Spectranetics Corporation: Heartfelt Dedication

Spectranetics (SPNC) is a rapidly growing cardiovascular medical device company with a profitable razor/razor blade business model that also includes a service component. The Company develops, manufactures, and sells its CVX-300 excimer laser system along with a variety of single-use, disposable fiber-optic laser catheters. This laser and catheter system has the unique ability to access hard-to-reach vessels in and around the heart to perform a variety of minimally invasive cardiovascular procedures, such as removing plaque, blood clots, and even electrical leads from old pacemakers from within arteries to allow for normal blood flow and the placement of new devices. Although Spectranetics derives about 90% of its revenues in the US and nearby countries, it has already received regulatory approvals in the EU to market its system for the same indications that are approved domestically and is also making progress in the Japanese market with distributor DVx Japan on additional regulatory and reimbursement approvals.

The Company's growth strategy involves expanding its market share in the peripheral (leg arteries), minimally invasive cardiovascular disease market. To achieve this goal, Spectranetics is focused on expanding its sales force along with committing more resources toward its research and development activities. In July 2007, the Company received marketing clearance from the FDA (with a broader label of indicated uses than competitors) for its TURBO-Booster catheter for removal of blockages in major leg arteries at or above the knee. Spectranetics is also pursuing optical visualization technologies for its devices after terminating an agreement with Bioscan Technologies in 2Q07, in addition to other technological enhancements for its existing laser systems as part of its increased R&D efforts. The Company may experience temporary losses during these efforts to expand into the peripheral market, but a strong balance sheet with over $53 million in cash/equivalents/investments and zero debt provides a safety net during this endeavor. Shares of Spectranetics closed out 2007 on a high note at $15.33 per share and a $400 million market cap, which has the Company trading above both its 50-day and 200-day moving averages and within 10% of its 52-week high of $16.59 per share.

Revenue for the 3Q07 increased 31% versus the year-ago period to a level of $21.2 million and consisted of the following components: +36% disposables, +17% laser sales/rentals, and +12% services/other. Disposable catheter revenue for 3Q07 was comprised of atherectomy (including removal of blockages in both heart and leg vessels) sales of $9.2 million, lead removal catheter sales of $5.1 million, and support catheter sales of $2.9 million. The Company has also experienced a 22% increase from the year-ago period in its installed laser base during the most recently reported quarter, resulting in a total of 713 placements worldwide (with 563 of those here in the US). For the first nine months of 2007, the Company recorded revenues of just under $59 million (up 29% from the year-ago period), pre-tax income of just over $2 million, and gross margins of 74%. Net income for the period was $7.3 million or $0.22 per fully diluted shares, stemming largely from a deferred tax asset valuation adjustment which included a non-cash tax benefit of $5.3 million. In order to sustain the 43% growth rate in atherectomy disposable catheters, Spectranetics is focused on increased market penetration of its CLiRpath product line for below-knee arterial blockages and TURBO-Booster catheters for above-knee blockages as well as continued growth in the worldwide placement of its laser systems and continued success with its R&D efforts.

At the end of October during 3Q07 financial results, Spectranetics raised the lower end of its 2007 revenue guidance to a range of $81 – $83 million, up from a previously wider estimate of $79 – $83 million, and affirmed a range of 120 – 140 net new laser placements for the year. According to Center for Disease Control statistics, heart disease is the leading cause of death in the US, accounting for 29% of all deaths. Coronary artery disease is the most common form of heart disease, killing more than 7 million people worldwide each year. In addition the American Heart Association estimates that about 8 million Americans suffer from peripheral artery disease. Given the huge numbers of people in the US and worldwide afflicted by peripheral and/or coronary artery disease, long-term investors in Spectranetics are poised to reap the benefits of a focused program that combines increased sales and marketing efforts for existing product lines with increased resources toward research and development initiatives.

Disclosure: none