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?

Investopedia: It Gets A Little Harder From Here For Covidien

Covidien (NYSE:COV) has been one of the strongest large-cap med-tech stories over the past year or so. At a time when companies like Johnson & Johnson (NYSE:JNJ), Stryker (NYSE:SYK), Medtronic (NYSE:MDT), and Bard (NYSE:BCR) have been struggling to report much of any organic growth, Covidien has been solidly in the mid-single digits as the company reaps the benefit of past investments in R&D and product development.

Nothing lasts forever, though, and it looks like Covidien is lapping some challenging comparables. What's more, the overall healthcare market remains pretty sluggish and many of Covidien's rivals have stepped up their game with new product introductions. The spin-off of Mallinckrodt could unlock some value, but it looks like the market is pretty well up to speed with Covidien's value.

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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