BB&T Contributing Writer

BOSTON – The 30th annual Global Growth Conference, which was sponsored by Canaccord Genuity (Vancouver, British Columbia) and held here last week, enjoyed record attendance. This is impressive, given the malaise in the economy in general and the poor performance of small cap growth equities in recent months.

Although many medical device firms have suffered as the economy has impacted demand for its products from hospitals and physicians, several companies are enjoying robust growth. Two of these presenting med-tech companies were Vascular Solutions (VASC; Minneapolis) and LeMaitre Vascular (LMAT; Burlington, Massachusetts).

Both companies are clearly thriving, beneficiaries of astute management leadership and well-crafted strategies to compete in their respective markets. These two companies are remarkably similar in several respects, both beneficiaries of key trends such as the aging population, increasing obesity and the resultant diabetes and the trend to less invasive procedures.

However, they serve different physician specialties. VASC is deeply entrenched in minimally invasive interventional medicine, serving interventional cardiologists, interventional radiologists and vascular surgeons who increasingly are performing interventional procedures.

Conversely, LMAT CEO George LeMaitre, Jr., the son of a vascular surgeon who founded the company 27 years ago, described LMAT as a “pure play in the peripheral vascular disease market“ while marketing exclusively to the vascular surgeon. Like Root, he noted that vascular surgeons in the past several years have readily embraced less invasive endovascular technologies and procedures such as endovascular abdominal aortic aneurysm repair.

As shown in Table 1, in the past decade or so, vascular surgeons have been significantly increasing their share of all domestic peripheral vascular interventions, primarily at the expense of interventional radiologists. This has clearly been a favorable trend for LeMaitre.

Referring to this data, LeMaitre quipped “we bet on the right horse.“

Both companies can be aptly described as “niche players.“ VASC CEO Howard Root portrayed his company as participating in a unique space between single product small companies that lack distribution capabilities and large multinational companies that need to focus on large $1 billion or higher projects or markets to fuel their growth. He described these small markets as a “nuisance“ for the big players.

This approach, combined with its domestic direct sales representation and aggressive new product introductions (over 50 since 2003, 12 in 2009 and 10 planned for 2010) and selective acquisitions, has been the catalyst to impressive gains. In the first half of 2010, VASC revenue grew about 15% over last year's first half and Root noted that 2010 will mark the tenth consecutive year of 10% or higher annual revenue increases.

Exemplifying its savvy with new products, the LP, or low profile version of its well-established Pronto thrombectomy catheter and the relatively new GuideLiner catheter both registered huge 50% or better first half gains.

Guideliner is a unique coaxial “mother and child“ extension catheter that is designed to provide physicians with a tool to perform challenging interventions, such as navigating tortuous anatomy within the arterial system and safely delivering stents through tightly occluded coronary lesions. It is estimated that it could be used in 5% to 10% of all coronary stent placement cases.

Speaking at the May 2010 EuroPCR meeting, at a VASC sponsored symposia, a renowned interventional cardiologist stated that the GuideLiner “makes impossible cases possible.“

It was internally developed, was launched in 3Q09 in the EU and 4Q09 in the U.S. and is already running at a $4 million annual rate. VASC has a patent pending on the device.

With very favorable physician responses to the clinical utility of the GuideLiner, management recently increased its estimate of the potential annual revenue to more than $30 million at full commercialization.

While internally generated products are the company's primary growth driver, acquisitions and licensing initiatives are also being vigorously pursued. This enables the company to further leverage its impressively large 89 person domestic direct sales team.

For example, the company currently has distribution agreements with three device manufacturers, which either lack sufficient scale to market their own products or are based overseas and lack a domestic presence.

In May 2010, VASC completed its first “tuck-in“ acquisition with the purchase of the Escalon Medical (Wayne, Pennsylvania) SmartNeedle product line, for about $5.8 million in cash. SmartNeedle is a single-use vascular access needle that houses an ultrasonic probe, providing clinicians with auditory feedback that facilitates the needle placement within a vein or an artery. According to Root, the deal is immediately accretive, thus benefiting VASC's shareholders.

With its strong first half momentum, the company recently raised its revenue guidance for the full year to $78 to $80 million, implying a year over year gain of about 15%.

In concluding his formal remarks, Root said that “we are very well-positioned and I expect solid growth in the future.“

LMAT is similarly registering excellent gains, with its first half revenue surging nearly 17% over last year. This was by far the best performance LMAT has reported since it became a public company in late-2006.

Like Vascular Solutions, LMAT relies heavily on its direct sales force, with 61 reps stationed in the U.S., Europe and Japan. CEO LeMaitre described his global direct sales team as “the heart and soul of our company.“

Similar to VASC, LeMaitre has numerous product lines (14 in total) but all with a common customer, the vascular surgeon. “We have a great channel to these customers,“ said LeMaitre.

Like VASC, LeMaitre is also eager to either acquire or license new products or companies. Although it has been quiet on those fronts recently, historically LMAT has been very active with 11 deals (only one of which management would describe as a failure) closed in the past 13 years. Its acquisition team, led by veteran president and COO Dave Roberts, continues to actively evaluate deals globally.

The company, which has generated positive cash flow in the past several quarters, has plenty of cash to consummate acquisitions but remains very selective and valuation sensitive. In response to a question about using its stock for acquisitions, LeMaitre replied, “we think our stock is very undervalued and therefore we are a buyer, not a seller of our stock.“

The company's directors initially approved an open market share buyback in July 2009 and significantly increased it in 2010. As of June 30, the company had re-purchased about $1.2 million of its shares at an average price of $4.70 in the open market. At this juncture, it has fulfilled just 24% of the total potential buyback and plans to continue its open market buying activity.

Similarly, Vascular Solutions has a share buyback in place, sharing LMAT's belief that it is a wise use of corporate funds to re-purchase company shares if they appear by the board and management to be undervalued.

Amongst all the med-tech companies that presented here, LMAT and VASC are enjoying significantly above average growth. Their niche strategies are quite similar and “flying below the radar screen“ has enabled these companies to prosper in difficult times.

Not all med-tech companies are faring as well as LMAT and VASC. A good example is AtriCure (ATRC; West Chester, Ohio), which experienced a slight revenue decrease in 2009 from the record level that they achieved in 2008. Although counter-intuitive, given the nature of cardiac surgery procedures being “non-elective,“ it appears that some patients decided to either defer or outright cancel their surgery in the very tough economic times seen in late-2008 and 2009. As the lion's share of ATRC's procedures are performed concomitantly to a coronary bypass or mitral valve replacement, this had a negative impact on the company. Additionally, competitive inroads also hampered the company's progress.

Table 1

Source: LeMaitre Vascular, Distributed at the 2010 Canaccord Genuity Global Growth Conference

Table 2

Source: Atricure, Distributed at the 2010 Canaccord Genuity Global Growth Conference

Significantly, AtriCure management was also heavily distracted throughout most of 2009 by an industry-wide Department of Justice (DoJ) investigation into the business practices of several companies marketing devices for treating atrial fibrillation (AF). AtriCure settled with the DoJ in late-2009 and this allowed it to re-focus its efforts in building its AF surgical ablation business.

CEO Dave Drachman's presentation here was upbeat, he noted that “AF is a large, growing and underdeveloped market opportunity and AtriCure is the surgical market leader with the widest range of innovative products and technologies.“

Whereas late-2008 and most of 2009 were extremely challenging for ATRC, the company appears to have turned the corner. Worldwide revenue in 2Q10 increased 3% over the same period last year. While this is hardly impressive, it demonstrated that the company is showing signs of progress.

One of the key bright spots for the company is that it recently received FDA approval for its left atrial appendage (LAA) device AtriClip. Drachman noted that its EXCLUDE trial, which supported the FDA's June 2010 510(k) clearance, demonstrated a 98% LAA closure rate at three months. These results compare very favorably to conventional suture or stapling, with a 40% closure rate that was reported in a Sept. 9, 2008 article in the Journal of the American College of Cardiology titled “Success of Surgical Left Atrial Appendage Closure: Assessment by Transesophageal Echocardiography.“

According to Drachman, AtriClip, which was launched in July 2010, addresses an annual open-heart U.S. market opportunity of $150 million. In addition, Drachman noted “we have a longer-term opportunity in the sole atrial fibrillation therapy market with thoracoscopic and robotic procedures, which are now in development.“

He also added that the Atriclip “opens new doors and creates cross selling opportunities.“

A recent report written by med-tech analyst Matt Dolan of Roth Capital Partners (Newport Beach, California) pegged the 2011 revenue potential of AtriClip in the $3 to $4 million range.

Drachman cited a recent positive development – the National Institute for Health and Clinical Excellence (NICE) in the UK concluded that percutaneous closure of LAA reduces stroke risk in atrial fibrillation patients.

Another development that bodes well for ATRC is that as a result of recent meetings with the FDA related to its ABLATE clinical trial, AtriCure expects to file its final clinical PMA module during the first quarter of 2011. Moreover, this submission will not require the enrollment of additional patients in either ABLATE or the ABLATE continued access protocol.

The ABLATE clinical trial is a pivotal trial in support of an atrial fibrillation indication for patients undergoing concomitant cardiac procedures. It has substantial strategic and clinical significance because upon its approval, it would enable ATRC to attain a label to market and sell its ablation devices specifically for AF. Currently, all AF ablation products are marketed for either general tissue ablation or cardiac tissue ablation, which limits the claims that can be made for this technology.

Drachman indicated that he hopes for FDA approval in the first half of 2012.