AngioDynamics (ANGO): Blood lines
For AngioDynamics, Inc. (Nasdaq: ANGO), access is everything. Its many medical devices enter your arterial network and wriggle on through the veins, pinpointing damage along the way. They may remove a varicose vein here, insert a post-surgical drain there, or vaporize an aberrant tumor here, there or most anywhere.
AngioDynamics supplies radiologists, surgeons, and other physicians with devices for the minimally invasive diagnosis and treatment of cancer and peripheral vascular disease (PVD). The company is positioned to take advantage of the nascent PVD market and — through a recent acquisition — the promising interventional oncology market.
Canaccord Adams analyst Jason Mills estimates that more than 11 million Americans suffer from PVD — often characterized by a narrowing of vessels that carry blood to the legs, arms and certain organs. As people age, vascular problems accelerate. Growth of the multi-billion dollar PVD medical device market is expected at 8% to 10% annually.
Grab your Wikipedia. Mills says AngioDynamics’ portfolio of diagnostic, therapeutic and drug-delivery catheters targets several key PVD sectors, including angiography (imaging/diagnostics), image-guided vascular access (imaging and drug-delivery of chemotherapy drugs for cancer patients), venous disease (therapeutic ablation), thrombus removal (therapeutic drug delivery), hemodialysis catheters and interventional oncology (radiofrequency tumor ablation, resection, drug delivery).
If you followed that, you are ready for AngioDynamics’ kicker: RITA Medical Systems. RITA, purchased by AngioDynamics at the end of January 2007 for $220 million, specializes in radiofrequency ablation — a treatment option for patients with liver tumors and painful metastatic bone tumors. It is a medical technology that uses heat to destroy tumors in a less invasive way than traditional methods.
Integration of RITA into its business has been tough on AngioDynamics and its investors. Costs were a drag on AngioDynamics’ bottom line and tested stockholder patience. But now RITA has been absorbed, and the acquisition is boosting both sales and earnings. AngioDynamics has put in two quarters of on-target performance so far in fiscal 2008.
In the second quarter ended Nov. 30, the company’s sales were $41.5 million, up 70% from the previous year’s quarter. RITA product line sales grew 18% to $15.3 million and the company’s other lines were up 7% to $26.2 million. The company said on its second-quarter conference call that RITA sales were strong across the board and that solid demand for the entire line of oncology products continues.
Second-quarter non-GAAP diluted earnings per share were $0.30, up from $0.19 in the year-ago quarter. Operating income rose 59% to $4.8 million, and gross margin was 61.3%, compared with 58.5%. The company continues to expect sales for fiscal 2008 at $170 million to $175 million, which would be up 54% from $112 million in the previous year. Guidance includes 2008 earnings per share at $0.56 to $0.60. Analysts expect earnings at $0.77 in fiscal 2009.
AngioDynamics’ balance sheet also was strong at the end of the second quarter, showing $80 million of cash and marketable securities, $95 million in working capital and $7 million in long-term debt. The company has made it clear that it wants to grow through selective acquisitions of complementary businesses and technologies, and has now promised that these acquisitions will be neutral to accretive from the start.
“After delivering its second consecutive solid quarterly metrics, we feel strongly that the RITA acquisition is fully tucked-in and that AngioDynamics stands to do extremely well for the balance of FY2008 and beyond with further sales penetration, leverage, and product innovation,” Jeffrey Cohen, analyst at J & L Jessup, said in a Jan. 4 research note.
Cohen, who started covering AngioDynamics in October with a “buy” rating, repeated this rating in January. He has a 12-month target of $25.50. Canaccord’s Mills also has a “buy” rating, with a $25 target. Shares of Queensbury, N.Y.-based AngioDynamics settled Thursday at $19.20. The company, which went public in 2004, has a market cap of $463 million. Over the past 52 weeks, shares have ranged between $15.68 and $26.25.
Investment risks include the ever-present competition of larger companies attempting to get into the burgeoning market space. AngioDynamics needs to fight off the likes of C.R. Bard, Inc. (NYSE: BCR) and Boston Scientific Corporation (NYSE: BSX).
There also is litigation risk. A trial date for patent infringement has been set for June against the company by VNUS Medical Technologies, Inc. (Nasdaq: VNUS); it involves a treatment for varicose veins. Mills said the venous business is an area of concern because AngioDynamics is competing with a new product — NeverTouch VenaCure — and faces potential for a loss in court. Still, he said he has accounted for the risk in his recommendation and noted that venous sales are only expected to be 7% of fiscal 2008 revenue.
Despite concerns, AngioDynamics’ product line appears to be healthy. In addition to NeverTouch, the company has a balloon dilation device, a new injectable port and other products it cites as key drivers for organic growth in coming months.
If your investments need a lifeline, consider AngioDynamics (ANGO). Just make sure you’ve bookmarked Wikipedia first.
