This "Quick Doubler" Biotech Will Likely Disappoint

Stroke kills an American every four minutes - more than 525,000 individuals each year - and nearly 300,000 more fall victim to its debilitating consequences.

The onset of symptoms signal a dire emergency. According to the National Stroke Association, they can include:

  • Sudden numbness or weakness of the face, arm or leg, especially on one side of the body;
  • Sudden confusion, trouble speaking or understanding;
  • Sudden trouble seeing or blurred vision in one or both eyes; and/or
  • Sudden trouble walking, dizziness, loss of balance or coordination.

There are two types of stroke: hemorrhagic and ischemic. The first results from a ruptured blood vessel in the brain, and the other from an inadequate blood supply, usually due to a blood clot blocking an artery that feeds the brain.

The second variety, ischemic stroke, is by far the more common. Nearly nine out of 10 are of this type. And that's fortunate, because an ischemic stroke could be relatively easy to prevent - provided you see it coming.

If you had the technology to find and map arterial blockages safely, simply, and quickly, you could intervene with a relatively simple medical procedure, clear the blockage, and bring down that enormous annual incidence of stroke to a much smaller number.

Does such a technology exist?

Currently, doctors can use an ultrasound machine to detect the presence of an occlusion (blockage) or stenosis (narrowing) in a carotid or cerebral artery, but the patient then has to undergo a CT scan or MRI for more definitive information.

It's a complicated, drawn-out, and extremely expensive process, and you would think a single-step, cheaper technology might be a game changer - and represent a windfall for investors.

One micro-cap biotech in Vancouver, Canada, CVR Medical Corp. (TSX: CVM.V ; OTCMKTS: CRRVF), is counting on exactly that with its new carotid stenotic scan (CSS) device.

The device is about to enter pivotal clinical trials, and after they're completed, will go to the U.S. Food and Drug Administration (FDA) for marketing approval.

The CSS could save the government up to $34 billion a year, according to the CDC, and more importantly, hundreds of thousands of lives in the United States and around the world.

That's great news for patients and their families. And it has proven a terrific opportunity for investors, too. Since the company's IPO in November 2016, the stock is already up over 90%.

But here's the thing. This device may not be the silver bullet it's cracked up to be. And the stock isn't, either.

I'm going to show you what's really happening here and how to ultimately profit on this situation. It's a great example of how independent research can save you a lot of money in the long run...

Here's What Got Investors All Excited

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CVR Medical’s device is basically a sort of super-ultrasound machine that not only detects, but also maps stenosis or occlusion in the carotid artery, which runs up the neck to feed oxygen rich blood to the brain. As mentioned above, ultrasound is already used for this indication, but it needs to be done by a trained medical person, and it doesn’t give you a map—just a particular swooshing sound that will suggest you need a CT scan or MRI.

Recently, the company received approval from an Independent Review Board (IRB) for a clinical test at Thomas Jefferson University, one of several major medical schools in Philadelphia.

If eventually approved by the FDA, the CSS would represent a nice addition to the current spectrum of tools used in pre-stroke screening. The company is projecting U.S. sales alone to reach 400,000 devices annually, with a price tag of $49,000 per unit. That's a total U.S. market opportunity of $11.5 billion.

That's a gorgeous number, and I'd say it's wildly optimistic.

Because this device may not be the game changer it's predicted to be.

Here's why.

The company has identified primary care physicians as its major market. They would take the role of first-line screeners of patients at high risk for stroke, except that...

[mmpazkzone name="end-story-hostage" network="9794" site="307044" id="138536" type="4"]

...I know of no primary care doctor who is going to spend $49,000 for a piece of in-office equipment, especially when he or she can do a simple ultrasound and then send patients out for a scan without investing a dime.

These family physicians are currently among the lowest paid of all physicians (with only pediatricians and gerontologists making less). So they have no incentive to spend significant amounts of money on this type of medical equipment.

And although many of these doctors do have specialized devices such as ECG machines to detect heart problems, these come with a price tag of only $1,000 to $2,000.

The CSS device is just too new, way too expensive, and doctors are known for being slow to change from the familiar to the unfamiliar, especially if the familiar works.

I think the real market for this technology is probably in an out-patient medical imaging setting - usually just a single department in a hospital or clinic. That's still a large market, but not close to the number of primary care offices in the United States.

Investors aren't aware of all the implications here, either. They bought the stock when the company went public and nearly doubled their money already. Now, they're blinded by the gains and don't care about researching whether or not this is actually a good investment.

Here's how the stock could take some really hard hits as it passes through the FDA approval process...

This "High Flyer" Has a Long and Rough Way Ahead of It

Medical devices like the CSS is usually traverse a much quicker regulatory pathway than the one for medicines, and they go to a different part of the FDA for review.

CVR Medical is preparing to submit a Premarket Notification 510(k), which is basically a data set that attempts to show the device is similar enough to previously approved devices that it can be approved on the basis of their established safety and efficacy profiles.

If the CSS could pose any danger to patients, it would have to apply for a premarket approval (PMA) instead of a 510(k) exemption, but that doesn't seem to be the case here. I suspect the clinical studies will have to demonstrate the accuracy of the diagnostic algorithms in mapping stenosis, but that safety will be assumed, based on experience with other ultrasound machines.

In order to test the machine on humans, the company had to get an IDE (investigational device exemption) from the FDA and a go ahead from an IRB, such as Jefferson's, appointed by the FDA. If this were a PMA application, the company would need to get permission from both an IRB and the FDA itself.

So the process comprises classifying the device, which will determine whether it needs review, and if so, what type of review; securing an IDE; getting the go ahead from an IRB, which will ultimately do the product review and analysis; and then send their findings to the FDA for approval. A 510(k) review takes 90 days from the date of submission.

This is not an easy, smooth process by any means. And approval is not guaranteed. So for now, here's how I suggest playing the stock...

Here's the Real Opportunity in a Stock Like This

As I explained earlier, the market for this device will be considerably smaller than the company has projected, considering the hefty cost.

The only way around this issue would be for another company to acquire CVR Medical and then to develop a way to manufacture the device at scale for a couple thousand bucks. In that case, the company's sales forecasts might begin to make some sense.

For now, I suggest keeping an eye on CRRVF stock. The company may garner more attention as it progresses through the regulatory pathway and, the way I see it, may turn into a good short opportunity.

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