ENDRA (NDRA) is a small-cap ($12M) life sciences company that has expertise in the research and development of diagnostic medical imaging technologies based on the thermos-acoustic enhanced ultrasound system (TAEUS). TAEUS has been proposed to improve the sensitivity and specificity of clinical ultrasound systems.
At present, NASH is diagnosed by liver biopsy and that remains the gold standard for the foreseeable future. In addition, the clinical endpoints in Phase 3 NASH trials currently used for regulatory approval of drug candidates can only be based on data derived from histological evaluation as mandated by the FDA. Notwithstanding, clinical outcomes based on liver fat levels and liver fibrosis are now routinely evaluated or confirmed primarily by non-invasive innovative imaging technologies developed by the two non-US companies, Echosens and Histoindex.
My fellow contributor, Dan Stringer, has done an excellent job in covering ENDRA and I am in no way trying to steal his thunder. What I hope to achieve in my article is to bring further limelight to this stock by confirming his thesis on the potential clinical value for ENDRA/TAEUS, in revealing its differentiation from NAFLD/NASH diagnostic imaging front-runners, Echosens and Histoindex.
NAFLD And NASH Epidemiology
In the US, the epidemiology of NAFLD and NASH estimated at 67M and 18M are also increasing at a startling rate in the adult population and now in the pediatric population. It is estimated that beginning 2020, liver transplant in NASH patients is expected to surpass HCV-infected patients.
There are over 30 drug candidates currently in clinical trials for NASH. Clinical regulatory history is expected to be made in H2 2019 with the potential FDA approval of obeticholic acid by Intercept (NASDAQ:ICPT) for NASH fibrosis. There is also increasing awareness that lifestyle changes in diet and physical activity would be important to sustaining/maintaining any clinical benefits achieved from NASH therapeutics, and to preventing the progression of NAFLD to NASH.
How Does TAEUS Work?
Endra explains that its TAEUS system works by using radio waves and sonic waves to enhance and discern information obtained from ultrasound as demonstrated in the promotional video below (Fig. 1). Endra sees a therapeutic void in the diagnostic imaging market that is limited by performance, access/costs and safety. Endra perceives its TAEUS technologies could provide superior clinical value than traditional ultrasounds at a lower cost, that could lead to increased access by patients. Given that the NAFLD market is currently dominated by the Echosens and Histoindex, I reaffirm what ENDRA needs to do and is currently doing to be a contender for this huge addressable market NAFLD and NASH markets.
Fig. 1: TAEUS Technology
Clinical Evidence: ENDRA'S current limitation is that its TAEUS technology has not yet been validated in clinical trials, with a focus on NAFLD. During the Q4 2018 earnings call, the CEO reported that human data was anticipated H1 2019. Recently, ENDRA announced preliminary data from feasibility studies on the human liver showing the effectiveness and sensitivity of the TAEUS technology at liver fat measurement. This is an ongoing study with more patients being evaluated. Obviously, any clinical data that validates the TAEUS platform would provide proof of principle on its potential clinical value in NAFLD. Collaborative agreements with Investigator-initiated clinical trials, focused on NAFLD and NASH, could be one way to increase clinical evidence on the superior efficacy of TAEUS over traditional ultrasounds. ENDRA's Chief Technology Officer, Michael Thornton in his own words:
The Robarts Research study is an ENDRA-academic collaboration, the first of several planned clinical studies in North America and Europe, as we transition from feasibility to product testing and ultimately to product evaluation studies.
These clinical data would be needed to justify the US 510k license approval and to support the CE mark application in Europe and commercial product design. ENDRA has a clear vision of what they are trying to achieve and their market base. Echosens and Histoindex may be the major players in this area but this is a huge addressable market. In colloquial language, Tide pods from Walmart produces the same effect as that sold by Wholefoods, with cost being the underlying difference.
ENDRA needs to persuade and convince clinicians/researchers, hospital administrators, budget directors etc on the cost effectiveness of purchasing TAEUS as an add-on to the existing ultrasound systems over acquisition of new diagnostic imaging systems. Next, I discuss costs.
Costs: The US Clinical liver disease imaging/diagnostic addressable market is currently dominated by Echosens and Histoindex and there is no way for me to accurately discern the costs of diagnostic imaging tools provided by Echosens and Histoindex. Echosens was approved by the FDA in 2003 and is heavily used clinically as well as in clinical trials. It is also well known that these non-invasive diagnostic tools are also out of reach of many healthcare providing institutions despite the prevalence of NAFLD and NASH in the US.
Healthcare direct and indirect costs in the US is steep and is expected to keep on rising. So, the issue of costs associated with diagnostic imaging may play a key role in what clinical services are being offered by health service providers and also what amount healthcare insurers are willing to pay for such services. A clear differentiation provided by TAEUS relates to its low costs estimated to be $40K to adapt to existing ultrasounds, which is relatively cheap. ENDRA explains:
TAEUS technology is designed to combine an accessory and proprietary software into an easy-to-implement add-on to existing ultrasound machines, enabling clinicians to visualize human tissue composition, function and temperature in ways previously possible only on CT or MRI-but at a fraction of the cost, and at the point of care. We expect TAEUS technology to be able to be incorporated into ultrasound devices, providing a seamless interface for clinicians.
Addressable Market: NAFLD and NASH are huge addressable markets as separate disease entities. I believe there is a US market for TAEUS despite the competition. Everyone wants to lower healthcare costs. ENDRA projects an addressable market of 338,000 ultrasound systems (Fig. 2). In addition to US and European markets, TAEUS technology should also gain significant market in developing countries (Fig. 2) where cost is a bigger issue and the imaging technologies from Echosens and Histoindex are out of reach due to costs. Like Dan Stringer, rightly noted: If ENDRA can capture just 1% of this market, with help from GE Healthcare, this would give it revenue of $130M annually.
Fig. 2: Global Addressable Market for Ultrasound Systems
I think they can capture a bigger share of the addressable market if they can convincingly demonstrate to clinicians/researchers, hospital administrators, budget directors, the clinical value of the TAEUS technology in NAFLD and NASH diseases. They also need to get themselves aligned with small cap biopharmas with limited resources and a NASH focused clinical drug development.
Other Application: TAEUS is not limited to liver diseases since ENDRA believes the technology can be applied in cardiovascular disease and oncology.
Actionable Event, Financials And Risks
This stock is a long hold that would appreciate in upcoming years. The importance of non-invasive diagnostic imaging tools in NAFLD and NASH is not well discussed or known outside scientific conferences. I like ENDRA's clinical vision for the TAEUS technology and its application. The full clinical data would be critical in its marketing pitch.
ENDRA has grown its IP portfolio to 48 assets patents and patent applications that are in preparation, filed, issued or licensed, encompassing a range of device and method-focused IP in targeted global markets. It has partnered with the Ladak Laboratory at Western University in Canada to develop artificial intelligence tools for ENDRA's TAEUS technology. Upcoming catalytic events include filing for CE Mark in Europe in H1 2019; and controlled launch of the TAEUS liver device in Europe mid-2019. ENDRA Life Sciences Inc. has collaborative research agreement with General Electric Company.
Cash at the end of Q4 2018 totaled $6.5M with no long-term debt outstanding company. This low cash reserve could be problematic for some investors. ENDRA addresses this on the Q4 2018 earnings call (linked to above):
In the first quarter of 2019, we filed a new Form S3 shelf registration statement to extend our access to the capital markets. Note that we also filed another S3 that covers common shares issued should any of our warrant holders exercise their warrants which are traded under the ticker symbol NDRAW. This was a required filing for compliance. As before and in summary, we believe that the combination of our asset light operating model and continued effective and efficient use of cash will position ENDRA to first commercialize our TAEUS liver product in the European Union and then in the United States as scheduled.
Giving CEO Francois Michelon the last word (linked to above):
As we embark on an exciting 2019 for ENDRA, we now have an increased cash balance following financings in the fourth quarter of 2018, human studies are underway, the necessary foundations for a strong CE application have been secured and we are partnered with the market leader, GE Healthcare, to support our 2019 commercialization activities in Europe. We look forward to updating investors on our human study in the weeks to come.
This is a stock that could appreciate in value in upcoming years. As more companies become aware of the huge NAFLD and NASH addressable market, I expect more companies to initiate the development on non-invasive diagnostic tools for this chronic liver disease.
The full length article was discussed in more depth with members of my private investing community, Liver Therapy Forum
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Disclosure: I am/we are long NDRA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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