By:
Jack Senft, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
•
CryoLife
Inc. (NYSE:CRY) is a medical devices company, which
operates through two segments: Medical Devices and Preservation Services. Processing and distributing implantable human
tissues for cardiac and vascular surgeries.
•
A trial of BioGlue in China has now been
completely enrolled at seven sites, expecting FDA approval in 2H19. This product line is also looking to be
expanded into Japan. BioGlue accounts
for ~28% of revenue.
•
On-X, or their Prosthetic Heart Valves
product has gained ~10% market share since inception, and now equates to ~16%
of revenue.
•
Successful integration of JOTEC, the company
is now looking to grow this segment and add new products by 2019.
•
The company has reported that the total
addressable market is ~2 billion, potentially expanding by 50%, with efforts to
complete the activation of PerClot at 22 sites.
Key
points:
CryoLife Inc. retains a “buy” status as the original
investment thesis is still playing out while adding more opportunity. Summing to about 28% of revenue, or $65.7
million, the company estimates a market size of ~$112 million. While this product line has only seen a 3.3%
CAGR from 2013-2017, CRY expects BioGlue to be approved in China in 2H19. Along with this, BioGlue Japan has expanded
indication, which should double the Japan market share from $5 million to $10
million.
Meanwhile, On-X, their
Prosthetic Heart Valves product line accounts for ~16% of revenue. This product line has seen a 6.3% CAGR from
2013-2017. The company has reported an
increase in mechanical valve market share from 22% in 2016 to 30% in 2017. This increase comes from the drive of
utilization in On-X hospitals, but the company did not report specifics.
In 4Q17, CryoLife
acquired JOTEC in an upfront payment of $225 million, consisting of 25% stock
and 75% cash. JOTEC is a German-based
company that develops and produces endovascular stent grafts, cardiac and
vascular surgical grafts. From
2013-2017, JOTEC has seen a 22.6% CAGR in sales, while still differentiating
their product portfolio. The JOTEC
revenue has grown ~31% organically. As
the company is still learning the market of JOTEC, management is looking to
develop three next generation products, expecting an approval and introduction
date in 2019.
The company anticipates
that the total addressable market is about $2 billion, potentially expanding by
50% from a multitude of R&D opportunities.
Adding to this success, PerClot is in clinical trials. The company currently has 224 patients
enrolled, with only 96 openings left to be filled. PerClot is looking to have a trial completion
date of 1H19. It now has complete
activation at 22 sites, since it already has 70% enrollment.
What
has the stock done lately?
CRY has remained
relatively flat over the past month, but over the past six months and year, the
stock has accreted substantially in value.
While that may not sound positive, the company is trading near its
52-week high of $36.05, where the low is $16.80. With the upcoming drivers and catalysts, this
stock is in a great position even with their outstanding past performance.
Past
Year Performance:
CryoLife has increased over the past six
months and year by ~75% and ~46%, respectively.
The stock currently trades a slightly higher than peer multiples, but with
an added premium, this stock will remain a buy rating and should see a
continued accretion past the current price.
When CRY was pitched in February of 2017, a suggested price target of
$23.32 was calculated, showing that the thesis has played out.
Source: FactSet
My
Takeaway:
CryoLife is in a great
position given their diversified portfolio of product lines, as well as a
continuation of clinical trials and product integration. Seeing the constructive environment that
management portrays, CRY could see more potential upside and increased market
share on all product lines. Even though
the investment thesis that was originally suggested has already played out,
there is still more upside available.
