Cesca Therapeutics Inc (NASDAQ:KOOL): A Momentum Play With A Make Or Break Decision Near Term

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Cesca Therapeutics Inc (NASDAQ:KOOL) registered 50% gains early last week on more than 13 million shares trading hands and no real fundamental developments, and rumors that the company is gearing up for an offering flooded message boards. The company is up again on Monday, circa 10% mid-US morning, having just announced the FDA acceptance of a reviewed trial design, and looks like a nice momentum play heading into a fresh week’s trading.

The latest announcement relates to a changing of the primary endpoint in the company’s planned phase III for SurgWerks CLI platform. It’s a bit of kit designed to help harvest stem cells, process them and then reintroduce them to the patient all in one sitting, and its targeting a condition called critical limb ischemia (CLI). Patients that have CLI have some level of restriction in their blood vessels, and it leads to a lack of blood reaching extremities. In the legs, the last line treatment is amputation. One-year amputation rate is 30%, so there’s a pretty big opportunity for a company that can serve up an effective alternative. Cesca is trying to meet this opportunity, and it had originally set up a trial that used amputation free survival as a primary endpoint.

The problem with this is that it ties two pretty much unrelated things together – all cause mortality and CLI rooted amputation – and this would make it pretty difficult for Cesca to proved that its kit works. The FDA just accepted a protocol change, which means the company now doesn’t have to go after AFS, and can use what’s called Transcutaneous Oxygen Pressure (TcPO2) as a primary. This is a pretty widely used measurement of blood flow to tissue, and it’s non invasive.

Technically, it should make it easier for Cesca to complete the trial successfully. Why? Because even if a patient ends up having the amputation as a last line, if Cesca can show there was some stat sig improvement in blood flow pre-amputation, the FDA will likely view the kit as effective.

Here’s a catch, however, and it’s going to dampen the impact of the trial shift a little as far as maintaining momentum is concerned:

“FDA also indicated that regardless of the outcome of the study, it would require the Company to further validate TcPO2 as a surrogate for clinical outcome for the proposed indication prior to granting marketing (PMA) approval.”

Essentially, this means that the company is going to have to prove that increased TcP02 is lined to (and correlates with) a reduced rate of amputation in this condition. How it’s going to do that is going to define the development process in our opinion. If it can find some already established data, and the FDA accepts this as proof of surrogate, the path to commercialization should be a simple one. If it has to conduct its own trial (which is a distinct possibility) then the path could be drawn out and costly. Cash isn’t great right now ($7.2 million as of March 31) and this could be the driving force behind the recent shelf registration worth $30 million and the above alluded to capital raise.

A raise of the proportion needed to run a phase III and concurrently generate proof of surrogate data would be highly dilutive, and that’s the risk shareholders face right now.

Bottom line here is that we expect the momentum to carry through this week, and that makes Cesca an attractive short term play. The potential for a highly dilutive raise, however, which is looking likely given current price action, is enough to put us off anything long term – at least until we know more about the FDAs opinion on the surrogate data.

We’re going to keep a close eye on the trial’s protocol and will update our analysis as soon as we know more. Stick with us by signing up to our free small cap research newsletter below and we’ll make sure you get this make or break info as soon as it’s available.

Disclosure: We have no position in KOOL and have not been compensated for this article.

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