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

Seeking Alpha: Spectranetics Has Multiple Attractive Opportunities, But Will They Execute?

I've had a love/hate relationship with Spectranetics (SPNC) for more than 15 years now. I've always loved the potential of the company's laser ablation products in markets like pacemaker/ICD lead removal and peripheral atherectomy, but I've hated the company's pattern of inconsistent execution and the inability to ever "get over the hump" and establish a true growth trajectory.

I expressed similar reservations about a year and half ago, and it turns out that my timing was precisely wrong, as the shares (along with the med-tech sector) began an impressive run that has seen better than 130% appreciation and several positive sell-side initiations. Curiously, my financial model has proven to be accurate in terms of revenue evolution and my estimates for margins and cash flow have proven too bullish. What has changed is investor sentiment and optimism around the company's ability to penetrate the lead removal and atherectomy markets.

Spectranetics is now valued as a med-tech growth stock, and if management can continue to deliver double-digit revenue growth it is not unreasonable to think that the shares will reach the low-to-mid $20s over the next 6 to 9 months (approximately a 20% return). Unfortunately, that potential is tempered by the realities of a challenging market and improving alternatives.

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Spectranetics Has Multiple Attractive Opportunities, But Will They Execute?

Seeking Alpha: Cardiovascular Systems Could Have A Much Higher Value To A Strategic Buyer

For years, peripheral vascular intervention has attracted companies and analysts like JuneBugs to Bug Zappers, and with similar end results in many cases. While the promise of effectively treating narrowed or blocked arteries in the leg is indeed a potentially multibillion dollar promise, experienced investors have learned just how hard it is to translate that promise into real income and cash flow.

Cardiovascular Systems (CSII) has gone on this familiar ride. While the company seems to have developed a legitimately better mousetrap, one for which there is strong supporting clinical data, the company has struggled to drive consistent utilization growth and profit leverage. Although I'm somewhat skeptical of the company's ability to generate value for investors on stand-alone basis, the value of this company to a strategic buyer could be impressive.

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Cardiovascular Systems Could Have A Much Higher Value To A Strategic Buyer

Seeking Alpha: Spectranetics Still Searching For Traction In Peripheral

After so many years, it's interesting to see that there are still a few sell-side analysts willing to stick their heads out and support Spectranetics (SPNC). More than 25 years into its life as a medical device company, Spectranetics has yet to really carve out much more than niche applications for its laser ablation products. While the company may at last be in place to deliver some meaningful cash flow leverage, it looks like valuation is already ahead of the story.

Double-Digit Growth In Q4
Spectranetics delivered 11% growth in the fourth quarter, with 12% growth in its lead management business and 13% growth in its vascular business. Sales of disposables rose more than 12%, and the company placed an additional 8 laser units in the field (taking the total north of 1,000). To be fair, that's quite a good result when compared to other peripheral vascular companies like Bard (BCR), Covidien (COV), and Cardiovascular Solutions (CSII). 

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Spectranetics Still Searching For Traction In Peripheral

Investopedia: MELA Gets A Surprising "Yes"

When it comes to the FDA these days, almost anything is possible. In the last year, the agency has blocked applications that seemed like slam-dunks and granted approvals to long shots. Even though the FDA's position on MELA Sciences' (Nasdaq:MELA) MelaFind during the company's advisory panel meeting could best be summarized as "over our dead bodies," the FDA surprised the market Monday morning by issuing an "approvable letter" to the company, and MELA's stock is likely to soar in the immediate aftermath. (For more on the FDA, and the effect it can have on stock prices, read Pharmaceutical Sector: Does The FDA Help Or Harm?)


Not Quite "Yes," but Close Enough
The FDA has not given the company the green light to start selling the MelaFind device yet. What an approvable letter means, in essence, is that the FDA finds that a device is more or less approvable as is but there have to be some additional changes to labels, user guides, training, and post-approval trial guidelines. Importantly, these issues never require a second clinical trial to resolve and I cannot immediately recall an example in the last 15 years where a company and the FDA were not able to resolve these issues and go from "approvable" to "approved."

In other words, while the company will not begin shipping MelaFind to U.S. doctors on Tuesday, the finish line is very much in sight.



Read the full piece at the link here:
http://stocks.investopedia.com/stock-analysis/2011/MELA-Gets-A-Surprising-Yes-MELA-CYBX-ABMD-GIVN-ATRC-SPNC-HNSN0926.aspx

Covidien Shuffles The Deck

One of the least-surprising take-outs I've seen was today's announcement that ev3 is getting bought out. That said, I'm not sure you could have found 10 people who would have put Covidien in the top three most likely buyers. Bard would have made sense to me, as well as Cook or even Boston Scientific or JNJ. But Covidien? 

Strange times... 

By the way, I do own shares of JNJ.

Medical technology companies, particularly the larger ones, tend to be quite acquisitive. So, another sign that normalcy may be returning to the economy and the market is when acquisitions start to tick up again. The good news is, this appears to be happening now. In the wake of the Medtronic (NYSE:MDT) and ATS Medical deal a little while ago, Tuesday saw the announcement of a larger deal between Covidien (NYSE:COV) and ev3 (Nasdaq:EVVV). 

For the full article, please continue on to:
http://stocks.investopedia.com/stock-analysis/2010/Covidien-Shuffles-The-Deck-COV-EVVV-MDT-CSII-SPNC-BSX-MEND0601.aspx