AngioDynamics: Has the Market Overreacted?

Mar.11.08 | About: AngioDynamics, Inc. (ANGO)

Back in January, AngioDynamics (NASDAQ:ANGO) affirmed its outlook for fiscal 2008, predicting net sales in the range of $170-$175 million. But on Friday, the company revised its guidance, predicting full year sales in the $165-$167 million range.

The abrupt revision caused Canaccord Adams to downgrade AngioDynamics from Buy to Hold and lowered its price target to $16, saying the top-line miss calls the company’s ability to execute into question.

Shares of the stock plummeted 37.5%, or nearly $6, on the news, to a $9.99 close on Friday. AngioDynamics has not traded below $10 since October, 2004 when E-Z-EM (EZEM) distributed all of its shares (at the time E-Z held 80% of the company) to stockholders.

Based on today’s market capitalization, the company is worth less than the $244 million it paid for oncology products maker Rita Medical in early 2007. It seems the market may have overreacted.

Interventional Products

While AngioDynamic’s oncology product line grew by 26% in Q3, its interventional product lines grew by only 10%, less than expected.

The company’s dialysis product sales continued face significant price competition.

According to Eamonn Hobbs, President and CEO of AngioDynamics, “The best way to address this market dynamic is to introduce new and innovative products that compete on features and performance rather than price.”

As part of this effort, the company recently launched the Centros central venous catheter for hemodialysis. AngioDynamics expects to begin selling the product by the end Q4.

Rita Medical Baggage

Much of the company’s interventional woes are baggage that came along with Rita Medical’s thriving oncology business.

In Rita’s 2005 annual earnings report, then President and CEO Joe DeVivo stated:

While our specialty access catheter business was down for the fourth quarter of 2005, we believe that a new product launch planned for the first quarter of 2006 will improve our potential for moderate growth with this product line as the year unfolds.

And in November 2006, after experiencing further difficulties, DeVivo said:

We have analyzed the year over year decline in our specialty access catheter product line and believe we can reverse the trend with a combination of strategies…We believe that we can reinvigorate this important part of the business with our existing [specialty access catheter] product portfolio and the planned introduction of new [specialty access catheter] products next year.

AngioDynamics announced its acquisition plans later that month.