By: Jay Thompson of SkyTides Inc., with significant support from various experts.

The Spectranetics Corporation (NMS:SPNC), a medical devices manufacturer, is up 150%+ and about $750M in market capitalization on hype of its new product, Stellarex.

Before getting into Stellarex itself, we want to point out that SPNC management are currently accused of various securities frauds.  Furthermore, they appear to routinely overhype the prospects of their “new” products. AngioScore and the ISR indication for SPNC’s disposable lasers (“ISR”) are two clear examples of hype that was not only unfounded to begin with but was also aggressively pushed on investors when management was allegedly fully aware their words were untrue. During 2014 and 2015, management suggested AngioScore would not be impacted by the launch of drug-coated balloon (“DCBs”). After almost a year of strong denials, management finally admitted DCBs were stunting AngioScore’s growth. The management team followed the same game plan with ISR when the FDA approved it in July 2014. Management hyped this FDA approval, suggesting to investors that ISR would boost SPNC’s sales. Yet, they allegedly knew physicians were already using ISR “off-label.” Off-label use of the lasers was already generating revenue for SPNC and its sales personnel did not see further growth ahead so the FDA approval was essentially a non-event. These facts appear as though they were well-known internally at SPNC but investors were told a different narrative. As expected in any fraudulent scheme, the AngioScore and ISR hype eventually succumbed to reality in 2015 and SPNC’s stock price dropped 66% in response.

Today’s report covers the following:

Summary

1. SPNC has serious disclosure related issues including

  • SPNC did not disclose 12 recent patient death allegations by medical professionals “against” SPNC devices
  • FDA alleges SPNC deliberately withheld adverse event reports from the FDA
  • Unacceptable surgeon injuries – SPNC laser device emits accidental radiation and causes “burns to the gown, glove and finger of physician”

2. PNC did not disclose the largest recall in SPNC history in November 2016

3. Stellarex pivotal clinical data is “worst-in-class” for both primary efficacy and primary safety measures

4. Further analysis of primary efficacy measure shows competitors’ clinical data outclassing Stellarex by a factor of 16X and 9X, Stellarex really is “worst-in-class”

5. SPNC data-mined non-performance related demographic “differentiators” and successfully sold a flawed narrative to the street, our experts claim differentiators are trivial and highly unlikely to impress the FDA or cause hospitals to choose Stellarex

6. Medtronic, the DCB market leader, recently dropped its estimate of the worldwide DCB market by 23%, while SPNC’s industry forecasts became even more aggressive

7. Stellarex sales have failed in Europe, the only market it is approved in, supporting our view that projections of U.S. sales, if Stellarex is approved, are wildly inflated

8. A closer look at clinical data suggests “fortuitous flattening” or “manufactured data” was the difference between success and failure of the Stellarex Pivotal Trial

9. SPNC discloses its promotion of the AngioScore product included assumptions that were “materially inaccurate” and that these material inaccuracies may occur again — specifically mentioning Stellarex

10. Recent commentary by sell-side analysts highlights “” and “flat to down performance”

11. SPNC likely requires $100M+ in new capital but is already highly levered with over $300M in debt – a dilutive equity raise would crush the stock; daily liquidity is just $9M

12. Short term price target: $8 (70% downside)

Our research included interviews and in-depth analysis of various issues included in this report by 6 experts in fields relevant to the content in this report. We advise all readers of this report to read the biographies provided in Exhibit 5 to this report.

Please see SkyTides entire report here.


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