Echo Therapeutics (ECTE)

Increasing Our Target Valuation Based on Clinical Progress
Significantly Undervalued as Financings Batter Stock

Download Full 22-Page Update Report with Important Disclosures: ECTE Update 03-20-13

Increasing Our Target Valuation for Echo Therapeutics: Based on clinical progress for Echo’s Symphony tCGM system, we are increasing our target valuation for Echo Therapeutics to $225M, an increase of $25M over our previous market valuation. However, on a per share basis, the target price has been decreased to $3.75 to reflect the higher 60.2M shares outstanding.

Echo Granted ISO 13485 Certification: On March 15^th, Echo was granted International Standards Organization (ISO) 13485:2003 certification for their quality management system. Investors should note that this is a critical step in gaining European CE Mark certification this year for the Symphony tCGM system. It should also be noted that the U.S. FDA intends on relying on ISO 13485 in the future. (see http://1.usa.gov/csXS0D )

Echo Targeting European Product Launch for Symphony® tCGM in Q4: Echo Therapeutics stated that they are finalizing trial design and logistics with the goal of receiving CE Mark and European launch before year-end 2013. The company believes the clinical trial may be smaller than previously expected and is currently in discussions on the final design which now is targeted at just 30 to 50 patients.

U.S. Registration Trial Expected to Start in 2013: Echo will be meeting with FDA soon on the trial design for the PMA to enable U.S. sales. The FDA stated trials will be designed on a case-by-case basis (see FDA Workshop on Hospital-Based Glucose Control) with discussions focusing on endpoint criteria and thresholds. Investors should note that Echo has shown strong results for the Symphony® tCGM, most recently in the Feasbility 3B study showing a low MARD of 9.0% with CG-EGA 98.9% clinically accurate with 0.3% benign errors for a combined A+B of 99.2%. (see Clinical Trial Results: Feasibility 1 (Healthy), 2 (Diabetic) & 3A/B (Critical Care))

Echo Pays Back Montaur Debt: On March 1, 2013, Echo prepaid all outstanding draws under the Montaur Credit Facility totaling $3,113,366, which includes interest accrued and unpaid to that date of $113,366. No principal amount is currently outstanding under the Credit Facility. Investors should also note that Echo recorded non-cash interest expense of approximately $2,800,000 in 2013 relating to the unamortized debt discount on the outstanding draws paid off.

New Board Member Announced: On March 13^th, Echo announced the appointment of Robert F. Doman to its Board of Directors. Most recently, Mr. Doman served as President and Chief Executive Officer of publicly-traded DUSA Pharmaceuticals, Inc., which he joined in 2005. In 2012, Mr. Doman completed the successful sale of the company to Sun Pharmaceuticals in a $230 million transaction. From 2000 to 2004, Mr. Doman served as President of Leach Technology Group, the medical electronic device, design, product development and contract manufacturing services division of Leach Holding Corporation, which was sold to Esterline Technologies in 2004. He served as President of Device Product Development of West Pharmaceutical Services from 1999 to 2000. Prior to that, Mr. Doman held marketing and business development positions at the Convatec division of Bristol-Myers Squibb and Critikon, Inc., a Johnson & Johnson company.

Capital Raises Batter Stock Price: Despite the successful Symphony tCGM clinical data and product development progress during 2012, investors now find Echo Therapeutic shares trading at half the average 2012 share price of $1.68. As can be seen from the chart below, capital financing missteps have resulted in a significant decline in share price. (see Recent Financing Activity) However, we believe Investors should remain focused on the fact that data from multiple feasibility studies for Symphony was shown to be consistent and accurate across patients and clinical sites. Feedback from Key Opinion Leaders, including on-the-record statements made at last year’s FDA workshop on hospital continuous glucose monitoring, provides evidence of both the clinical need and healthcare demand for this technology. Furthermore, Medtronic’s (NYSE:MDT) recent European CE Mark approval of their Sentrino^® CGM system for use in hospital critical care units (CCU) demonstrates that regulatory approval can be achieved. In addition, Medtronic’s Sentrino sensor requires an invasive penetrating wire versus Echo’s Symphony system which uses a non-invasive transdermal sensor, we believe Symphony would be especially attractive to European health authorities.

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We are maintaining a Strong Speculative Buy with a Price Target of $3.75: Our target price is based on 35x projected 2015 EPS and discounted 30% for risk resulting in a market capitalization of approximately $225 million. This is a significant discount to DexCom (Nasdaq:DXCM) (see Competition), the only pure-play comparable, which has FDA approval for their invasive, implantable biosensors with a market capitalization of approximately $1 billion.

Download Full 22-Page Update Report with Important Disclosures: ECTE Update 03-20-13

Successful Symphony tCGM Tufts Data Presented at SCCM Conference
Echo Raises $3.5M to Focus on European CE Mark – Target This Year
Medtronic Sentrino® Launch in Europe is Net Positive for Echo Shareholders

Download Full 9-Page Note with Important Disclosures: Mid-Day Note 01-22-13 ECTE

Dr. Stanley Nasraway, M.D., FCCM, Principal Investigator for the Symphony tCGM Tufts study presented the data from 15 patients who were undergoing elective cardiac surgery at the Society of Critical Care Medicine’s 42nd Critical Care Congress. Using over 540 Symphony tCGM glucose readings from 15 study subjects paired with reference blood glucose measurements, CG-EGA showed that 99.6% of the readings were clinically accurate and 0% were benign errors with a combined A+B of 99.6%. The MARD for the study was 12.3%. (see FEASIBILITY 3A Tufts)

We are maintaining a Strong Speculative Buy with a Price Target of $5.00: Our target price is based on 35x projected 2015 EPS and discounted 30% for risk resulting in a market capitalization of approximately $200 million. This is a significant discount to DexCom (Nasdaq:DXCM) , the only pure-play comparable, which has FDA approval for their invasive, implantable biosensors with a market capitalization of approximately $1 billion.

OTHER RECENT NEWS:

Financing: On December 27, 2012, Echo sold a total of 3,680,000 shares of their common stock at a price of $0.95 per share resulting in gross proceeds of approximately $3.5M.

 Medtronic Sentrino® Launch in Europe is Net Positive for Echo Shareholders: We believe the December 3, 2012 announcement by Medtronic (NYSE:MDT) in receiving European CE Mark approval for their Sentrino® CGM System for hospital critical care units (CCU) is beneficial for Echo Therapeutics shareholders.

While the regulatory hurdles are lower in Europe, the fragmented nature of the European medical market makes it very costly for the first-mover to generate sales in each country, especially for a completely new indication such as CGM in CCU. Every dollar that Medtronic spends persuading hospitals and reimbursement authorities in each country is money that Echo Therapeutics will not need to spend when Echo’s Symphony® tCGM launches next year. It will also take Medtronic time and effort to develop the market demand, which will then already be prepared to accept CGM in the CCU when Symphony launches. Therefore, while Echo’s Symphony CE Mark is approximately 10-12 months behind Medtronic, they will most likely only lose 4-6 months in the actual European marketplace.

Investors should also note that Medtronic’s Sentrino sensor requires an invasive penetrating wire versus Echo’s Symphony system which uses a non-invasive transdermal sensor. We believe that Echo’s non-invasive sensor will be especially attractive to European health authorities.

Finally, with the very strong data results seen across several studies for Echo’s Symphony tCGM, while Medtronic must expend their time and money developing the market for CGM in the European CCU market for all future players, we believe Echo would ultimately be an excellent acquisition target for competitors wanting to quickly exploit the new European CGM CCU market.

Download Full 9-Page Note with Important Disclosures: Mid-Day Note 01-22-13 ECTE

Medtronic Sentrino® Launch in Europe is Net Positive for Echo Shareholders 

Download Full 9-Page Note with Important Disclosures: Morning Note 12-05-12 ECTE

We believe the current weakness in Echo Therapeutics shares due to Monday’s announcement by Medtronic (NYSE:MDT) receiving European CE Mark approval for their Sentrino^® CGM System for hospital critical care units (CCU) is overdone. In fact, we believe that it is beneficial for Echo Therapeutics shareholders.

While the regulatory hurdles are lower in Europe, the fragmented nature of the European medical market makes it very costly for the first-mover to generate sales in each country, especially for a completely new indication such as CGM in CCU. Every dollar that Medtronic spends persuading hospitals and reimbursement authorities in each country is money that Echo Therapeutics will not need to spend when Echo’s Symphony^® tCGM launches next year. It will also take Medtronic time and effort to develop the market demand, which will then already be prepared to accept CGM in the CCU when Symphony launches. Therefore, while Echo’s Symphony CE Mark is approximately 10-12 months behind Medtronic, they will most likely only lose 4-6 months in the actual European marketplace.

Investors should also note that Medtronic’s Sentrino sensor requires an invasive penetrating wire versus Echo’s Symphony system which uses a non-invasive transdermal sensor. We believe that Echo’s non-invasive sensor will be especially attractive to European health authorities.

Finally, with the very strong data results seen across several studies for Echo’s Symphony tCGM, while Medtronic must expend their time and money developing the market for CGM in the European CCU market for all future players, we believe Echo would ultimately be an excellent acquisition target for competitors wanting to quickly exploit the new European CGM CCU market.

Download Full 9-Page Note with Important Disclosures: Morning Note 12-05-12 ECTE

 Echo Targets EU Launch of Symphony^® tCGM in 2013
 CE Mark Clinical Trial Design Requires Fewer Patients
 U.S. Registration Trial Expected to Begin Next Year

Download Full 20-Page Update Report with Important Disclosures: ECTE Update 11-12-12

1.) Echo Targeting European Product Launch for Symphony^® tCGM Next Year: Echo Therapeutics stated that they are finalizing trial design and logistics with goal of receiving CE Mark and European launch in 2013. Activities for Q4’12 and Q1’13 include finalizing the commercial product, finalizing the clinical trial design, completing the ISO 13485 audit (internal quality systems for manufacturing medical devices) and initiating the CE Mark-enabling clinical trial. The company believes the clinical trial may be smaller than previously expected and is currently in discussions on the final design which now is targeted at just 50 patients or less enrolling in 4 to 6 sites.

2.) Direct Sales force for Targeted EU Rollout: Echo’s initial strategy will utilize a small direct sales force during the country-by-country launches to be supplemented with select distributors in certain regions. Initial marketing efforts are expected to focus on cost benefits on utilizing the Symphony tCGM system. While we do not anticipate high sales volumes initially, we believe the EU launch provides solid starting point for the eventual U.S. product launch.

3.) Final U.S. Registration Trial Expected to Start in 2013: Echo is in discussions with FDA on the trial design for the PMA to enable U.S. sales. The FDA stated trials will be designed on a case-by-case basis (see FDA Workshop on Hospital-Based Glucose Control) with discussions focusing on endpoint criteria and thresholds. Investors should note that Echo has shown strong results for the Symphony® tCGM, most recently in the Feasbility 3B study showing a low MARD of 9.0% with CG-EGA 98.9% clinically accurate with 0.3% benign errors for a combined A+B of 99.2%. (see Clinical Trial Results: Feasibility 1 (Healthy), 2 (Diabetic) & 3A/B (Critical Care))

4.) Credit Facility for up to $20M: On August 31, 2012, Echo entered into a credit facility with institutional investor Platinum-Montaur Life Sciences for up to $20M to implement Echo’s plans to commercialize the Symphony tCGM system. Echo will be able to borrow up to $5M at 10% interest. The credit facility will increase in $3M increments up to a maximum increase of $15M based on regulatory and clinical study milestones. Echo issued 4M warrants with an exercise price of $2.00 per share on closing. Echo will also issue 1M warrants per $1M borrowed with exercise prices ranging from $2.00 to $4.00 per share. (see Recent Financing Activity)

5.) Clear Market Opportunity: On June 8, 2012, Echo Therapeutics hosted a “Hospital-Based Glucose Control” panel with several Key Opinion Leaders. We note the panel was unanimous that continuous glucose monitoring is needed in the critical care setting and that, in particular, the Echo Symphony tCGM system would save significant time. It was also agreed that the time savings will translate into real cost saving when analyzed by hospital administration. Also, once adopted in the critical care setting, there are clear pathways to expanded use throughout the hospital. It was agreed that the Echo Symphony tCGM system could follow the same adoption curve that noninvasive pulse oximeters experienced as they quickly became standard of care in the operating room and then use was expanded to the recovery room followed by intensive care units and then various other units within the hospital. The panel also noted that Echo’s Symphony tCGM system is one of the few medical devices being developed in response to actual current clinical demand. With respect to competition, current CGM manufacturers using invasive sensor wires are competing against each other on accuracy to gain hospital acceptance while Echo Therapeutics is the sole player with a transdermal biosensor that eliminates the sensor wire for ease of use and safety. The panel believed that it is easier for Echo’s Symphony tCGM system to achieve the needed accuracy as opposed to current CGM makers converting their existing platforms to a transdermal system.

6.) We are maintaining a Strong Speculative Buy with a Price Target of $5.00: Our target price is based on 35x projected 2015 EPS and discounted 30% for risk resulting in a market capitalization of approximately $200 million. This is a significant discount to DexCom (Nasdaq:DXCM) (see Competition), the only pure-play comparable, which has FDA approval for their invasive, implantable biosensors with a market capitalization of approximately $880 million.

Download Full 20-Page Update Report with Important Disclosures: ECTE Update 11-12-12

 New NEJM Paper Doesn’t Reduce Need for ICU Continuous Glucose Monitoring
 Final Critical Care Feasibility Study Data Strong with MARD of 9.0%
 Experts See Demand for CGM in Hospitals – Echo’s Transdermal CGM Favored
 Echo Therapeutics Enters Into $20M Credit Facility – $5M Available Now

Download Full 10-Page Note with Important Disclosures: Morning Note 09-20-12 ECTE

A post-hoc analysis of the NICE-SUGAR results from 2009 was published in the September 20, 2012 issue of The New England Journal of Medicine (NEJM) in a paper titled “Hypoglycemia and Risk of Death in Critically Ill Patients” concluded that “in critically ill patients, intensive glucose control leads to moderate and severe hypoglycemia, both of which are associated with an increased risk of death. The association exhibits a dose–response relationship and is strongest for death from distributive shock. However, these data cannot prove a causal relationship.” Investors should note that this paper does not change our outlook from the original 2009 paper.

The March 26, 2009 issue of The New England Journal of Medicine (NEJM) published the results of the NICE-SUGAR trial in a paper titled “Intensive versus Conventional Glucose Control in Critically Ill Patients” where the researchers concluded “intensive glucose control increased mortality among adults in the ICU“. However, we caution investors from extrapolating these findings to the Echo Therapeutics Symphony™ tCGM system. We believe that the use of inaccurate glucose monitors in the trial caused significant errors in the data. In fact, the FDA felt the use of inaccurate glucose meters warranted a review to bar their use in hospital critical care settings (see FDA to Require Hospitals to Use More Accurate Glucose Monitors)

As the 2009 NEJM editorial points out, the NICE-SUGAR study “simply tells us there is no additional benefit from the lowering of blood glucose levels below the range of approximately 140 to 180 mg per deciliter“. In fact, we believe this may have been a result of too tight control in trying to achieve a low level of blood glucose and overshooting the target as hypoglycemia was seen in 6.8% of the patients versus 0.5% in the control arm. As proof, previous Belgian studies comparing intensive glycemic management to standard of care showed a patient survival benefit when reduction of glucose level was initiated only if the level is markedly elevated at >215 mg per deciliter.

A joint statement by the American Diabetes Association (ADA) and the American Association of Clinical Endocrinologists (AACE) on the NICE-SUGAR study on intensive vs. conventional glucose control in critically ill patients said the results “should NOT lead to an abandonment of the concept of good glucose management in the hospital setting. Uncontrolled high blood glucose can lead to serious problems for hospitalized patients, such as dehydration and increased propensity to infection. It is important to consider that the severely ill patients in this trial were treated intensively with intravenous insulin to very tight targets (average of 115 mg/dl), and were compared to a control group whose glucose control was good (average glucose 144 mg/dl).“

Echo Therapeutics Symphony is a continuous glucose monitoring system (not insulin delivery) and the trial may have failed because they did not use accurate continuous glucose monitoring but rather only checked once an hour (or 30 minutes at start) and used inaccurate glucose meters resulting in overshooting the blood glucose target and causing hypoglycemia. Even the NICE-SUGAR study authors stated “We do agree that more accurate systems for blood glucose measurement are required.” in their NEJM Correspondence reply.

Finally, we note that a meta-analysis, including the NICE-SUGAR study published in the April 14, 2009 Canadian Medical Association Journal (CMAJ) showed that intensive glucose therapy may be beneficial to adults and children admitted to a surgical ICU (the setting that Echo Therapeutics is addressing) and the CMAJ commentary discusses the reasons why patients in surgical ICUs benefit from intensive insulin therapy.

 Download Full 10-Page Note with Important Disclosures: Morning Note 09-20-12 ECTE