The company: E-QURE Corp. (Electric Quick Ulcer Remedy), a publicly traded company (OTC:EQUR) headquartered in New York, is a premier provider of innovative medical devices in the field of active advanced wound management. The key shareholders are the founders themselves, Ron Weissberg, Ohad Goren and Itsik BenYesha. The company has about 22 million shares outstanding and a market capitalization of about $6.4M.
Massive market opportunity in chronic wounds: Chronic wounds affect about 2% of the population in the U.S. which translates to about 6.5 million people. Treatment of such non-healing wounds imposes an economic burden and contributes to the already increasing health care costs. It has been estimated that the annual cost for the treatment of chronic, non-healing wounds exceeds $50 billion in the U.S. The economic burden is growing rapidly due to increasing health care costs, an aging population and a sharp rise in the incidence of diabetes and obesity, which leads to an increase in acute and chronic conditions such as diabetic foot ulcers, venous ulcers, and pressure ulcers.
The global market for products in wound management (traditional and advanced, source: MedMarket) stood at approximately $12.5B in 2012, and is expected to reach $22B in 2021. The global market for advanced wound care (moist dressings and physical therapies) had an estimated value of US$6.2 billion in 2013. North America accounts for the largest share of the advanced wound care market. Despite the competition in the wound care market and the rising demand by the government to reduce spending on healthcare, the future growth is expected to be driven by favorable demographic factors . Growth is especially expected in Europe, Asia and other areas outside of the U.S. where the penetration of advanced care, and especially active care, is a fraction of the penetration in America.
It is estimated that 45% of 85 year olds are expected to develop chronic wounds in the next decade. The U.S. population continues to age. Circulatory diseases and diseases rendering the aged non-ambulatory are associated with non-healing wounds and generally affect Americans that are older than 65 years of age. Adding to this pool is the prevalence of obesity that is sharply rising in the U.S. Obesity-related changes to skin structure and function impedes wound healing.
An estimated 2.5 million patients are treated annually for pressure ulcers in the U.S. acute care facilities. The total annual cost to treat of pressure ulcers is estimated to be more than $11 billion per year. According to the Centers for Medicaid and Medicare Services (CMS), the average length of stay in the hospital for treatment of a pressure ulcer is 13 days and the associated cost for hospital stay related to pressure ulcers is more than $40,000. It is estimated that about 30% of hospitalized patients in long-term care facilities experience a pressure ulcer due to commonly associated co-morbid conditions such as spinal cord injury, stroke, or other acute illness. The failure to prevent pressure ulcers in long-term care settings has resulted in increasing litigation costs to healthcare facilities. Additionally, the rising threat from diabetes resulting in diabetic foot ulcers and other foot complications are responsible for 20% of the 3 million hospitalizations every year. Many of these patients eventually undergo leg/foot amputations as a result of infection caused by unhealed foot ulcers.
As efficient advanced wound care and closure products with high degree of effectiveness in managing chronic wounds with quicker healing times are becoming increasingly prevalent, traditional wound care and closure products are being substituted with these. The need to reduce healthcare costs, and the rising demand for products that enhance therapeutic outcomes are the primary drivers for advanced wound care & closure products. The devices segment of the active advanced wound care therapy comprises of negative pressure wound therapy devices, pressure relief devices, electrical stimulation devices, oxygen and hyperbaric oxygen equipment, electromagnetic therapy devices, and ultrasound devices. The NPWT devices market is witnessed highest growth thus far due to the favorable reimbursement scenario for such devices prevailing in the market. Although the mature markets (U.S. and Europe) are saturated with major industry players, the emerging economies comprising Brazil, Russia, India, and China represent the next big opportunity for the leading players. Therefore, we believe growth in these markets will be driven by low cost and easy to use models such as EQUR’s BST device.
Validated mechanism: The company’s BST (Bioelectrical Stimulation Therapy) technology is an active advanced wound management device that is designed to produce an electrical stimulation, combining electrical noise and a pulse train to the wound site. This specific mode of electrical stimulation activates sensory nerves in humans via stochastic resonance and accelerates the body’s mechanism of wound healing. The safety and efficacy of BST therapy was evaluated in controlled randomized studies at several centers internationally and the results were favorable. The BST device has been approved as a non-invasive electrical stimulation device for hospital, nursing home, and in-home care treatment of chronic wounds in Europe and Israel and is pending approval in Canada and Australia. The potential effect of the BST device is compelling as the therapy has shown to facilitate complete wound closure on patients with grade IV pressure ulcers that have not healed in many years.
The BST device is non-invasive and easy to use. This implies fewer disturbances to the wound, decreased discomfort for patients and a reduced risk of wound infection. Since the therapy is easy to administer it causes less pain, and requires fewer dressing changes as the electrodes are not placed directly on the wound, and the use might reduce analgesic requirements. The clinician/therapist costs could be significantly lower as compared to competing therapies. BST’s stand-alone device is portable and equipped with mechanisms to insure proper connectivity and has a pre-programmed timer for halting treatment when completed. Therefore, this device can be used in hospitals as well as in in-home care facilities and eliminates the need for trained personnel to administer the therapy. By supporting wound healing, use of such innovative devices may decrease hospital visits and also could help reduce the cost of wound management.
Near-term Value Drivers: The impending initiation of patient enrollment in the U.S. clinical trial should represent a meaningful milestone for EQUR. A recent authorization from the FDA (final IDE approval) was received during the third week of February 2017. Instead of the anticipated time of Q1 2017, we anticipate the trial to commence around mid-Q2 2017 and expect data from this trial in the latter half of this year. The regulatory authority has allowed commencement of the trial at five different institutions, which has a major positive impact on the time frame planned for the study.
- Q2 2017 – The AMAR (Israeli) approval was received on February 20, 2017 and it is valid for three years. The company plans to launch a new observational pilot trial in Israel and Europe. The firm also hopes to uplist trading of EQUR shares to NASDAQ.
- H2 2017 – The firm is awaiting authorization to market its devices (17 BST devices) in Argentina.
- Q3 2017 – Management anticipates concluding and reporting pilot trial results in Israel and Europe and launch sale activities in Europe and Israel
- Mid-2017 – The company hopes to enroll remaining 80 patients in the U.S. trial. The results of the multi-center clinical trials are expected in about fifteen months’ time from the date of commencement.
- H1 2019 – Management expects to launch the BST device in the U.S.
Valuation underscores upside potential: We think the BST device is the primary value driver for EQUR. Meanwhile, EQUR will explore strategic alliances with key distributors to penetrate the U.S. market or preferably build its own marketing and sales capabilities. Pending FDA approval, we expect the product to be launched in the U.S. market sometime in 2019.
Successfully obtaining FDA approval alone does not guarantee a strong revenue stream. The efficacy and cost-competitive benefits of the BST device may take some time to bear out after introduction to the clinical market. Healthcare Common Procedure Coding System (HCPCS) code E0769 is currently applicable for reimbursement towards procedures performed using electrical stimulation devices for wound care. If EQUR were able to obtain this same code for reimbursement towards procedures done using their device, the reimbursement amount is roughly $3,000 calculated using an average treatment time of 60 days and a reimbursement of upto $70 per day. This reimbursement estimate is based on our best guesses of the reimbursement amount we expect the company to obtain with the existing code.
We conservatively model steady growth in revenue as device launches and gains market share. We expect the company to gain operating leverage in the out years. As the market penetration increases over the years, we expect revenue to gain momentum and result in a positive EPS. Given the uncertainties discussed above, we have used a discount rate of 18% in our financial model and arrived at a price target of $0.50/share. We would like to remind investors not to be turned off by our valuation. The adjustments we have made to guidance are more to reflect the delays associated with progress and developmental goals in the business. Our financial estimates are subject to change based on the status of regulatory approvals as well as results of the clinical trial as they come through.
Major biotech companies pose a threat to entry, through combination of acquisition or new product development. Despite wound management being an attractive segment to enter due to secular growth and high profit margins, unstable pricing/industry conditions, and regulatory approval can be an impediment. Unexpected delays in the clinical trials related to the approval will result in a lengthier development and commercialization times.
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