Monday, August 1, 2016

Avinger Offers A Better Mousetrap, But A Lot Of Challenges

Much as investors and sell-side analysts want to believe it, "build it and they will come" just doesn't cut it in med-tech. Many interesting technologies have gone by the wayside over the years, either because they actually weren't all that interesting to the physicians who had to use them, or the companies significantly underestimated the hurdles in driving better adoption.

As someone who has paid attention to med-tech for about 20 years now, I see a lot of familiar concerns with Avinger (NASDAQ:AVGR). The idea of adding optical coherence tomography (or OCT) to peripheral atherectomy is a great one, and the atherectomy market is not as big as it should be … but that was true for Spectranetics (NASDAQ:SPNC), Foxhollow, and Cardiovascular Systems (NASDAQ:CSII) when they were young too. What's more, building a med-tech business is HARD - doctors can be surprisingly stubborn and competition can prove harder to dislodge than you would otherwise think.

I like the potential for Avinger to build toward $100 million in revenue around 2020, and I think this company could certainly be bought out. I'm also concerned about liquidity and dilution, though, as the company is already in a net debt position and would seem to need over $100 million in incremental capital to drive that ramp to $100 million. Still, the chance to get a potentially high-growth stock for less than 4.5x forward revenue is intriguing and I think investors who can afford the risk of a major loss should look closer.

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Avinger Offers A Better Mousetrap, But A Lot Of Challenges

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