By David Sterman
In hundreds of biomedical labs across the country, researchers have been working to develop treatments for a wide range of cancers. Yet the medical community isn't ignoring heart disease, the nation's leading killer.
Changing demographics could lead to a surge in heart disease, which generally affects older Americans. According to the U.S. Census Bureau, there were 40 million Americans age 65 or older in 2010. That figure is expected to rise to 89 million by 2050.
Though there is no such thing as a cure for heart disease, a number of approaches are helping to reduce the initial risk of heart attack, or at least aid in avoiding their recurrence. Two young companies have devised novel approaches and could soon see their devices used by an increasing number of cardiologists.
This company, once known as CardioNet, sells equipment that enables doctors to remotely analyze and diagnose a patient's heart function. Patients' vital signs are wirelessly transmitted back to the company's network diagnostic center, and a medical professional is notified the moment a patient shows signs of a dangerous heart condition, such as arrhythmia or other heart rhythm disorders. Such signs are often a precursor to a full-blown heart attack.
From that core business, BioTelemetry has made a series of small acquisitions that has helped broaden the company's role with cardiologists and medical researchers. For example, the company provides research services for other firms that are conducting heart-focused clinical trials. And the company also markets other firms' devices through its own sales force.
Yet it's the company's Mobile Cardiac Outpatient Telemetry (MCOT) platform that is the key driver for share price upside. While other remote devices store an hour or a day's worth of cardiac data, MCOT maintains a 21-day log, which has proven to be a better timeframe to detect unusual changes in heart activity. MCOT is backed by more than 60 global patents, with another 40 patents pending.
MCOT got a huge endorsement when United HealthCare
) decided last June to provide full reimbursement for the device. The relationship with the nation's largest HMO is already impacting the income statement: Sales had been stuck in the $110 million to $120 million range in 2010, 2011 and 2012, but likely rose to $130 million in 2013, and could reach $145 million this year.
In a number of studies, MCOT has proven to be more accurate than other remote cardiac monitoring systems, which leads analysts to think that BEAT will garner rising share of a market that is growing at a solid clip. According to IMS InMedica, spending on such systems is expected to rise from $686 million in 2011 to $867 million by 2016.
Though shares have surged more than 200% in the past 12 months, analysts see further upside ahead. Lake Street Capital Markets $15 target price (75 percent upside) is based on a projected 2015 price/sales multiple of 2.0. (Though it's notable that Medtronic
) acquired rival CardioCom for eight times trailing revenues in August.)
Analysts at Benchmark Capital have an identical price target, noting that a January investment in privately held Wellbridge Health could give BEAT a strong presence in the congestive heart failure market. That move is expected to be followed by forays into other remote diagnostics opportunities in areas such as diabetes and sleep apnea.
The use of coronary stents, which prop open collapsed arteries, has saved thousands of lives. The first generation of stents, made of metal, often triggered an immune response in the host and also led to scar tissue. More recently, companies have developed drug-coated stents, but they are really only suitable for patients who are simply suffering from chest pain, known as stable angina. Patients suffering from a more severe coronary event are not suitable candidates for drug-coated stents, as these patients remain at high risk of an embolism.
Inspire has taken a different approach. The company has developed a stent with an external mesh covering that has proven in early-stage clinical trials to be safer and more effective in treating patients at high risk of an embolism.
Shares of Inspire surged from $2 to $3.50 in October, around the time the company issued favorable clinical trial data. Just a year earlier, this stock plunged from $10 when investors had questioned whether the company's stents would fulfill the endpoint targets that management had been promising.
Inspire MD has thus far decided to pursue sales with its own direct sales force, and analysts expect around $15 million sales in fiscal (June) 2014 and $25 million in sales in fiscal 2015. Yet the company can greatly expedite its sales ramp by lining up a distribution agreement with a major cardiac device firm. On an October conference call, management noted that the company is in talks with potential partners, and I'll be keeping a close eye on fourth-quarter results (slated for release in March) to gauge the progress of those discussions.
Risks to consider: Both of these firms have yet to turn a profit, and if the market heads south, investors will tend to avoid money-losing companies.
Action to take: Both of these firms are targeting large market niches, yet they still remain off of most investors' radar. Though they carry a high degree of speculative risk, they each possess robust upside if sales start to grow at a rapid clip.
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