I have been fascinated by Echo Therapeutics (@echotx) ever since I first heard a guest on Pimm Fox’s Bloomberg show Taking Stock extolling the disruptive potential of the non-invasive glucose monitoring & topical drug delivery platform being developed by the company.
The publicly traded company (NASDAQ: ECTE) has been touting the successful results of its recent “clinical trials” of their glucose monitoring technology, but for whatever reason the announcement didn’t quite sit right with me.I have read enough of these press releases now to recognize when something is off. So I scoured the Internet for second opinions of the Echo product and its performance in their “clinical trials”.
Sure enough I came upon an obscure blog post entitled When is a clinical trial really a clinical trial? on Buyer’s Strike, which is authored by a thoughtful investor who took the time to do his own thorough investigation of the company’s claims by cross referencing them against the database of FDA approved clinical trials publicly available at clinicaltrials.gov. After dozens of queries, there was not a single result related to Echo or any of its products. Moreover, the analyst points out that the results–based on how the trial was designed according to the methodology proposed by the company– do not even meet the threshold of being statistically significant.
As a point of comparison the author points out Echo’s primary competitors have pending trials of similar products which do appear in search results on clinicaltrial.gov search results and clearly meet the minimum requirements to be considered statistically significant. These include a 230 person trial by DexCom, a 136 person study by Roche and a 150 person trial conducted by Medtronic.
Clinical trials do not need to be FDA sanctioned, but if a company is conducting clinical trials of a yet unapproved medical device and using the positive results of that trial to market its stock to investors without disclosing publicly that these trials are fundamentally useless in any regulatory review, it can be construed as misleading.
There are three key components to the non-invasive glucose monitoring solution:
- The Prelude SkinPrep System shaves away the outermost surface of the skin and hair (microdermabrasion), leaving a dime size spot
- a biosensor which is applied to that spot and
- a wireless handheld device that monitors the glucose levels captured by the biosensor.
Echo submitted their first product, the Prelude SkinPrep System, to the FDA for 510k review in November 2010, nearly 15 months ago. At the time Echo stated they expected approval in approximately 90 days, which was reasonable to assume considering the previous generation of the product had previously earned FDA 510k approval (pdf) when submitted by Sontra, the company that eventually became Echo. Yet here we sit today and Echo has yet to receive approval for the new generation of the product–though they still project revenues for the third quarter of 2012 to be approximately $12 million based on sales of this unapproved product!
Buyer’s Strike has actually done some real research on Echo, probably using nothing but their Google, unlike anything done by the Wall Street analysts that cover the company, which are almost universally promoting the company and encouraging buyers of the stock based on the fact that they seem to be willing to take the company’s projections at face value. As a big believer in the wisdom of the contrarian, I thought I would share what I learned about the company after reading the many brief posts by the Buyer’s Strike analyst (read here, here, here, here, here, here).
Echo Therapeutics was born out of a reverse merger, also known as a reverse takeover or reverse IPO, which involves the acquisition of a public shell company by a private entity who seeks to bypass the lengthy and complex process of going public. The company continues to get preferred equity investment from individuals under terms which basically gouge existing common share holders through substantial dilution, while providing participants in the private placements staggering returns in a very brief time frame.
Echo has managed to generate a mere $250K or so in total revenue, and that includes revenues of the companies that eventually became Echo, yet their ability to hype their technology seems to outweigh their ability to execute their objectives in the eyes of analysts.
The FDA has indicated it will issue its ruling on the pending 510k application before March 31, a full 14 months later than the company originally expected. Hopefully when/if Echo finally blows up it doesn’t scare too many investors away from investing in quality medical device manufacturers who seek to access the public markets to finance their R&D.