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On February 19, The Wall Street Transcript interviewed Gabelli & Company, Inc.'s Jeff Jonas. Jonas, who specializes in small cap cardiovascular, plastic surgery and pharmacy benefits management companies, spoke about his favorite sector pick. Key excerpts follow:

TWST: Where do you see the opportunities in this marketplace?

Mr. Jonas: There is a small company called AngioDynamics (ANGO) that I think I spoke to you about a year ago. They are leaders in varicose vein treatment. They have both a laser and a drug therapy for it, and they also help deliver chemotherapy drugs and contrast media for X-rays and MRI scans into the body, with ports and PICCs that help inject those substances into the body, and that's a tremendous growth area. They are becoming compatible with MRI machines, which is a great benefit to the doctors in terms of convenience, and you also get a higher price because of it.

They are growing very rapidly. They are growing over 20% on the top line organically, and they acquired a competitor called RITA Medical. RITA gives them a vascular access port, and it also gets them into the cancer market in terms of ablation technologies that help remove tumors from the body.

TWST: So they have a number of things going on?

Mr. Jonas: They are very well positioned in a lot of different growth markets.
They are a small company, so there is still a lot of room for margin improvement as they gain scale. They are still hiring a sales force to better cover the US, and they are moving toward direct sales internationally.

TWST: Given that they are still a relatively small company, do they have the management team to support what they are trying to do?

Mr. Jonas: Yes, they have a great management team that has been there for quite a few years. Eamonn Hobbs is their CEO, and he is very well respected in the industry, especially amongst doctors. He seems to have a great sense of what's going on in the market and a great vision for the next three or five years or more in terms of R&D priorities and technology.

TWST: What kind of growth are they capable of generating as they pull all of these pieces together?

Mr. Jonas: They are on a May fiscal year, so in May of 2008, they will include the full results of RITA Medical. They'll probably grow sales 20% to 25% organically, and that jumps to about 80% on a reported basis because of the acquisition. But longer term, they can grow 20% to 25% on the top line and north of 30% on the bottom line as they raise their margins up to more of the industry average.

TWST: Why have the margins been short of the industry?

Mr. Jonas: It's really just a matter of scale, especially leveraging the sales force and some of the administrative and R&D costs that don't necessarily increase on a linear basis with your size. Their manufacturing continues to improve, as long as they can keep leveraging their capacity. Some of their older products were lower margin, and some of the newer products that they are moving into, like treatment for varicose veins and these ports and PICCs, are much higher margin, so as that mix improves, they also get a large benefit there.

Source: The Growth Factor: AngioDynamics Won't Settle Down