Hidden Small-Cap Medical Device Companies with Big Growth Potential

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I've been involved in healthcare as a clinician, writer or analyst for four decades, and every now and then a public company will come to light that went previously unnoticed or unknown by me. That was the case when I interviewed analyst Caroline Corner for The Life Sciences Report. Corner provided some small-cap medtech names of great interest that could ultimately be uncovered by small cap mutual and hedge funds. When they buy, share prices are lifted up.

Although she has been a sellside analyst since 2005, Corner originally received her formal training and Ph.D. in biological and environmental engineering at Cornell before working at Eli Lilly and Co. (LLY:NYSE) and Baxter Transfusion Therapies. She's been able to translate that experience to her work in getting new ideas to institutional investors. One of the names she's talking to investors about today is Cerus Corp. (CERS:NASDAQ), which markets the Intercept Blood System to improve blood-supply safety. The company has become an actual grower of revenue due to its efforts in Europe and in other markets outside the U.S. Now Cerus is working to design clinical trials for the U.S. market. "It would be a huge deal," she says. "The U.S. blood system is a big market. We spend a lot of money on transfusions. Personally, it's a bit of an embarrassment that our blood supply, especially for plasma and platelets, is inferior to that in some European countries."

Two of her favorite names are Cardiovascular Systems Inc. (CSII:NASDAQ) and Spectranetics (SPNC:NASDAQ). Both companies are involved in the development and marketing of instrumentation for treating peripheral artery disease (PAD). CSII has a catheter-based system for treatment of PAD below the knee. "I like the peripheral vascular area because it addresses a large unmet need," she says. "There are many players, but there is plenty of room in the market." CSII's edge, she says, is that its below-the-knee product is "very nimble" in cleaning out heavily calcified plaque, "Which is something other companies struggle with," she says.

I want to know if there is a merger possibility between the two companies. "I've spoken to Spectranetics about that, and the company acknowledges that in 10–20% of cases, vessels are too calcified for its excimer laser to treat effectively," she says. "The Spectranetics laser has its utility in treating conditions that Cardiovascular Systems' product might not work as well for, such as fibrotic plaque. The potential for a merger is there," she says, "But you also have to look at Cardiovascular Systems as a potential target for a company like Covidien Ltd. (COV:NYSE)," which has some complementary technology.

Corner also follows Unilife Corporation (UNIS:NASDAQ), which has developed safe-delivery syringes and products in which premeasured drug doses can be made ready for clinicians and patients. One possible use is that off-patent drugs could be offered in prefilled syringes that would be convenient for healthcare providers and would boost margins for sellers. "All of the components are the right size, so it can be incorporated seamlessly into what pharmaceutical companies are already making in terms of prefilled syringes," she says. Importantly, "The syringes deliver biologic products to patients, and Unilife has an opportunity to get into that market," she says. "The technology is very good. It's just a case of whether Unilife can pull the trigger and get the agreements in place." On June 18 Unilife announced that an agreement had indeed been inked with an unnamed pharma in a seven-year deal for its prefilled syringes. The Street had been waiting to hear this news, but because the deal partner is anonymous, investors appear to be unsatisfied, judging from the share price weakness since the announcement.

Cardica Inc. (CRDC:NASDAQ) has developed a surgical stapling product with which vessels can be connected (an anastomosis). Surgeons take great pride in their ability to perform microsurgical techniques the old way. I want to know if this newer method permits a seamless anastomosis. "Yes," she says. "There is much less leakage. But you can show older cardiac surgeons the data, and it's always about the other guys who can't suture. We see that across the board with surgeons. Old dogs, new tricks, etc. But certainly in surgery, you get entrenched." This situation speaks to some of the difficulties encountered by Cardica; nevertheless, Corner likes the company.

When we spoke, Corner had ¬recently been around members of the Mela Sciences Inc. (MELA:NASDAQ) sales team at a trade show, and she's awed with their intense zeal for the company's MelaFind system which screens for melanoma and helps dermatologists narrow down the number of moles that might be biopsied. "That's pretty exciting," she says. At about $7,500 per unit, the product is rather inexpensive as medical devices go. I want to know if a large physician practice management group might purchase several devices for its office or clinic." It certainly could," she says. "Among other things, during this launch Mela hopes to figure out whether a physician is more likely to buy a second machine or to wheel a single unit from room to room."

To read the entire interview with Caroline Corner, visit The Life Sciences Report.

From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Streetwise Reports does not accept stock in exchange for services or render general or specific investment advice and do not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report. Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

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