CryoLife Inc.: Be Prepared For a Wild Ride

Cryolife Inc. (CRY) helps save lives. The company processes human tissue -- including heart valves, blood vessels, tendons, and cartilage -- and preserves it in liquid nitrogen (cryopreservation) for use in transplant procedures. The body parts CryoLife uses come through tissue banks and organ procurement agencies from deceased volunteer donors. CryoLife specializes in vascular products such as heart valves and conduits; it also provides tendons and cartilage used in orthopedic procedures, but it is phasing out its orthopedic operations. In addition to preserving and distributing tissue, the company develops biomaterials such as FDA-approved BioGlue, used in place of stitches in some cardiac procedures.

Earnings are about to go from negative to positive for CRY. That prognosis is dependent on FDA approval of the Cryovalve SG which is expected soon. This process eliminates all cells from the tissue and leaves behind a scaffold for the patient's own cells to populate. Studies may indicate the Cryovalve SG is better than tissue kept by other methods. Data was submitted to the FDA, taken over 6 years, to win the FDA approval, after a 5 year break. If studies show CryoValve SG is better than alternatives, CRY's market share should be significant.

While still a small business, vascular implants are growing. The company saw sales of its allografts increase over 50% in the first quarter, compared to the same quarter a year ago, totaling $6.1 million for the first three months. One of the main revenue drivers for CRY is BioGlue which should sell close to $45 million this year. Analysts believe cosmetic applications are also viable which will boost sales. Three new products are expected from this division: a soft tissue repair implant, a pericardium replacement, and a spinal disc replacement, expected to launch in Europe.

Here are some numbers: market cap is $350 million with a little over 25 million shares outstanding. Earnings should be 25 cents a share this year, up from a negative 2 cents last year. Next year look for 50 cents a share. Return on Equity is forecast to be 13.5% this year and 24% next year. Net profit margin should be 8.4% this year and 13% next year. Look for sales to grow by 12% a year, on average, over the next 5 years. Current assets are more than twice current liabilities.

This stock sold for $44 a share (adjusted for 3 for 2 split) in 2001. The price went to $1.40 in 2002. In the investment world, that's known as volatile. Even for a small cap stock, that's extreme. Expect that it may happen again and if you decide to invest in this stock after thorough research into it, be prepared for a wild ride.

CRY 1-yr chart

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Comments

[User 223064:]

You are on the money, dont forget about their Bio-Glue. The future of stitches.

2008 Aug 19 10:01 PM