Beautiful Music from Small Medtech

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I was already aware that the Manhattan School of Music (MSM) produced the world's greatest musicians, but I didn't know that great sellside analysts were also minted there. Managing Director Frederick "Rick" Wise of New York City-based Leerink Swann is a proud MSM graduate, and he likes to say that he took the "classical route" to Wall Street. "I believe music was great preparation for being an analyst," he says. "I've been deciphering symbols and interpreting them and conveying the bottom line to people on a stage."

Indeed, Rick has made beautiful music as a medical device analyst. For the past 13 years he has been a member of the Institutional Investor All-America Research Team, most recently with a runner-up ranking in the 2009 poll. He was also ranked fourth in the 2006, 2007 and 2008 Greenwich Associates U.S. Equity Analysts poll. After music school Rick was an analyst at Kidder, Peabody & Co., as well as Forbes Inc., and then he spent 22 years at Bear Stearns before coming to Leerink in 2008.

Rick's general theme is to invest in smaller companies with revenue lines that are small enough to double or triple given time. It also doesn't hurt if a company might later fit into a larger company's plans for pipeline and product-line expansion. To that end he has composed a portfolio of companies that fit his thesis. "In particular," he says, "I'm thinking of St. Jude Medical Inc. (STJ:NYSE) and Stryker Corp. Stryker Corporation (SYK:NYSE), which have a relatively smaller revenue basis that should be growable." He likes these companies for their product portfolios, expanding pipelines and quality of management.

He has just initiated coverage on a small-cap, Unilife Corporation (UNIS:NASDAQ), which is more of a hospital-supply company than a high-tech device-centered enterprise. Unilife manufactures prefilled syringes, packaging them in a user-friendly fashion for large pharma and large biotech companies that want to give new life to older products losing patent protection.

He also likes Volcano Corp. (VOLC:NASDAQ), which he describes as a "very high-level, precision invasive intravascular imaging (IVUS) guidance company."

"Volcano is the global market leader in the market of percutaneous coronary intervention (PCI) procedures, that being stent procedures," he says. Volcano's instrumentation is used inside the coronary artery for diagnostic and navigational information prior to or during stent procedures. "The company has had an excellent track record since it became public in 2006," he says. "It has gained market share on a global basis and at the same time it has invested heavily in the future. I definitely believe Volcano is an acquisition candidate."

The other principle player in the global PCI market is Boston Scientific Corp. (BSX:NYSE), which has had a "difficult decade," as he describes it. "I think it's fair to say it's the most controversial large cap stock I follow," he says without a hint of hesitation. "The company very famously paid top dollar for Guidant in April 2006, just at the moment the implantable cardioverter defibrillator (ICD) market slowed precipitously and just at the moment when the U.S. Food and Drug Administration (FDA) was raising standards. Expenses were too high and revenues were slowing in a world that was changing dramatically, and the company suddenly found itself in an overleveraged position. It has taken some time to adapt." Part of his case for Boston is that it has an entirely new management team in place, and the company is now producing more than $1 billion per year in free cash flow. "The business has now stabilized," he says. "It has made some significant and important external investments in new and emerging markets and in products. It very recently made an acquisition with some differentiated and potentially very exciting technology." Moreover, he believes the company is now positioned for much improved revenue and EPS growth over the next 3–5 years.

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