Jan2016 Mackie Research - Spectral Medical

Andre Uddin 416.860.
8675
auddin@mackieresearch.com
Mike Stevens 416.860.7614
mstevens@mackieresearch.com
Ja n ua ry 1 2 , 2 0 1 6
SPECTRAL MEDICAL INC. SPECULATIVE BUY

EDT - TSX
$0.78
TARGET (CAD$):
$2.50
PROJ. RETURN:
221%
VALUATION:
Ready For The Runup? Its All Or None

ACTION Initiating Coverage With a SPECULATIVE BUY Rating
We are initiating coverage of Spectral Medical Inc. (ETD-T) with a SPECULATIVE BUY
recommendation and a 12-month target price of $2.50/share. The key catalyst is the
outcome of their ongoing pivotal trial for Toraymyxin (PMX), with the hope of garnering
approval of the only FDA-approved treatment for sepsis and septic shock.
2018 Discounted
Earnings
Share Data
Basic Shares O/S (mm)
190.8
Fully Diluted (mm)
196.5
Market Cap (basic) ($mm)
148.8
Enterprise Value ($mm)
140.4
Debt ($mm)
DETAILS Large Market Opportunity High Risk, High Reward Potential

Unmet Medical Need: North America currently has no FDA-approved treatment for
sepsis and septic shock, yet it claims victim to nearly 1 million people every year in the
U.S. with over 30% of those cases leading to death.
0.0
Next Reporting Date
March
Not Its First Rodeo: Toraymyxin (PMX) is already approved in Europe and Japan, and
has safely treated over 150,000 sepsis patients in those markets with success. There is
also 22 years worth of clinical data for PMX treatment, including over 140 individual
studies on over 4,400 patients.
Thomson Chart 1 Year
Reputable Management/High Inside Ownership: The management team boasts a

wealth of experience in the area of sepsis treatment, including CEO Dr. Paul Walker,
who is widely regarded as a pioneer in the field and has made large contributions
(including developing Spectrals EAA diagnostic). Also, 45% of ownership comes from
the management and board, representing high confidence and commitment to
corporate goals.
Higher Risk High Reward Potential: The potential lofty reward doesnt come without
risk. Spectrals success depends on PMXs FDA-approval (given their lack of product
diversity), but the complexity of sepsis makes it a high risk potential.
Corporate Profile
Spectral Medical Inc. is a therapeutic
development company. Spectral is focused on
the development and commercialization of a
treatment for severe sepsis and septic shock.
Spectral also manufactures and sells certain
reagents, and their only clinical development
program is for PMX.
IMPACT A Runup Is Expected

The key catalyst for the stock is the pivotal clinical trial results which are expected
calendar Q3/Q4 2016 we expect the stock to trade up into that catalyst. If the
pivotal results are successful for PMX, we expect this stock to go through our current
target price. We are applying a conservative 50% discount rate to our estimated 2018
EPS (first full year of estimated PMX sales) in our valuation, and using a 25x P/E
multiple to derive our 12-month target price of $2.50.
Key Events
- Next reporting date: March, Expected pump
approval Q2, Pivotal Trial enrolment
completion June 16, Pivotal data Q3 16,
PMA filing of last (4th)module Q4 16
FYE Nov 30
Revenue
2014A
$ million
3.0
Q1/15A
0.9
Q2/15A
0.8
Q3/15A
0.7
Q4/15E
0.7
2015E
3.1
Q1/16E
0.9
Q2/16E
0.8
Q3/16E
0.7
Q4/16E
0.7
2016E
2017E
2018E
3.1
31.1
119.6
$0.23
Basic EPS
$/sh
($0.06)
($0.01)
($0.01)
($0.01)
($0.01)
($0.05)
($0.01)
($0.01)
($0.02)
($0.02)
($0.06)
$0.00
F.D. EPS
$/sh
($0.06)
($0.01)
($0.01)
($0.01)
($0.01)
($0.05)
($0.01)
($0.01)
($0.02)
($0.02)
($0.06)
$0.00
$0.23
CFPS
$/sh
$0.02
($0.02)
$0.02
($0.01)
($0.01)
($0.02)
$0.03
($0.01)
($0.02)
($0.02)
($0.01)
($0.00)
$0.23
P/Sales
multiple
50.2x
N/A
N/A
N/A
N/A
48.4x
N/A
N/A
N/A
N/A
48.0x
4.8x
1.2x
P/EPS
multiple
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.4x
P/CFPS
multiple
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.4x
This report has been created by analysts who are employed by Mackie Research Capital Corporation, a Canadian Investment Dealer. For further disclosures, please see last page of this report.
www.mackieresearch.com
Initiating Coverage SPECTRAL MEDICAL INC.
Page 2
HEALTHCARE MEDICAL DEVICE
SPECTRAL MEDICAL INC.

TA B LE O F C O NT E N TS
INVESTMENT HIGHLIGHTS ............................................................................................................................................................................. 1
EXECUTIVE SUMMARY ....................................................................................................................................................................................... 3
COMPANY BACKGROUND ................................................................................................................................................................................ 4
What is Sepsis? ..................................................................................................................................................................................................... 4
PRODUCTS .............................................................................................................................................................................................................. 5
EAA ........................................................................................................................................................................................................................ 5
Toraymyxin (PMX) .............................................................................................................................................................................................. 8
EUPHRATES Trial ....................................................................................................................................................................................... 11
MODS and MODS Score ............................................................................................................................................................................ 13
Spectrals Standalone Pump ...................................................................................................................................................................... 14
Reagents .............................................................................................................................................................................................................. 16
FINANCIAL FORECAST .................................................................................................................................................................................... 16
Estimates and Financial Statements .............................................................................................................................................................. 17
MANUFACTURING ............................................................................................................................................................................................ 19
MARKET OVERVIEW ......................................................................................................................................................................................... 19
Conventional Sepsis Treatments ..................................................................................................................................................................... 22
Cost Effectiveness of PMX/EAA ..................................................................................................................................................................... 22
COMPETITION/NEW ENTRANTS .................................................................................................................................................................. 23
Aethlon Medical ................................................................................................................................................................................................ 23
Cytosorbents ....................................................................................................................................................................................................... 23
Alteco Medical .................................................................................................................................................................................................... 24
VALUATION ......................................................................................................................................................................................................... 25
MANAGEMENT TEAM ...................................................................................................................................................................................... 27
Board of Directors .............................................................................................................................................................................................. 28
INTELLECTUAL PROPERTY .............................................................................................................................................................................. 30
RISKS ...................................................................................................................................................................................................................... 30
IMPORTANT DISCLOSURES ........................................................................................................................................................................... 32
ANALYST CERTIFICATION ............................................................................................................................................................................. 32
Note: All financial figures in this report are in Canadian dollars, unless stated otherwise. Report pricing date: 12-1-16
Page 3
SPECIALTY PHARMA
SPECTRAL MEDICAL INC.

EX EC U TI V E SU M M A R Y
CO M P ANY B AC K G RO UN D
Founded in 1991 Headquartered in Toronto, Canada, Spectral Medical Inc. (EDT) is a clinical-stage medical device company focused
on the diagnoses and treatment of septic shock.
PM X T AR G ET ING A L ARG E M AR K ET T H AT H AS AN U NM ET M EDI C AL N E E D
Sepsis has been a graveyard for product development. Why has there been such a high failure rate in treating sepsis? The failure of
past treatments can be attributed in part to a rudimentary understanding of complex sepsis pathophysiology, unsophisticated and
poor clinical trial design, and an over-reliance on preclinical models for proof-of-concept. There is currently no FDA-approved
treatment for sepsis.
L ARG E CL I NI C AL U S E O F PM X AN D AM E NDM ENT O F P I VO T AL T RI AL PO SIT IO N S S P ECT R AL

W EL L
Toraymyxin (PMX) is already approved in Europe and Japan, and has safely treated over 150,000 sepsis patients in those markets with
success. There is also 22 years worth of clinical data for PMX treatment, including over 140 individual studies on over 4,400 patients.
In late September 2014, pursuant to the protocol change in April 2014 to effect the exclusion criterion that further refined patient
selection to sicker patients, the FDA recommended that only data for those patients randomized after the change be considered in the
determination of whether a statistically significant outcome related to the primary end point of 28-day mortality had been achieved.
This also represents positive news for Spectral.
That is, Spectral can use the post-amendment patients as the first analysis for the
primary endpoint but then add the patients prior to that with MODS score > 9, which could add power to the final results of the trial.
To be clear, only patients with MODS score > 9 are to be used for the primary endpoint that the FDA would be reviewing. All patients
enrolled in the EUPHRATES trial would be reviewed for safety and secondary endpoints. We believe these amendments should give
Spectral a decent shot of hitting its primary endpoint. Based on historical safety of the PMX device we do not believe safety would
pose a risk in this trial.
HIG H IN S ID E O W N E R SH I P M AN AG EM EN T T E AM VE RY S E P S I S- E X P ER I EN C ED
The management team at Spectral boasts a wealth of experience in the industry as well as considerable familiarity with the treatment
of sepsis. In particular, CEO Paul Walker is a pioneer in the field and has made large contributions (eg. developer of EAA diagnostic
for measuring endotoxin levels). Forty-five percent of ownership is occupied by the board and management, which demonstrates
both their commitment to accomplish Spectrals mission of bringing PMX to the North American market and their confidence in doing
so.
RE AD Y F O R T H E R U NU P? A H IG H RI SK , P O T ENT I AL HIG H R E W AR D
Any late-stage trial has risk, particularly if it is in a high risk disease like sepsis. However, based on all the safety data of PMX
and clinical results, we expect the device has a decent shot at obtaining FDA approval. Spectral is not a diversified entity, their
primary success is dependent upon their ongoing PMX clinical trials.
RE CO M M END AT IO N AN D T ARG ET
We are initiating coverage of Spectral Medical Inc. with a Speculative Buy recommendation and a 12-month target price of
C$2.50/share. We expect the share price to run-up in anticipation of the pivotal EUPHRATES clinical trial results. Assuming
clinical success and FDA approval, Spectral could turn into a large capitalized company if it is not acquired in that process.
Page 4
COMPANY BACKGROUND
The company was formerly known as Spectral Diagnostics Inc. and changed its name to Spectral Medical
Inc. (Spectral) in December 2014. Spectral was founded in 1991 and is headquartered in Toronto,
Canada. Spectral is a therapeutic development company focused on the development and
commercialization of a treatment for severe sepsis and septic shock utilizing its Endotoxin Activity Assay
(EAA) and the Toraymyxin (PMX) therapeutic. Spectral is also involved in the development, production,
and marketing of recombinant cardiac proteins, antibodies, and calibrators for use in research and
development; some of which are used in products manufactured by other diagnostic companies.
In May 2006, Spectral announced a partnership with Toray Medical Products to launch a combined
diagnostic and therapeutic strategic alliance for the management of severe sepsis. Toray Medical is the
developer of Toraymyxin (PMX), which has already been used for many years in Europe and Japan to treat
patients with sepsis. Not long after the 2006 announced partnership, Spectral announced the signing of a
distribution agreement with Estor S.p.A. for the commercial sale of its EAA and its reagents in Italy. Estor
is the exclusive Italian distributor of Torays PMX device. In March 2009, Spectral obtained the exclusive
development and commercial rights in the U.S. for PMX, and in November 2010, signed an exclusive
distribution agreement for this product in Canada. Spectral started the pivotal clinical development
program for PMX in 2010 and is still underway. This pivotal trial (called EUPHRATES) is expected to be
completed enrolment in June 2016 (further details on clinical trials are found in the Products section).
Given that sepsis and septic shock are the conditions that Spectrals products treat, its prudent to examine
sepsis in more detail before going further.
What is Sepsis?
Sepsis is an inflammatory reaction to systemic infection that can quickly lead to acute organ dysfunction
and death. It is difficult to predict, diagnose, and treat. Patients who develop sepsis have an increased risk
of complications and death, as well as face higher healthcare costs, and longer treatment.
Severe sepsis is more likely to occur in patients with chronic diseases, those who use immuno-suppressive
agents, the elderly, and patients with certain genetic predispositions to infection. It is a multi-process
disease involving both pro-inflammatory signals and anti-inflammatory signals. Primary treatment of
severe sepsis requires antibiotics targeting the source of the infection. This is augmented with drugs such
as low-dose corticosteroids to manage the inflammation, and procedures such as haemodialysis to assist
failing organs.
Diagnosis of Sepsis
Sepsis, the leading cause of death in non-cardiac ICUs (Intensive Care Units), is an under-recognized
condition. The failure to recognize the connections between infection, secondary organ failure, and sepsis
can lead to delayed recognition and treatment, which can end up being fatal.
Unfortunately, sepsis doesnt produce obvious symptoms. Although it claims almost as many lives as
acute myocardial infarction (MI), the initial symptoms of sepsis are much more subtle. Common
symptoms of sepsis are fever, chills, rapid breathing and heart rate, rash, confusion and disorientation.
Many of these symptoms, such as fever and difficulty breathing, mimic other conditions, making sepsis
hard to diagnose in its early stages. Sepsis arises unpredictably and can progress rapidly.
When patients with sepsis die, they do so in the ICU, but sepsis typically begins in the home or on the
medical-surgical unit; some causes are infection, trauma, surgery, renal failure, burns, or any immune
suppression. Thus, all clinicians must know how to recognize the signs and symptoms of sepsis.
Physicians diagnose sepsis by examining patients for fever, increased heart rate and increased respiratory
rate. They often perform a blood test to see if a patient has an abnormal number of white blood cells, a
common sign of sepsis, or an elevated lactate level, which correlates with severity of the condition.
Physicians also test blood and other bodily fluids such as urine and sputum for the presence of infectious
agents. In addition, a chest X-ray or a CT scan can help identify the site of infection. Some hospitals now
have rapid-response teams that help bedside nurses rapidly assess and treat patients with life-threatening
conditions such as sepsis. These teams are usually made up of an ICU nurse and other clinicians, such as a
physician, and a respiratory therapist.
Page 5
Figure 1: Sepsis: Progressive Clinical Syndrome
Source: Spectral Medical Inc.
Current Treatment of Sepsis

Rapid initiation of aggressive care should begin as soon as sepsis is suspected, with subsequent
management in an ICU setting as soon as possible. In order to achieve the most optimal outcome,
adequate resuscitation of blood pressure as well as efforts to restore tissue perfusion should be
accomplished within the first 6 hours of presentation. The most important consideration in the treatment
of sepsis is aggressive and timely efforts to identify and control the source of infection with antibiotics.
Therapy should be implemented without delay. Effective, appropriate parenteral antimicrobials should be
given within the first hour of recognition of severe sepsis or septic shock. Therapy typically includes more
than one drug against potential pathogens. Two Gram negative agents (i.e. extended spectrum beta-lactam
and either an aminoglycoside or fluoroquinolone) may be used empirically in order to increase the
likelihood of treating multidrug-resistant bacteria (i.e. Pseudomonas, Acinetobacter). A combination of
beta-lactam and macrolide may be used in patients with septic shock from bacteremic Streptococcus
pneumonia infections. Antimicrobial therapy should be reassessed daily for potential de-escalation in
order to reduce healthcare cost, potential adverse effects, and development of antimicrobial resistance.
PRODUCTS
Endotoxin Activity Assay (EAA)
Historically, the detection of bacterial endotoxin has been performed by the LAL-test, which was
introduced in the 1970s. Limulus Amebocyte Lysate (LAL) is derived from the blood cells, or amebocytes,
of the horseshoe crab, which clots in the presence of endotoxin. The LAL-test has some serious limitations;
one of the most important was a poor specificity for LPS (also known as Lipopolysaccharides; synonymous
with endotoxins).
In 2003, Spectrals Endotoxin Activity Assay was approved by the FDA, Health Canada, and European CE,
as the first rapid in vitro (technique of performing a given procedure in a controlled environment outside
of a living organism) diagnostic test for the risk of developing sepsis in the ICU. The EAA test utilizes a
specific monoclonal antibody to measure the endotoxin activity from a blood sample.
Page 6
Detailed Scientific Explanation of Spectrals EAA

Endotoxin (LPS), is found on Gram negative bacteria and is one of the key triggers that causes septic shock
and multiple organ dysfunction. Endotoxin exposure can induce systemic inflammation, progressing to
sepsis that results in shock and multi-organ failure. By measuring levels of LPS in the blood with Spectrals
EAA, physicians have one more tool to aid in the risk assessment of patients on their first day of admission
to the ICU for progression to severe sepsis.
Figure 2: Endotoxin, also known as Lipopolysaccharide (LPS), is a key component believed to trigger
septic shock
Source: Spectral Medical
Spectrals EAA reacts specifically with LPS of Gram negative bacteria and does not cross-react with Gram
positive bacteria and other micro-organisms. The EAA is based on the reaction of endotoxin with a
specific anti-endotoxin antibody. Complement proteins opsonize (the process by which the bacteria is
marked for ingestion and eliminated by a phagocyte) the endotoxin-antibody complex. Note that
complement proteins are a part of the immune system that helps antibodies and phagocytic cells to clear
pathogens (bacteria). Phagocytes are cells that protect the body by ingesting (phagocytosing) harmful
foreign particles, bacteria, and dead (or dying) cells. The opsonized immune complex primes neutrophils
in the blood to enhance their respiratory burst in response to zymosan (which is used to induce
experimental inflammation). The respiratory burst of the neutrophils yields oxidants that react with
luminol (a chemical that exhibits chemiluminescence with a blue glow) in the reaction mixture to emit
chemiluminescence. Note that respiratory burst (sometimes called oxidative burst) is the rapid release of
reactive oxygen species (superoxide radical and hydrogen peroxide) from cells. The chemiluminescence
can then be detected in a photon counting luminometer. A basal activity measurement (Tube 1) in the
absence of the specific anti-endotoxin antibody measures the non-specific oxidative burst of the patients
neutrophils this is the control sample. An additional control measurement involves including the specific
anti-endotoxin antibody and an excess of exogenous endotoxin (Tube 3) to measure the maximum
oxidative burst of the patients neutrophils. The test measurement (Tube 2) includes the specific antibody
to measure the neat level of endotoxin activity. The EAA level is calculated by normalizing the
chemiluminescence in the test sample (Tube 2) against the maximum chemiluminescence (Tube 3),
correcting both measurements for the basal activity chemiluminescence (Tube 1).
Page 7
EAA - Clinical Studies

The Multi-Center Endotoxin Detection in Critical illness (MEDIC) trial was a multi-center, prospective
observational study, performed in 10 ICUs of academic hospital settings in North America and Europe.
While increased levels of endotoxin may not be the only risk factor for severe sepsis, its presence in graded
levels, low (0.00-0.39 EAA units), intermediate (0.40-0.59 EAA units) and high ( 0.60 EAA units) has a
strong association with the presence of the disease. The presence of endotoxemia was evaluated on the first
day of the patients ICU stay to determine the odds of developing severe sepsis within 24 hours of ICU
admission. The target population for the Risk Assessment Study included all eligible patients enrolled in
the MEDIC trial on first day of ICU admission who had evaluable samples, N=857. The MEDIC clinical
trial demonstrated that higher EAA levels were correlated with a higher risk of mortality, as well as an
increasing risk for developing sepsis (Figure 3).
Figure 3: Odds Ratio for Severe Sepsis and Level of Endotoxemia
In a healthy population, it was shown that an EAA level of 0.40 represents a value that is +2 standard
deviations above the mean; 93% of subjects had an EAA level below this value. It is reasonable to
assume that a level of 0.40 represents a conservative cut-off below which most individuals should be
healthy. An EAA level of 0.60 represents a value of +4 standard deviations above the mean (in
healthy subjects); individual baseline variations may occur. There was an unexpected finding of slight
elevations of endotoxin reported in ambulatory conditions such as during periodontitis, or cigarette
smoking. No volunteers had a measured EAA level of 0.60 this represents a significant level above
where an EAA level may be indicative of an underlying adverse process.
Page 8
Figure 4: Histogram of EAA values in Healthy Subjects
EAA distribution reach extended

In October 2015, Spectral expanded its business alliance with the Toray Medical Co., Ltd. through an
exclusive agreement to distribute Spectrals EAA diagnostic across fifteen countries in the Middle and Far
East: India, South Korea, Taiwan, Singapore, Thailand, Malaysia, Indonesia, Philippines, Vietnam,
Cambodia, Myanmar, Brunei, Laos, the Kingdom of Saudi Arabia, and the Republic of Turkey. Revenues
from this agreement are expected to be generated in Q1 2016.
On November 10, 2015, Spectral announced a non-exclusive European distribution agreement for its EAA
diagnostic with Fresenius Medical Care in eight countries Germany, Denmark , Sweden, Finland,
Norway, Poland, Hungary, and the Czech Republic.
Synergies between EAA and Toraymyxin (PMX)
We believe the use of EAA adds another layer which could improve the clinical outcome of the
EUPHRATES trial (discussed in next product section on Toraymyxin). A looming incentive for drug and
medical device manufacturers is to develop a proprietary diagnostic test to increase the success rate of
clinical trials and maximize therapy efficacy. Before the initiation of clinical trials, the diagnostic test can be
used to determine and optimize trial eligibility and enrollment by confirming the presence and quantity of
a molecular target in an individual patient that is, only patients with certain levels of disease biomarkers
measured by the diagnostic test will be recruited in a clinical trial. Then during the clinical trial, the
diagnostic test can be used to monitor treatment responses and patient outcomes by identifying and
predicting patient subpopulations that are most likely to respond to a given treatment. In Spectrals ongoing EUPHRATES trial, only patients with endotoxin activity 0.60 measured by EAA are enrolled. EAA
0.60 ensures all patients have severe sepsis or septic shock with high risk of death. Clinical data has
implied this patient population benefits the most from unconventional sepsis therapy. We believe if PMX
is approved by the FDA, the measurement of endotoxin activity (through the EAA) before treatment is
likely also going to be recommended as a product compliment.
Toraymyxin (PMX)
Spectral is seeking U.S. FDA approval for its lead product, Toraymyxin (PMX), a treatment for severe
sepsis and septic shock (Spectral is currently conducting a pivotal clinical trial details appear later in
section). PMX is a therapeutic hemoperfusion device that removes endotoxin (> 90% of endotoxin) from
the bloodstream. PMX has been used globally in more than 150,000 patients to date and has demonstrated
in clinical trials that it safely and effectively removes endotoxin and reduces mortality in patients with
severe sepsis and septic shock. The safety and use of the device has been established in Japan and Europe.
Page 9
Toray Medical developed the product, and Estor has distributed it in these markets. Spectral hopes to
continue this success in North American markets.
Figure 5: PMX Is A Non-Invasive Treatment Making Device Safety a Non-Issue
How Does PMX Work?

Spectral Medicals PMX device targets septic shock that is due to toxicity caused by endotoxin in the
bloodstream. Endotoxin (Lipopolysaccharide, or LPS), a component of the cell wall of Gram negative
bacteria, is one of the main triggers of the pathogenesis of septic shock and multiple organ failure.
Polymyxin B (used in PMX) is a cationic cyclic polypeptide antibiotic that binds strongly to the lipid A
portion of Gram negative bacterial LPS (endotoxin). The hydrophobic amino acids (Phe, Leu) of
polymyxin B interact with hydrophobic bonds of the fatty acid part of the lipid A. Polymyxin B binds to
LPS via hydrophobic and ionic bonds, as noted in the molecular model below (Figure 6). In the PMX
column that is used to filter a patients blood, polymyxin B is covalently bound to the inert beads, thereby
binding the endoxin.
Page 10
Figure 6: Mechanism of Action of Polymyxcin B binding Endotoxin
Clinical Background: EUPHAS Trial - a small clinical trial that showed promising efficacy of PMX
Results of the EUPHAS trial were published in the Journal of the American Medical Association (JAMA,
2009; Vol. 301 No. 23, 2445-2452). A prospective, multicenter, randomized, controlled trial (EUPHAS Trial)
was completed at 10 Italian tertiary care intensive care units between December 2004 and December 2007.
A total of 64 patients with severe sepsis, or septic shock, who underwent emergency surgery for intraabdominal infection, were randomized: 34 subjects received PMX plus conventional therapy and 30
subjects received conventional therapy. The primary endpoints were changes from baseline to 72 hours in
mean arterial pressure (MAP) and vasopressor requirements. The secondary endpoints included
PaO2/FIO2 (fraction of inspired oxygen) ratio, change in organ dysfunction (measured by delta SOFA
scores), and 28-day mortality. The Sepsis-related Organ Failure Assessment score, or just SOFA score, is
used to track a patient's status during the stay in an ICU. It is one of several ICU scoring systems. The
SOFA score helps to determine the extent of a person's organ function, or rate of failure, and is based on
six different scores: respiratory, cardiovascular, hepatic, coagulation, renal, and neurological systems.
Other measures were also reported, including the need for renal replacement therapy (RRT), the length of
stay in ICU, the length of hospital stay, and all-cause hospital mortality.
The results showed that PMX significantly improved mean arterial pressure (MAP) and the vasopressor
dependency index, while conventional therapy did not. The PMX group also achieved significant
improvement on secondary endpoints, including the PaO2/FIO2 (fraction of inspired oxygen) ratio and
delta SOFA scores. The 28-day all-cause mortality was 32% (11/34 patients) in the PMX group and 53%
(16/30 patients) in the conventional therapy group. The PMX group also had a significantly better
survival curve. With univariable analysis, only the treatment group and the SOFA score were
independently associated with mortality. After adjusting for SOFA score, the PMX group had a significant
reduction in 28-day mortality (adjusted HR, 0.36; P = 0.01). In a further analysis of hospital mortality, 20 of
30 patients (67%) died in the conventional therapy group compared with 14 of 34 patients (41%) in the
PMX group, which represents a significant reduction in hospital mortality rate. In terms of RRT (renal
replacement therapy), length of ICU stay, and hospital stay, both groups had similar results. The results
demonstrated that when PMX is added to conventional therapy, there is significantly improved
Page 11
hemodynamics and organ function, and reduced 28-day mortality in patients with severe sepsis and septic
shock, in comparison to those patients in the conventional therapy group.
EUPHRATES trial pivotal trial for PMA (Premarket Approval) filing
In October 2010, Spectral announced the initiation of its pivotal clinical trial called EUPHRATES
(Evaluating the Use of Polymyxin B Hemoperfusion in a Randomized controlled trial of Adults Treated for
Endotoxemia and Septic shock) in the U.S. comparing standard of care versus PMX (Toraymyxin) plus
standard of care. The trial is still ongoing. The target population is critically ill patients with septic shock
and endotoxemia (as measured by the EAA). The trial is to enroll approximately 446 patients at 50 sites
throughout the U.S. and Canada, and will have a primary end point of 28-day mortality the trial is to
compare the safety and efficacy of the PMX cartridge based on mortality at 28-days in subjects with septic
shock ,who have high levels of endotoxin and are treated with standard medical care plus use of the PMX
cartridge, versus subjects who receive standard medical care alone. A secondary end point is to compare
mortality between the two groups at 90 days, 6 months, and 12 months post-start of treatment. This trial is
expected to be completed enrolment in June 2016, but final data collection from the primary endpoint
should conclude in July 2016. The EUPHRATES trial is over 90% enrolled implying the trial should be
completed on time. The submission of the final module (fourth) in the PMA (premarket approval) should
be made in Q4 2016.
The EUPHRATES trial is the worlds first theranostics trial conducted in the area of sepsis. Theranostics is
a term coined to represent more specific, or individualized, therapies to treat patients, combining a
diagnostic and therapeutic approach into a single agent. In Spectrals EUPHRATES trial, the EAA will be
used to determine the level of endotoxin in the bloodstream of a patient with septic shock, and if EAA is
elevated ( 0.6 EAA units) the patient is eligible to be randomized to Toraymyxin plus standard of care, or
standard of care alone. This two-step process, guided by the EAA detection process, allows physicians to
target patients most likely to benefit.
Figure 7: Spectral Medical Taking a Theranostic Approach
Page 12
Figure 8: Sepsis Patient Screening in the EUPHRATES Pivotal Trial
In January 2013, an interim analysis was conducted on the first 76 randomized patients who were followed
for 28 days. The Data Safety and Monitoring Board (DSMB), consisting of experts in the fields of critical
care medicine, infectious disease, nephrology, biostatistics and regulatory affairs, reviewed the data set for
evidence of safety concerns, such as adverse events and/or adverse device effects, related to the use of the
PMX cartridge. The results from the first interim safety analysis by the DSMB stated that there were no
safety issues.
On January 27, 2014, the DSMB reviewed the results of the second interim analysis after 184 patients had
been randomized and followed for 28 days in accordance with the Statistical Analysis Plan agreed on with
the FDA. On that date, the DSMB reported that stopping rules for safety, efficacy and futility were not met
and that the trial should continue. The DSMB did not, however, provide the planned sample size
recalculation at that time. The DSMB requested that additional analysis be performed by the Contract
Research Organization on the original 184 patients prior to the recalculation.
Spectral received the recommendations of the DSMB pursuant to its analysis on April 10, 2014, which
included a recommendation of an additional exclusion criterion. The DSMB recommended that patients
with a Multiple Organ Dysfunction Score (MODS) score of 9 no longer be eligible for randomization in
the trial. The MODS score is a recognized scoring system used to evaluate the degree of organ dysfunction
which exists in patients with sepsis (refer to subsequent section on MODS for more insight). This
recommendation was consistent with data from previous PMX trials, which demonstrated that the PMX
column is most effective in reducing mortality rates of sicker patients. We believe this should have a
positive impact on the final efficacy analysis.
In late September 2014, pursuant to the protocol change in April 2014 to effect the exclusion criterion that
further refined patient selection to sicker patients, the FDA recommended that only data for those patients
randomized after the change be considered in the determination of whether a statistically significant
outcome related to the primary end point of 28-day mortality had been achieved. This also represents
positive news for Spectral. That is, Spectral can use the post-amendment patients as the first analysis for
the primary endpoint but then add the patients prior to that with MODS scores > 9, which could add
power to the final results of the trial. To be clear, only patients with MODS scores >9 are to be used for the
primary endpoint that the FDA would be reviewing. All patients enrolled in the EUPHRATES trial would
Page 13
be reviewed for safety and secondary endpoints. We believe these amendments should give Spectral a
decent shot of hitting its primary endpoint. Based on historical safety of the PMX device we do not believe
safety would pose a risk in this trial.
In March 2015, Spectral announced that the DSMB recommended the EUPHRATES trial continue and
recommended subsequent interim results analysis based on the new criteria set in April 2014. Spectral was
also set to submit an amended statistical analysis plan (SAP) to the FDA incorporating an interim analysis,
including new stopping rules for safety and efficacy, with results anticipated in late fourth quarter of 2015.
In April, 2015, the FDA accepted the companys plan for a Premarket Approval (PMA) submission, which
consists of four separate modules and has the potential to significantly reduce the time to
commercialization. To date, Spectral has filed three of the four modules to the FDA, with the fourth and
final module expected to be submitted no later than fourth quarter 2016. The EUPHRATES trial is now
over 90% enrolled and is expected to be completed enrolment in June 2016, but final data collection from
the primary endpoint should finish in July 2016. Top-line results of the EUPHRATES trial are expected in
late Q3/early Q4 2016 (calendar year). We expect the clinical results to be first presented at the Society of
Critical Care Medicine conference to be held between January 21-25, 2017 in Hawaii.
MODS (Multiple Organ Dysfunction Syndrome) and the MODS Score
Multiple organ dysfunction syndrome (MODS) is a hypometabolic, immunodepressed state with clinical
and biochemical evidence of decreased functioning of the bodys organ systems that develops subsequent
to an acute injury or illness. Almost any disease that results in tissue injury may result in MODS; this
includes sepsis, major trauma, burns, pancreatitis, aspiration syndromes, extracorporeal circulation (eg.
cardiac bypass), multiple blood transfusion, ischaemia-reperfusion injury, autoimmune disease, headinduced illness, eclampsia, and poisoning/toxicity. MODS contributes to about 50% of all ICU deaths.
That being said, patients without a pre-existing organ disease have a decent chance of organ recovery.
Variations of the term used to include the word failure instead of dysfunction (eg. multiple organ failure
MOF), but dysfunction is preferred over failure, as the latter implies a sort of all or none functioning,
while also implying irreversibility. In contrast, dysfunction implies a spectrum, more in tune with
reality.
The concept surrounding a MODS score involves the findings that death, when it occurs, is not the
consequence of isolated lung, heart, or renal failure, but rather reflects the necessary interdependence of
multiple organ systems involved in the maintenance of homeostasis. Given that organ dysfunction is a
potentially preventable complication of critical illness, and in particular of the sequelae of infection,
ischemia, and injury, there became a need for reliable and validated measures of organ dysfunction to be
developed and tested.
The MODS score was developed in the mid 1990s, using a formal methodologic approach to
maximize construct, content, and criterion validity. The MODS score is the sum of 6 different
categorical scores representing 6 organ systems (respiratory, renal, hepatic, cardiovascular,
hematologic, and neurologic) (see Figure 9). Scoring is performed on a daily basis and so allows
a day-by-day prediction for patients.
Page 14
Figure 9: MODS Scoring System
Source: J.C. Marshall, Multiple Organ Dysfunction Score, Critical Care Medicine, 1995; (23): 1638-52
Accumulative scores of 9-12 points represent an approximate 25% ICU mortality rate, 50% at 13-16 points,
75% at 17-20 points, and a 100% mortality rate at levels more than 20 points.
To reiterate, only those patients in Spectrals EUPHRATES trial with scores above 9 points (an approximate
25% ICU mortality rate) will be used by Spectral to achieve their primary endpoint and considering the
statistical evidence supporting PMXs increased effectiveness treating more severely ill patients, this
amendment could improve Spectrals chances of PMX approval.
Spectrals Standalone Pump Used in Conjunction with the PMX device
The PMX column can be used with existing dialysis or blood pump machines that are equipped at
hospitals. For example, the PMX column can be used with Baxters (formerly Gambro) Prismaflex system.
Figure 10: Baxters Prismaflex pump
Source: Baxter website
Spectral Medical has developed a standalone pump that was developed specifically for the PMX column.
Spectrals proprietary stand-alone pump should reduce reliance on third party pump machines such as
Gambros Prismaflex. Spectrals pump is going to be filed as a 510K in the United States which is targeted
for the first quarter of 2016. The advantage of using Spectrals pump is that it is simpler to operate and has
Page 15
a disposal cartridge which can be used for each PMX treatment. Spectral initially intends on installing its
pumps at the same 45 clinical sites from the EUPHRATES trial upon completion of the trial.
Figure 11: Spectrals Pump
Figure 12: Spectrals Pump Used in Conjunction with PMX column
Page 16
Figure 13: Spectrals Disposable Blood Pump Cartridge used in Conjunction with PMX column
Diagnostic Reagents
Spectrals potential success is likely going to be tied to the development and commercialization of PMX,
along with its complimentary revenue stream coming from their EAA diagnostic test. That being said,
Spectral has tried to diversify their revenue base by developing, producing, and marketing recombinant
cardiac proteins, antibodies, and calibrators. These products are sold for use in research and development,
as well as in products manufactured by other diagnostic companies. Spectral has actively marketed its
capability to develop and manufacture monoclonal and polyclonal antibodies and recombinant proteins.
Theyve entered into license and supply agreements with diagnostic product manufacturers for the use of
its proprietary Troponin I recombinant protein molecules for the calibration of commercial Troponin I
assays. Customers include Beckman Coulter, Abbott Labratories and BioMerieux, where Spectral
generates royalty revenues based on a percentage of end user sales of Troponin I.
FINANCIAL FORECASTS
We expect a PMX launch in third quarter of 2017, if approved. U.S. sales of PMX are estimated at C$27.3M,
C$113.8M, C$172.9M, and C$227.5M, (peak sales) from FY17 to FY20, respectively. As mentioned in the
Products section, Spectral sells the EAA diagnostic and proprietary reagents worldwide. The EAA
diagnostic is the only approved kit by the FDA to measure circulating endotoxin levels in patients. We
expect U.S. sales of the EAA diagnostic to increase after PMX is commercialized in 2017 because the kit will
be sold in conjunction with PMX. We estimate EAA diagnostic and proprietary reagents sales to be
C$3.1M, C$3.8M, C$5.8M, C$7.2M, and C$8.6M from FY16 to FY20, respectively. We estimate Spectrals
total sales revenue from FY16 to FY20 to be C$3.1M, C$31.1M, C$119.6M, C$180.1M, and C$236.1M,
respectively.
In terms of operating expenses, we estimate R&D from FY16 to FY20 to be C$7.2M, C$9.8M, C$9.9M,
C$10M, and C$10.1M, respectively. SG&A estimates are C$3.0M, C$6.2M, C$13.5M, C$18.7M, and
C$23.5M from FY16 to FY20, respectively.
Net income (loss) from FY16 to FY20 are estimated at C($11.9M), C$0.3M, C$47.6M, C$72.7M, and
C$100.5M, respectively. Basic and fully diluted EPS estimates are C($0.06M)/C($0.06M), C$0.00/C$0.00,
C$0.23/ C$0.23, C$0.35/C$0.35, and C$0.49/C$0.48 from FY16 to FY20, respectively.
Page 17
Figure 14: Annual Estimates (FY2017-2020)

In Millions (CAD)
PMX Sales
EAA/Reagent Sales
Total Sales
R&D Expenses
SG&A Expenses
Net Income
FY17
FY18
FY19
FY20
$27.3
$3.8
$31.1
$9.8
$6.2
$0.3
$113.8
$5.8
$119.6
$9.9
$13.5
$47.6
$172.9
$7.2
$180.1
$10.0
$18.7
$72.7
$227.5
$8.6
$236.1
$10.1
$23.5
$100.5
$0.35
$0.35
$0.49
$0.48
$/Share
EPS
F.D. EPS
$0.00
$0.00
$0.23
$0.23
Source: Mackie Research
Figure 15: Quarterly Income Statement FY2014-2016 (Actual & Estimates)

Quarterly Income (C$, '000)
FYE December 31
FY2014A Q1 FY15A Q2 FY15A Q3 FY15A Q4 FY15E FY2015E Q1 FY16E Q2 FY16E Q3 FY16E Q4 FY16E FY2016E
Revenue
$2,964
COGS (Raw materials and consumables used) $444
$2,520
Gross Profit
$877
$100
$777
$818
$107
$711
$679
$133
$546
$700
$110
$590
$3,074
$450
$2,624
$900
$125
$775
$800
$110
$690
$675
$95
$580
$725
$100
$625
$3,100
$430
$2,670
Changes in inventories of finished goods and

work-in-process
Employee benefits
R&D
SG&A
Depreciation and Amortization
Foreign exchange loss (gain)
Other expenses (income)
Total Operating Expenses
$310
$24
$56
$28
$130
$238
$100
$85
$75
$80
$340
$3,460
$7,157
$989
$205
$54
$506
$12,681
$947
$1,742
$203
$43
($17)
$124
$3,066
$872
$1,808
$189
$44
$4
$128
$3,101
$846
$1,664
$329
$43
$8
$141
$3,059
$846
$1,714
$429
$43
$0
$141
$3,303
$3,511
$6,928
$1,150
$173
($5)
$534
$12,529
$846
$1,910
$439
$43
$0
$141
$3,479
$846
$1,961
$449
$43
$0
$141
$3,525
$846
$1,765
$1,000
$43
$0
$141
$3,870
$846
$1,588
$1,100
$43
$0
$141
$3,798
$3,384
$7,224
$2,988
$172
$0
$564
$14,672
Operating Income (Loss), EBIT
($10,161) ($2,289)
($2,390)
($2,513)
($2,713)
($9,905)
($2,704)
($2,835)
($3,290)
($3,173) ($12,002)
Finance Income
EBT
Tax expenses (recovery)
$60
$24
($10,101) ($2,265)
($609)
$0
$24
($2,366)
$0
$20
($2,493)
$0
$28
($2,685)
$0
$96
($9,809)
$0
$19
($2,685)
$0
$42
($2,793)
$0
$33
($3,257)
$0
$22
$116
($3,152) ($11,887)
$0
$0
Net Income (Loss)
($9,492)
($2,265)
($2,366)
($2,493)
($2,685)
($9,809)
($2,685)
($2,793)
($3,257)
($3,152) ($11,887)
($0.06)
($0.06)
($0.01)
($0.01)
($0.01)
($0.01)
($0.01)
($0.01)
($0.01)
($0.01)
($0.05)
($0.05)
($0.01)
($0.01)
($0.01)
($0.01)
($0.02)
($0.02)
($0.02)
($0.02)
($0.06)
($0.06)
Weighted average number of common O/S

Basic ('000)
154,541
Diluted ('000)
159,219
179,750
185,669
190,804
196,475
190,831
196,475
191,331
195,975
188,179
193,649
205,164
208,808
205,664
208,308
206,164
207,808
206,664
207,308
205,914
208,058
EPS-Basic
EPS-Diluted
Source: Mackie Research, Company Reports
Page 18
Figure 16: Annual Income Statement FY2013-2020 (Actual & Estimates)

Annual Income (C$, '000)
FYE December 31
2013A
2014A
2015E
2016E
2017E
2018E
PMX
EAA and Proprietary reagents
Revenue
$2,672
$2,964
$2,964
$3,074
$3,074
$3,100
$3,100
$27,300
$3,780
$31,080
$113,750
$5,825
$119,575
$172,900 $227,500
$7,240
$8,550
$180,140 $236,050
COGS (Raw materials and consumables used)

Gross Profit
$593
$2,079
$444
$2,520
$450
$2,624
$430
$2,670
$7,354
$23,726
$29,253
$90,322
$35,594
$46,697
$144,546 $189,353
Changes in inventories of finished goods and workin-process

Employee benefits
R&D
SG&A
Depreciation and Amortization
Foreign exchange loss (gain)
Other expenses
Total Operating Expenses
$274
$3,332
$7,924
$1,191
$238
$14
$496
$13,469
$310
$3,460
$7,157
$989
$205
$54
$506
$12,681
$238
$3,511
$6,928
$1,150
$173
($5)
$534
$12,529
$340
$3,384
$7,224
$2,988
$172
$0
$564
$14,672
$3,400
$3,384
$9,808
$6,172
$172
$0
$564
$23,500
$12,900
$3,384
$9,908
$13,487
$172
$0
$564
$40,415
$15,480
$3,384
$10,008
$18,657
$172
$0
$564
$48,266
$18,576
$3,384
$10,108
$23,508
$172
$0
$564
$56,312
Operating Income (Loss), EBIT
($11,390) ($10,161) ($9,905) ($12,002)
$225
$49,907
$96,281
$133,041
Finance Income
EBT
Tax expenses (recovery)
$83
$60
$96
$116
($11,307) ($10,101) ($9,809) ($11,887)
$0
($609)
$0
$0
$45
$271
$0
($8)
$49,899
$2,300
$613
$96,894
$24,223
$939
$133,980
$33,495
Net Income (Loss)
($11,307) ($9,492)
$271
$47,599
$72,670
$100,485
($9,809) ($11,887)
2019E
2020E
EPS-Basic
EPS-Diluted
($0.09)
($0.09)
($0.06)
($0.06)
($0.05)
($0.05)
($0.06)
($0.06)
$0.00
$0.00
$0.23
$0.23
$0.35
$0.35
$0.49
$0.48
Weighted average number of common O/S

Basic ('000)
Diluted ('000)
128,265
132,133
154,541
159,219
188,179
193,774
205,914
208,558
205,914
208,558
205,914
208,558
205,914
208,558
205,914
208,558
Margin Analysis
% of PMX in Total Revenue
% of EAA and Proprietary reagents in Total Revenue
% of R&D in Total Revenue
% of SG&A in Total Revenue
Gross Margin
Operating Margin
Net Profit Margin
2013A
0%
0%
297%
45%
78%
-426%
-423%
2014A
0%
100%
241%
33%
85%
-343%
-320%
2015E
0%
100%
225%
37%
85%
-322%
-319%
2016E
0%
100%
233%
96%
86%
-387%
-383%
2017E
88%
12%
32%
20%
76%
1%
1%
2018E
95%
5%
8%
11%
76%
42%
40%
2019E
96%
4%
6%
10%
80%
53%
40%
2020E
96%
4%
4%
10%
80%
56%
43%
YoY Analysis
EAA and Proprietary reagents sales
PMX sales
Total revenue
R&D
SG&A
EBIT
Net Income
2013A
2014A
2015E
4%
2016E
1%
2017E
22%
11%
-10%
-17%
4%
-3%
16%
1%
4%
160%
903%
36%
107%
2018E
54%
317%
285%
1%
119%
22033%
17469%
2019E
24%
52%
51%
1%
38%
93%
53%
2020E
18%
32%
31%
1%
26%
38%
38%
Page 19
Figure 17: Quarterly & Annual Cash Flow/Selected Balance Sheets FY2014-2020 (Actual & Estimates)
FY2014A
Q1 FY15A
Q2 FY15A
Q3 FY15A
Q4 FY15E
FY2015E
Q1 FY16E
Q2 FY16E
Q3 FY16E
Q4 FY16E
FY2016E
FY2017E
FY2018E
FY2019E
FY2020E
Operating Activities
Net income
Depreciation and amortization
Share-based compensation
Loss on disposal of PP&E
Deferred tax recovery
Changes in working capital
Total CF from Operating Activities
($9,492)
$205
$348
$1
($609)
($461)
($10,008)
($2,265)
$43
$105
$0
$0
($739)
($2,856)
($2,366)
$44
$32
$0
$0
$121
($2,169)
($2,493)
$43
$46
$0
$0
$209
($2,195)
($2,685)
$43
$46
$0
$0
$209
($2,387)
($9,809)
$173
$229
$0
$0
($200)
($9,607)
($2,685)
$43
$46
$0
$0
($100)
($2,696)
($2,793)
$43
$46
$0
$0
($100)
($2,804)
($3,257)
$43
$46
$0
$0
($100)
($3,268)
($3,152)
$43
$46
$0
$0
($100)
($3,163)
($11,887)
$172
$184
$0
$0
($400)
($11,931)
$271
$172
$184
$0
$0
($1,000)
($373)
$47,599
$172
$184
$0
$0
($1,300)
$46,655
$72,670
$172
$184
$0
$0
($1,690)
$71,336
$100,485
$172
$184
$0
$0
($2,197)
$98,644
Investing Activities
Net PP&E expenditures
Total CF from Investing Activities
($44)
($44)
($118)
($118)
($73)
($73)
($44)
($44)
($44)
($44)
($279)
($279)
($25)
($25)
($25)
($25)
($25)
($25)
($25)
($25)
($100)
($100)
($200)
($200)
($200)
($200)
($200)
($200)
($200)
($200)
$12,816
$61
$0
$12,877
$0
$43
($55)
($12)
$6,021
$89
$0
$6,110
$0
$7
($300)
($293)
$0
$50
($150)
($100)
$6,021
$189
($505)
$5,705
$9,500
$25
$0
$9,525
$0
$25
$0
$25
$0
$25
$0
$25
$0
$25
$0
$25
$9,500
$100
$0
$9,600
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$2,825
$0.02
($2,986)
($0.02)
$3,868
$0.02
($2,532)
($0.01)
($2,531)
($0.01)
($4,181)
($0.02)
$6,804
$0.03
($2,804)
($0.01)
($3,268)
($0.02)
($3,163)
($0.02)
($2,431)
($0.01)
($573)
($0.00)
$46,455
$0.23
$71,136
$0.35
$98,444
$0.48
FY2014A
$10,054
$0
$8,820
0%
$0.06
-108%
Q1 FY15A
$7,068
$0
$6,648
0%
$0.04
-34%
Q2 FY15A
$10,936
$0
$10,424
0%
$0.05
-23%
Q3 FY15E
$8,404
$0
$7,638
0%
$0.04
-33%
Q4 FY15E
$5,873
$0
$4,853
0%
$0.03
-55%
FY2015E
$5,873
$0
$4,853
0%
$0.03
-202%
Q1 FY16E
$12,677
$0
$11,693
0%
$0.06
-23%
Q2 FY16E
$9,873
$0
$8,925
0%
$0.04
-31%
Q3 FY16E
$6,605
$0
$5,693
0%
$0.03
-57%
Q4 FY16E
$3,442
$0
$2,566
0%
$0.01
-123%
FY2016E
$3,442
$0
$2,566
0%
$0.01
-463%
FY2017E
$2,869
$0
$2,837
0%
$0.01
10%
FY2018E
$49,324
$0
$50,436
0%
$0.24
94%
FY2019E
$120,461
$0
$123,107
0%
$0.60
59%
FY2020E
$218,904
$0
$223,591
0%
$1.09
45%
Cash Flow (C$, '000)

FYE December 31
Financing Activities
Common share issuance
Share options and warrants exercised
Shares repurchased under the NCIB
Total CF from Financing Activities
Total Cash Flow
CFPS
Selected Balance Sheet (C$, '000)

Cash and cash equivalents
Long-term debt
Total equity
Debt as % of Equity (D/E Ratio)
Book value/Share
ROE
MANUFACTURING
Spectral manufactures the EAA at its Canadian facility in Toronto, Ontario. The facility complies with the
requirements of Current Good Manufacturing Practices (CGMPs) and regulating authorities including the
FDA and Health Canadas Therapeutic Product Programme. Spectrals manufacturing facilities were
upgraded in 2007 and is self-sufficient for the manufacture of its EAA product and the manufacture of its
proprietary biological reagents. Spectrals patented recombinant single-chain Troponin I-C polypeptide
has gained worldwide recognition as a superior reagent for calibration of cardiac Troponin I assays.
The PMX device is manufactured by Toray. Recent construction of Torays new plant facilities have been
completed and the new plant complies with FDA regulatory requirements and is expected to be fully
operational before the U.S. market launch of PMX.
Spectrals stand alone blood pump is manufactured by a private dialysis equipment company in
Switzerland.
MARKET OVERVIEW
The market for sepsis treatment is largely an unmet medical need. In the United States, approximately
750,000 cases of sepsis occur each year, of which at least 225,000 are fatal (Journal of Clinical Medicine
Research 7, No.1 (2015) p.18-20). Approximately 40% of all intensive care unit patients have sepsis on
admission to the intensive care unit or experience sepsis during their stay in the intensive care unit. CDCs
(Centers for Disease Control and Prevention) National Center for Health Statistic, based upon information
collected for billing purposes, estimates that the amount of hospital visits of patients with sepsis or
septicemia (another word for sepsis) increased from 621,000 in the year 2000 to 1,141,000 in 2008. As noted
in Figure 18, hospitalization rates for sepsis (in contrast from the previous statistic, this focuses on patients
admitted to the hospital for sepsis) more than doubled from 2000 through 2008.
Page 20
Figure 18: Hospitalizations for and with Septicemia and Sepsis
Source: CDC/NCHS, National Hospital Discharge, 2008 - from NCHSH Data Brief No.62 June 2011
Organ failure occurs in about one-third of patients with sepsis, and severe sepsis is associated with an
estimated mortality rate of 30-50% (Journal of Clinical Medicine Research 7, No.1 (2015) p.18-20). There is
wide variation in the incidence of sepsis and severe sepsis in the general ICU setting, with reported rates
ranging from 20% to 80%, and reported mortality of 20% to 50% (Journal of Clinical Medicine Research 7,
No.1 (2015) p.18-20).
Approximately two-thirds of sepsis occurs in patients over the age of 65 years (CDC/NCHS, National
Hospital Discharge, 2008 - from NCHSH Data Brief No.62 (June 2011)). Patients over 85 years old are 30
times more likely to be hospitalized for sepsis. The length of stay is prolonged by 75% and mortality is 8
times higher in septic patients for all who end up in the ICU (National Vital Statistics Reports No.58 (2010) p.
1-135). According to the CDC, severe sepsis accounts for approximately 40% of ICU expenditures. The
United States healthcare cost is six times greater in patients with sepsis, resulting in an estimated US$14.6
billion, as reported by the CDC.
Page 21
Figure 19: Rates of hospitalization for Sepsis, by sex and age for 2008
Figure 20 further illustrates the fact that sepsis treatment is an unmet medical need, as patients
hospitalized for sepsis were more severely ill than patients hospitalized for another diagnosis.
Figure 20: Percentage of hospital stays where the patient had seven or more diagnosis, 2008
Page 22
We estimate PMXs target population to be around 175,000 patients per year, which represents a
consumption of around 350,000 PMX cartridges and 875,000 EAA diagnostic tests.
Conventional Sepsis Treatments:
Common conventional sepsis treatments include antibiotics to treat the infection, fluids, and medication
through intravenous (IV) to maintain the blood pressure, correct any clotting problems, and stabilize blood
circulation, oxygen, and plasma (or other blood products). However, clinical reports suggest controversial
results with these treatments. Currently, there are no approved drugs available in both U.S. and EU
markets.
Eli Lillys Xigris was the only approved drug for patients with severe sepsis, who had a high risk of death.
This human activated protein C recombinant was originally approved by the FDA in November 2001,
however, the manufacturers aggressive strategies in marketing its use in severe sepsis were criticized, and
on October 25, 2011, Eli Lilly withdrew Xigris from global markets after a major study showed no efficacy
for the treatment of sepsis. The study, called PROWESS-SHOCK, reported a 28-day all-cause mortality rate
of 26.4% in patients treated with Xigris compared with 24.2% in the placebo group, and did not deem the
difference statistically significant. There were also claims following a 2009 study that the drug led to an
increased risk of serious bleeding and death, but were later refuted with an additional study. Due to the
lack of current efficacious treatments for severe sepsis to control mortality, we believe theres an
extraordinary market opportunity for Spectral.
Available clinical data could strengthen doctors confidence in PMX usage:
Polymyxin B-immobilized fiber hemoperfusion column (PMX) has been used in Japan and covered by the
Japanese Ministry of Health since 1994. The efficacy and safety data has been reported in peer-reviewed
articles. Over a span of 22 years to date, published articles on the use of PMX have reported on over 140
individual studies that included approximately 4,400 patients, who have received approximately 7,600
PMX perfusions. Discussing the wealth of clinical data available on PMX, Spectral has stated that the
safety profile continues to be excellent, with the number of treatment-related, serious events, being very
low. The majority of the product use has been in Japan, but utilization of PMX in Europe and other regions
is now increasing.
Systematic review of available data from randomized controlled trials (RCT) indicated that the use of PMX
was associated with a significant 26% increase in MAP (mean arterial pressure) when compared to a
conventional treatment paradigm. Patients with a worse MAP profile before treatment benefited after the
column treatment. Overall mortality rates (14 days, 28 days, 30 days, and 60 days) were 61.5% in the
conventional therapy group and 33.5% in the PMX group a very statistically significant result. It is
important to note that when the analysis was limited to a 28-to-30-day mortality, the results were also
statistically significant. Endotoxin levels were decreased by 33-80% after the column treatment. We believe
that the current wealth of available clinical data could increase U.S. doctors confidence and use of PMX.
The ease of use provides another marketing advantage:
The PMX cartridge is ordered by the physician and attached to Spectrals new pump system. The new
pump requires less expertise than needed for dialysis and can be administered by nurses in the ICU.
Generally patients are in the ICU with a 1:1 or 1:2 patient-to-nurse ratio, therefore, no additional
manpower is required to administer PMX. PMX is currently designed to be used in the ICU, but given its
ease of use we can see it being used in other areas, such as in emergency, etc.
Cost-effective characteristics of both PMX and EAA represent an opportunity:
Sepsis is highly prevalent within ICUs and is associated with high costs the cost of caring for sepsis
patients has been shown to be 6 times higher than caring for ICU patients without sepsis. U.S. data has
shown that each adult sepsis patient consumes between US$21,000 and US$25,000 (direct costs) during
hospitalization (Chalfin D, et al., The economics of critical care medicine: Critical care clinics). Given around
750,000 sepsis hospitalization cases each year, the total direct economic burden from sepsis is around $15
billion. This figure may increase when patients progress to severe sepsis, septic shock, and multiple organ
dysfunctions, ultimately leading to longer hospital stays. For these reasons, healthcare providers,
drug/medical device manufacturers, government authorities, and payors have focused their attention on
Page 23
strategies that could reduce the economic burden of sepsis. However, studies have shown that current
treatment of sepsis has not been cost efficient. An analysis of more than 166,000 sepsis patients at 309
hospitals found wide variation in mortality and cost (Chalfin D, et al., The economics of critical care medicine:
Critical care clinics). One third of hospitals exceeded expected costs of care by at least 10% and there was no
significant association found between hospital spending and mortality. The study found that more
hospitals had higher-than-expected costs and higher-than-expected mortality rates (10% of hospitals) than
hospitals that had lower-than-expected costs and mortality rates (7% of hospitals). These findings serve to
highlight the opportunity of finding a more cost effective treatment program.
PMXs cost of treatment is expected to be priced near US$20,000 and that should include all tubes and
accessories needed; there should not be any additional cost. One 2011 study based on PMX use in Italy
showed that, compared to conventional sepsis therapy, PMX plus conventional therapy provided a better
profile in terms of number of life years gained at additional cost. This pharmacoeconomic study suggested
that PMX was a cost-effective intervention for the treatment of severe sepsis/septic shock of abdominal
origin (Berto P, et al., Blood Purif (2001)).
We expect PMX to achieve maximum cost efficiency in selected patients with high endotoxin measured by
the EAA diagnostic and would likely be preferred by U.S. payors.
COMPETITION/NEW ENTRANTS
Aethlon Medical (NASDAQ: AEMD) Early clinical stage in U.S.
On September 30, 2011, Aethlon signed a $6.8 million contract with the Defense Advanced Research
Projects Agency (DARPA) to develop a medical device that would reduce the incidence of sepsis in
combat-injured soldiers and civilians. No detailed information is available.
Cytosorbents (NASDAQ: CTSO) Early clinical stage in EU and IDE in U.S.
Cytosorbents CytoSorb is a first-in-class extracorporeal cytokine absorber, now approved in EU, and
broadly indicated for use in any clinical situation where cytokines are elevated (ie. different from Spectrals
PMX used for elevated endotoxin levels). CytoSorbents has conducted a small-scale clinical trial in sepsis
patients within Europe (European Sepsis Trial). In the randomized, controlled, multi-center study in
Germany, CytoSorb significantly reduced 28-day all-cause mortality (0.0% vs. 62.5% in control, p = 0.03,
n=14) in 43 patients with septic shock and respiratory failure 60-day mortality and ICU stay was nonsignificantly improved by CytoSorb treatment. Other independent trials also showed that CytoSorb was
safe and well tolerated in more than 300 treatments in very sick patients with the worst forms of sepsis and
lung injury. Cytosorbents also has an FDA-approved IDE application to run a small sepsis trial in the U.S.
The company is currently collaborating with Dr. John Kellum at the University of Pittsburgh Medical
Center to target severe sepsis and septic shock. Investors should note that CytoSorb is designed to treat
sepsis patients with high cytokine level, which serves to differentiate their product from PMX (designed to
treat sepsis patients with high endotoxin levels). The causes of sepsis are still relatively unknown, so
assuming both of these products make it to market, both treatments could potentially be used to treat
sepsis depending on the symptoms (elevated cytokines vs. endotoxins).
Page 24
Figure 21: Cytosorbents CytoSorb
Source: Cytosorbents corporate presentation
Alteco Medical Approved in EU for endotoxin removal in 2007

Altecos LPS Adsorber is a Class IIa medical device (column) approved for endotoxin removal in an ICU
setting. The column does not contain any pharmaceutical or toxic components. Its high affinity to the Lipid
A moiety of the endotoxin molecule by hydrophobic and ionic interactions ensures efficient reduction of
endotoxins from different bacteria species, as this component of the endotoxin molecule is constant. The
capturing component is a specially designed synthetic peptide. More than 2,000 treatments have been
carried out worldwide using LPS Adsorber. The clinical reports and published data indicate the efficacy of
LPS Adsorber to remove endotoxin and to improve organ function in patients suffering from severe Gram
negative sepsis and septic shock. However, LPS Adsorber did not achieve significant mortality and ICUstay reduction. Alteco has not disclosed its U.S. commercialization plan. We believe Alteco would likely
need to conduct a U.S. pivotal trial that achieves statistical significance to obtain FDA approval.
Page 25
Figure 22: Alteco LPS Adsorber
Source: Altecos corporate presentation
All in all, there has not been any other major direct therapeutic competitor identified in this particular
market segment, although there are a number of companies that either are, or were, engaged in clinical
research and development related to other sepsis therapies.
VALUATION
Our $2.50 valuation is based on applying a 25x P/E multiple (in line with fast growing specialty pharma
valuations) to our 2018 diluted EPS estimate of $0.23 at a 50% discount rate. We are using a relatively high
discount factor of 50% due to the difficulty (risks) involved with bringing a sepsis treatment to the North
American market (represented by the fact that there are no current FDA approved treatments for sepsis in
North America). That being said, with the wealth of treatment evidence available (many clinical trials and
documented success globally) supporting its safety and efficacy, along with positive updates from the
interim EUPHRATES trials, we are confident in FDA approval. We feel that a 50% discount factor is
conservative for the above reasons. Our valuation is based on using 2018 estimates because that is expected
to be the first full year of Toraymyxin (PMX) sales.
Page 26
Figure 23: Valuation Grid Stock Prices at Different Combinations of Discount Rates and P/E values
P/E values
20x
25x
30x
35x
40x
45x
50x
55x
60x
Source: Mackie Research
35%
$2.51
$3.14
$3.77
$4.40
$5.03
$5.66
$6.29
$6.91
$7.54
40%
$2.34
$2.92
$3.51
$4.09
$4.68
$5.26
$5.85
$6.43
$7.01
Discount Factors
45%
50%
$2.18
$2.04
$2.72
$2.55
$3.27
$3.06
$3.81
$3.56
$4.36
$4.07
$4.90
$4.58
$5.45
$5.09
$5.99
$5.60
$6.54
$6.11
55%
$1.91
$2.38
$2.86
$3.34
$3.81
$4.29
$4.77
$5.25
$5.72
60%
$1.79
$2.24
$2.69
$3.13
$3.58
$4.03
$4.48
$4.92
$5.37
Page 27
MANAGEMENT TEAM
The management team at Spectral Medical Inc. boasts a wealth of experience in the industry, as well as
considerable familiarity with the treatment of sepsis. CEO Paul Walker, in particular, is a pioneer in the
field and has made large contributions. The team has also collected an abundance of valuable business
and executive management experience, including mergers and acquisitions, corporate reorganizations,
business partnerships, tax planning, as well as international marketing, specifically in Europe. Forty-five
percent of ownership is occupied by the board and management. Of note, two board members, Koichiro
Takeshita from Toray and William Stevens, own twenty-two and seventeen percent, respectively.
Management Team
Paul Walker, M.D., Ph.D., F.R.C.S.C, Director, President, & Chief Executive Officer, has been the
president and CEO of Spectral since April 2001. Prior to Spectral, he held the position of COO of the
Toronto General Hospital, and was Surgeon in Chief and Vice President of the Surgical Directorate of the
University Hospital Network. Dr. Walker has also been a Professor of Medicine and Laboratory Medicine
at the University of Toronto, an active Vascular Surgeon and the Director of an Intensive Care Program.
Dr. Walker has been a leader in the area of endotoxin and its role in sepsis. Hes the co-inventor of the
Endotoxin Activity Assay (EAA) and is a frequent participant at leading sepsis and critical care
conferences. He has also authored over 100 scientific publications. He obtained his M.D. from the
University of Western Ontario, while his Ph.D. is from the Salgrenska University of Goteborg, Sweden,
and is a graduate of the Advanced Management Program from Harvard School of Business.
Tony Businskas, B.A., C.A., Executive Vice President & Chief Financial Officer, joined Spectral in
February 2005 as CFO, coming over from MDS Pharma Services. Mr. Businskas, a Chartered Accountant,
has over 30 years of business experience, and has held senior financial positions in both public and private
companies. He brings significant experience in mergers and acquisitions, corporate reorganizations,
business partnerships and alliances, tax planning and finance.
Mr. Businskas received his B.A. degree from the University of Toronto in 1971 and became a chartered
accountant in 1975. He went on to continue his studies in general management at the Richard Ivey School
of Business, University of Western Ontario, Canada and at the Darden School of Business, University of
Virginia.
Debra M. Foster, RN, B.Sc., Vice President, Clinical Development, brings more than 20 years of
experience to the Spectral team. Ms. Foster started her career as a registered nurse specializing in the adult
critical care setting. She then worked in the Medical Surgical Intensive Care Unit of Toronto General
Hospital as a clinical research coordinator, where she developed expertise in clinical trial design, operation
and execution, as an active member of the Canadian Critical Care Trials group. As research coordinator
she has lectured to medical professionals on the topics of sepsis and clinical trials for sepsis internationally.
She holds a Bachelor of Sciences degree in Human Biology from the University of Toronto.
Dr. Gualtiero Guadagni, Ph.D., Vice President, Sales and Marketing, has extensive experience in market
development and sales of Spectrals Endotoxin Activity Assay (EAA) and Toraymyxin theranostic
approach to the management of septic shock in regions outside of North America. Dr. Guadagni is
responsible for the development and expansion of commercial opportunities for Toraymyxin and EAA in
Canada, the United States and Europe.
Before joining Spectral, he spent 10 years at ESTOR S.P.A. as the sales and marketing director, as well as
scientific consultant for Toraymyxin. ESTOR is a Milano-based company with a focus on the production,
promotion and sale of advanced biomedical devices in the areas of dialysis, intensive care, and
hemodynamics. A few countries of focus to the Dr. Guadagni-led sales team included Italy, Switzerland
Page 28
and Austria, where the sales of EAA and Toraymyxin have grown annually. As a scientific consultant at
ESTOR, he coordinated a number of post-marketing clinical trials such as the Euphas trial (Early Use of
Polymyxin B Hemoperfusion in Abdominal septic Shock). He also coordinated Euphas2in 2010, an
international data registry for Toraymyxin and EAA use in critically ill patients with septic shock, in
multiple countries worldwide.
Dr. Guadagni received both his PhD in bioengineering and his Masters degree in mechanical engineering
from Politecnico di Milano University in Italy.
Board of Directors
Anthony Bihl, Chairman of the Board, has served on the Board since March 2008. With over 30 years in
leadership of global healthcare businesses Mr. Bihl is an experienced executive, which includes
operational, financial, and senior executive positions. He currently serves as the CEO Bioventus LLC, a
global provider of ortho biologic products, and as director on the board of Greatbatch Inc. From 2011 to
2012, Mr. Bihl was Group President of American Medical Systems (AMS), a subsidiary of Endo
Pharmaceuticals, in Minneapolis, Minnesota, while he served as CEO of AMS from 2008 to 2011. Prior to
that Mr. Bihl served in a variety of senior leadership positions at Bayer Healthcare Diagnostics Division
from 2000 to 2007, including Vice President of Finance, Senior Vice President of Business Planning and
Administration, and President. He was also CEO of Siemens DX upon the acquisition of Bayers
Diagnostics Division by Siemens AG.
Paul Walker, Director (see Management Team write-up)
Kevin Giese, Director, has a B.A. degree in economics, a law degree, and an M.B.A. He has practiced law
in Vancouver and has held a variety of senior management positions including President of Mr. Lube U.S.
(acquired by Pennzoil), director and CFO of TSX-listed NQL Drilling Tools (acquired by National Oilwell
Varco), as well as various management roles and board memberships to other private and TSX listed
companies. He currently serves on the Board of Directors of BioAlberta and was a past advisory board
member of the Institute of Corporate Directors (Canada). Mr. Giese is the founding President, CEO, and
Director of Medwell Capital Corp. (formerly BioMS Medical Corp.), a biotechnology company dedicated to
the development and commercialization of innovative therapies, with a focus on the treatment of Multiple
Sclerosis. He received the BioAlberta Award for Entrepreneurship in 2005.
Guillermo Herrera, Director, has over 30 years of global healthcare experience. He is the Chairman and
founder of Pinnacle Biologics Inc. Prior to that Mr. Herrera spent 24 years at Abbot Laboratories, serving
as both Senior Vice President, International Operations and President of Abbott International. While at
Abbott, he was responsible for international commercial operations including sales and marketing of
pharmaceutical, nutritional and hospital products in markets outside the U.S. Mr. Herrera received his
B.A. degree in industrial economics from the Universidad del Valle, Columbia, and his M.B.A. from the
Kellogg Graduate School of Management at Northwestern University.
Koichiro Takeshita, Director, has been Director, Medical Device Division of Toray Industries, Inc. since
2010. He joined Toray in 1983 and has over 20 years of experience in the clinical development of
pharmaceutical products and medical devices. From 1991 to 1996 he was the Technical Representative of
Toray in its European Headquarters. Mr. Takeshita received a bachelors degree in pharmaceutical science
from the University of Tokyo.
William Stevens, Director, has served on the Board since September 2014 and holds over 20 years of
experience in capital markets and the investment industry. Currently he is the President of GS Investment
Corp, and was the Managing Director of Westerkirk Capital Corp., both private investment management
Page 29
companies. He has a successful track record of value creation for shareholders while holding senior roles
in investment banking and private equity. His educational background includes an M.B.A. from the
Harvard University Graduate School of Business Administration.
Page 30
INTELLECTUAL PROPERTY
Spectral has filed many patent applications in North America and other countries around the world with
respect to recombinant proteins, genetically engineered molecules, purified proteins, and specific
antibodies, or combinations of antibodies, employed in EAA and PMX. Several of these applications have
resulted in the issue of patents in various jurisdictions with the earliest expiry date in 2029. Other pending
patents relate to the devices on which the reactions take place.
RISKS
Spectral Medical Inc. and our estimates for the company are subject to a number of risks, including:
FDA Approval (Regulatory) Risk: Our estimates and expectations surround an FDA approval for
Toraymyxin (PMX) to be distributed and used to treat sepsis in North America. Delays in drug
approvals or failing to obtain regulatory approval would have a material and negative impact on
our estimates.
Clinical, Development Risk: Clinical device treatment development is not without risks. Clinical
trials may fail to meet endpoints for a number of reasons, which may include: not having enough
patients in a trial (study is underpowered), the trial is not properly designed, trial costs, time to
trial completion, quality of clinical data, regulatory issues, efficacy and safety concerns.
Financing Risk: Spectral may be required, from time to time, to raise additional funds for its
clinical development activities and operations. The inability to raise capital on a timely basis, or
under appropriate terms, could have a material adverse impact on the operations of Spectral.
Licensing Technology: Certain aspects of Spectrals business uses licenced technology and
intellectual property (eg. technology/intellectual property rights licensed from Toray), which
subjects Spectral to certain risks that would not be present if these things were developed
internally. This also applies to meeting certain milestone obligations by licensor, which these
licensing rights are dependent on.
Patent Protection and Infringement: The biotech/medical device industry is heavily reliant on
patented technology. The extent to which discoveries and related products and processes can be
effectively protected by patents and be enforceable is uncertain and subject to interpretation of the
courts. Likewise, the processes, products, and technologies of Spectral may be subject to claims of
infringement upon the patents of others, which could materially affect their business.
Inflation/Foreign Exchange Rates: A significant portion of the Spectrals revenues are

denominated in U.S. and European currency and are therefore subject to fluctuations in exchange
rates. These fluctuations could materially impact operating margins and the results of operations.
Manufacturing Risk: Spectral must meet FDA standards in manufacturing processes, else plans
for commercialization could be materially adversely affected.
Share Price Volatility: The specialty pharma sector can experience large share price moves,
particularly if clinical trials fail, regulatory issues occur, and/or litigation happens.
Competition: Spectral competes with other entities that develop and produce products aimed
at diagnosing similar conditions to those addressed by Spectrals products, including earlystage companies, established pharmaceutical companies, universities, research institutions,
governmental agencies, and health care providers.
Page 31
Ownership Concentration: If certain shareholders act together, they may be able to exert a
significant degree of influence over Spectrals management and affairs and over matters requiring
shareholder approval, including the election of directors and approval of significant corporate
transactions. The concentration of ownership may facilitate, delay, or prevent a change in control
of Spectral and might affect the market price of shares.
Litigation Risk: As a therapeutic development entity, Spectral may become, in the ordinary
course of business, a party to litigation, for a myriad of potential reasons.
History of Operating Losses: Spectral has incurred losses each year since its inception (an
accumulated deficit of approximately C$49 million. Unless Spectral is able to generate sufficient
revenue, it could continue to incur losses from operations.
Page 32
RISKS TO TARGET
Please refer to section titled Risks.
RELEVANT DISCLOSURES APPLICABLE TO COMPANIES UNDER COVERAGE

1.
Yue Ma, M.Sc. an Intern Associate of Mackie Research Capital Corporation, was also involved in the preparation of this
research report.
2.
On January 5, 2016, Andre Uddin visited the Spectral Medical EAA manufacturing facility in Toronto, Ontario.
All expenses were paid in full by Mackie Research Capital Corporation.
ANALYST CERTIFICATION
I, Andre Uddin, certify the views expressed in this report were formed by my review of relevant company data and industry
investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also
certify that my compensation is not related to specific recommendations or views expressed in this report.
Mackie Research Capital Corporation publishes research and investment recommendations for the use of its clients. Information
regarding our categories of recommendations, quarterly summaries of the percentage of our recommendations which fall into
each category and our policies regarding the release of our research reports is available at www.mackieresearch.com or may be
requested by contacting the analyst.
Information about Mackie Research Capital Corporations Rating System, the distribution of our research to clients and the percentage of recommendations
which are in each of our rating categories is available on our web site at www.mackieresearch.com.
The information contained in this report has been drawn from sources believed to be reliable but its accuracy or completeness is not guaranteed, nor in
providing it does Mackie Research Capital Corporation assume any responsibility or liability. Mackie Research Capital Corporation, its directors, officers and
other employees may, from time to time, have positions in the securities mentioned herein. Contents of this report cannot be reproduced in whole or in part
without the express permission of Mackie Research Capital Corporation. US Institutional Clients - Mackie Research USA Inc., a wholly owned subsidiary of
Mackie Research Capital Corporation, accepts responsibility for the contents of this report subject to the terms and limitations set out above. US firms or
institutions receiving this report should effect transactions in securities discussed in the report th rough Mackie Research USA Inc., a Broker-Dealer registered
with the Financial Industry Regulatory Authority (FINRA).
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Page 33
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Andre Uddin 416.860.

SPECTRAL MEDICAL INC. SPECULATIVE BUY

Ready For The Runup? Its All Or None

Fully Diluted (mm)

Market Cap (basic) ($mm)

Enterprise Value ($mm)

DETAILS Large Market Opportunity High Risk, High Reward Potential

Next Reporting Date

Thomson Chart 1 Year

Reputable Management/High Inside Ownership: The management team boasts a

IMPACT A Runup Is Expected

Initiating Coverage SPECTRAL MEDICAL INC.

HEALTHCARE MEDICAL DEVICE

SPECTRAL MEDICAL INC.

Initiating Coverage SPECTRAL MEDICAL INC.

SPECTRAL MEDICAL INC.

L ARG E CL I NI C AL U S E O F PM X AN D AM E NDM ENT O F P I VO T AL T RI AL PO SIT IO N S S P ECT R AL

Initiating Coverage SPECTRAL MEDICAL INC.

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 1: Sepsis: Progressive Clinical Syndrome

Source: Spectral Medical Inc.

Current Treatment of Sepsis

Initiating Coverage SPECTRAL MEDICAL INC.

Detailed Scientific Explanation of Spectrals EAA

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

EAA - Clinical Studies

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 4: Histogram of EAA values in Healthy Subjects

Source: Spectral Medical

EAA distribution reach extended

Initiating Coverage SPECTRAL MEDICAL INC.

Source: Spectral Medical

How Does PMX Work?

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 6: Mechanism of Action of Polymyxcin B binding Endotoxin

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 8: Sepsis Patient Screening in the EUPHRATES Pivotal Trial

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 9: MODS Scoring System

Source: Baxter website

Initiating Coverage SPECTRAL MEDICAL INC.

Source: Spectral Medical

Figure 12: Spectrals Pump Used in Conjunction with PMX column

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Source: Spectral Medical

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 14: Annual Estimates (FY2017-2020)

Source: Mackie Research

Figure 15: Quarterly Income Statement FY2014-2016 (Actual & Estimates)

Changes in inventories of finished goods and

Operating Income (Loss), EBIT

Net Income (Loss)

Weighted average number of common O/S

Source: Mackie Research, Company Reports

Initiating Coverage SPECTRAL MEDICAL INC.

Figure 16: Annual Income Statement FY2013-2020 (Actual & Estimates)