considerations: very high insider ownership with almost zero promotion – some would say this suggests: ease of raising money internally, a clear exit plan + high confidence of the end result - but of course DYODD) and (2) a Buyer being attracted to potentially Billions in new revenues. (note: one might speculate that a “go it alone” strategy for a small 19 person Canadian Firm is not realistic)
In assigning probabilities to a successful outcome, remember that for this last stage (Tigris Study) the “
goal is to recruit minimum amount needed to show significance” in a Single-arm, open-label study of standard care plus the PMX cartridge, using the least burdensome approach suggested by the US FDA. The Study will use motivated doctors at already committed and trained sites, with a more clearly defined sub-group target (where maximum benefit has been shown), unblinded (presumably making it easier to garner acceptance/participation by patients and their families) What do you arrive at as a probability for success (i.e. achieving statistical significance given everything they know about who benefits most)? 10 %? 25 %? 50%? 75%? 90%?
Next calculate a failure price per share ( be sure to assign a value to the EAA, the SAM Pump, current reagent sales, preserved PMX rights until 2029, tax loss carryforwards)
So now you have (1) your best case = “success” price per share (multiple of future revenues and or EBITDA) and, (2) Worst case price per share (non-approval and fire-sale of remaining assets including rights and LCF’s).
Now compare that to current share price.
For example, you might feel that the success probability is 50 %. Let’s say your success valuation is say $ 6.00/share (see examples above). You might also feel that a “failure” valuation is say $ 0.20/share (break-up, fire sale of the pieces valuation).
In this example, you would be saying there is a 50 % probability of a $ 6.00/share value (mid-point of Rev and EBITDA multiple approaches above), and a 50 % probability of a $0.20/share value.
This might suggest to you that any price below $ 3.10 [$6 +.20)/2] is a fair price today – and that’s
given the unknown about ultimate approval.
If you were more risk adverse you might assign only a 10 % probability for success…yielding a fair share price today calculation of .78 [($6 x 1) + (.20 x 9)]/10
Note: using reverse math – todays price suggests that the implied probability of successfully completing the Tigris Trial is less than 5 % (but for implied odds to be accurate, investors/gamblers must have access to all facts). Even Vegas publishes the odds on various games. Blackjack played perfectly by the player (rarely achieved) results in odds that are 51/49 in favour of the house. For me personally, because I believe the implied odds of success are likely much higher than 5% (just based for example, on the actions of insiders), I would far rather place a $ 1000 bet on EDT than I would in sitting down at the blackjack table, or in front of the roulette wheel. But hey, that’s just me.
TIMING? Spectral has said (see their presentation) that Tigris will be completed in 2019, and that FDA approval could happen towards the end of 2019. They have also said “Goal is to recruit minimum needed to show significance”, in a “proposed Single-arm, open-label study of standard care plus the PMX cartridge.” Does that mean that the end of Tigris could happen more quickly than what many might expect?
In the words of another prolific poster on SH “
Remember when they did the open study in Italy few years back, it was ended quickly so who knows what transpires from ethical perspective when they can prove that same sort of numbers are being delivered for a specific patient category ?” (ed. I’m guessing he/she is referring to the Euphas Trial in Italy (not a Spectral Trial) that was terminated quickly for ethical reasons. PMX vs. the Control was too good (as I recall the main source of infection in this small Trial was Abdominal Sepsis))
“Could FDA even jump the gun and say OK.. APPROVED .. ?”
Read more at
https://www.stockhouse.com/companies/bullboard?symbol=t.edt&postid=28245199#vQeLHVOHgqCCrYX5.99 What number of patients will achieve statistical significance? Remember that they will be adding to the numbers already in the Euphrates Trial. Is it an additional n= 25 ?, 50?, 100?....(no one knows, or at least no one is prepared to speculate out loud)
Patient Enrollment: We are told that 10 Hospitals quickly signed up to be a part of Tigris (and it’s being limited to 10). They all participated in Euphrates, and are therefore trained in PMX usage. No double blind procedures, no difficult to obtain patient consents. If you are a family member of someone who is near death, and you are told that there is 50% odds of that person dying – would you sign them up** to try a new device/treatment that could increase their odds of survival and that is proven safe? (rhetorical) (**Noting that the treatment is supplemental to the current SOC)
Short term catalyst? Perhaps an announcement of details surrounding an FDA approved Tigris Study design (confirming perhaps: low threshold, single-arm, ability to borrow data from Euphrates, n= ?, etc.) .
Conclusion Only the people closest to this story of course can truly make the upside/downside calculation,
and adequately assign probabilities
and predict the timing of results. The rest of the market generally has NO CLUE regarding the magnitude of the opportunity given the low profile (non-promotional) nature of the stock. What happens in Vegas, stays in Vegas. Without general market/retail buyer interest, and independent and fair Analyst coverage, the market cannot collectively or reasonably assign a fair value in the interim whilst awaiting the outcome of Tigris (in the form of a reasonable share price that reflects all “knowns” and realistic probabilities as at this moment). So much for the Efficient Market Hypothesis (EMH).
However, you the reader of this post, as a rare follower of this stock, may want to try using some valuation & probability logic contained in this post. All you can do as an individual investor is to make your investment decision based on your own gathered knowledge of the facts (and based on your own risk tolerance in relation to the best case and worst case scenario). I’ve simply suggested some facts you may want to consider, and some math that might allow you to make that decision more objectively.
So for you personally is it… Buy more? Sell? Hold? (Notice I did not say “Buy” because it is unlikely there are many non-current shareholder/potential buyers poking around this story, except perhaps some additional extended friends and family who might just happen to hear the story from someone they are willing to trust)
Make an informed (as best as you can glean in the interim) decision and wait.
My belief is that if just
a small number of retail investors were more attuned to the story (via say a modicum of, dare I say it,
“promotional activity” from the Company), the share price
would rise naturally to a new equilibrium in advance of the next and ( presumably) final FDA decision. And then react violently & decisively, either upwards or downwards, upon final FDA decision regarding the fate of PMX for the US market. Billions of $ are at stake, and hundreds of thousands of lives (millions?) over the next decade. Will PMX finally be placed in the North American ICU doctor’s arsenal in order to help tackle a growing problem that has not seen a new FDA approved treatment for over 30 years ?
Coming soon…Increased NEED due to the onslaught of superbugs with less and less effective antibiotics (the cornerstone of the current SOC)
GLTA
MM
(updated July 11 , 2018)