The not-so-secret ingredient necessary for growth in medtech is innovation. Unless new prosthetics and instruments are differentiated from their predecessors, clinicians just won’t look at them because they are inherently resistant to change without an incentive. “The advantage of a new technology, a new product, a little better mousetrap or a lot better mousetrap, is you will drive higher pricing,” says Analyst and Managing Director William Plovanic of Canaccord Genuity. “Of course, if you’re just starting up, it will drive a significantly higher price. If you have an existing company that you’re building, it will help offset price degradation in your core, commoditized product lines.”
Knowing that I want to talk about companies that grow like weeds, Plovanic just gets the issue out on the table. “There are not a lot of fast-growth companies out there,” he says. But, “It depends how you define growth. One of our top value picks could almost be defined as a growth play.” He’s referring to Globus Medical Inc (NYSE:GMED)., which has a $1.7 billion market cap, is an innovative player in spine, and is growing its top line in the range of 10%–15% per year. And, “Its bottom line should grow at least 10%–15% per year,” he says. “It has numerous new product cycles, but nothing specific that we can point to. It’s just more about the stock having a very inexpensive valuation.” Globus has a distinctive pipeline development program that has produced more than 100 new products over the last decade when the company was founded. The company is growing its distribution channels, and Plovanic sees margins as being sustainable for the foreseeable future.
He also likes NuVasive, Inc. (NASDAQ:NUVA), which, like Globus, preannounced strong Q4 2012 results. Plovanic likes the small to mid-level spine-oriented companies that he believes are best positioned to carve out market share in spite of a less-than-stellar overall outlook in spine. The company is expanding its sales force, and there is potential for bringing in displaced salespeople from the merger of Johnson & Johnson with Synthes. The company is also building outside the U.S., with Japan set to provide a new revenue source with the launch of is extreme lateral interbody fusion (XLIF) system, which enables access to the intervertebral lumbar disc space laterally, and not from the patient’s front or back. The bottom line for Plovanic is that NuVasive, Inc. (NASDAQ:NUVA) carries on as the “gold standard” in the lateral access and minimally invasive surgery market segments. But there are also new growth areas with its AttraX biologics and PCM cervical disc products, the latter of which just received FDA approval in Q4 2012. “You’re looking at a core growth rate in the mid-single digit range,” he says. “There is a lot of earnings leverage potential with NuVasive. It’s a value play because it’s a show-me story. It needs to show that it can string together two, three, four quarters, and the stock will perform pretty significantly if it does that.”
To read the entire interview with William Plovanic, visit www.thelifesciencesreport.com.
The article 5 Value and Growth Medtech Stories originally appeared on Fool.com.
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