Spectranetics Corp (f/k/a SPNC)

[Democritus_of_Abdera]

Buhg1b, I was not as impressed with the CC as the market...

1) There was some clarification of the contemplated business deal(s)... but it was not explicit enough to satisfy me.... I’m worried that they might purchase technology related to a drug-eluting balloon that will need to go through the FDA’s PMA process... a process which I think SPNC is ill prepared for. I have reproduced the key question and answer regarding this issue below.

2) I was troubled by the John Schulte’s statement that physicians are looking for better data regarding the benefits of artherectomy before he expects artherectomy to garner a bigger share of the endovascular repair space (see relevant Q&A quote below). This is a confirmation of what EVVV stated in their CC last quarter (#msg-27082350). Thus, SPNC is fighting for market share, a fight which they are winning only because the competition is weak. ... Note that John expects a 15-20% growth rate for all technologies in the PAD market with artherectomy maintaining its 20% share of the total. So, even market share gains can be substantial, I would just like the opportunity to be more open ended.

3) The revenue increase was good, but SPNC spends everything it earns... The income from the increased revenue is not flowing to stockholders at this time. To their credit, SPNC doesn’t employ toxic financing.

4) I continue to be optimistic about the use of the laser for debulking in-stent restenosis. But, I also think that competing stent technologies with pro-healing coatings might become a problem if SPNC doesn’t move into this field rapidly... I’d like to see more progress on this front.

5) The relatively slow enrollment for the PATENT and SALVAGE trials concerns me... John Schulte had a good excuse... i.e. getting protocols through hospital IRBs can be byzantine.... but, I continue to believe that the pace of trial enrollment is a proxy for physician enthusiasm for the product. Slow enrollments are a red flag.

Q&A question regarding impending business deal

<Q – Ashim Anand>: Thank you for taking my call. Most of my questions were answered. If you can comment on two things? You mentioned something about the business development; if you can give more details and if that would be dilutive? And other, inventory has been down, which is more surprising to you guys? Or this is a welcome downturn in inventory levels?

<A – John Schulte>: Sure. Well let me answer the first and Guy’ll answer the second. With regard to the business development activity, as I mentioned, we’d like to do a deal this quarter. Our focus is on the VI side in products that are complementary to our technology sold to the same physicians, either for use in the same procedure or in procedures where the laser may not make as much sense. These will be either distribution deals or bolt-on acquisitions using only existing cash resources. We would never do a stock deal at these prices so we want to do it out of existing funds. And one that we think will help increase the leverage of our Vascular Intervention sales force.

Q&A question related to artherectomy share of Endovascular market


<Q – David DeGiralamo>: My question is how much of that growth, let’s call it 15 to 30, how much of your growth relative to endovascular procedure growth will be due to atherectomy market growth versus how much you might be able to gain in market share?

<A – John Schulte>: That’s a hard one to pinpoint. My guess is probably more market share gain than atherectomy growth within the market. I think until there’s better data available on the benefits of atherectomy, that’s one thing that physicians are looking for. So they’re – now it’s based on things where they look at certain lesions that just don’t work very well with balloons and stents and those are below the knee lesions, for example. If they’re longer than three centimeters, most physicians realize that ballooning it doesn’t provide very good results. You don’t want to put in multiple stents; there haven’t been good results there and so tissue removal makes sense. And that’s anecdotal stuff. We’ve got good LACI data showing great limb salvage rates and those kind of things in really difficult long lesions below the knee and so I think that’s an area where below-the-knee lesions, long lesions are growing. And therefore, that’s an area where we’re focusing. A second area is the treatment of instent restenosis....