ELGX : NASDAQ : US$17.16
Endologix develops, manufactures and markets minimally invasive treatments for vascular diseases, namely abdominal aortic aneurysms (AAA).
Life Sciences — Biomedical Devices and Services
SAME DECK, MODESTLY RESHUFFLED; REITERATE BUY
We maintain our BUY rating and $22 price target and would accumulate shares, especially if any weakness ensues from the Ventana delay.
ELGX hosted an investor meeting at the Veith Symposium in NYC, where management and KOLs detailed opportunities the Nellix EVAS could target in both traditional AAA as well as challenging anatomy. Management highlighted a compendium of clinical studies aimed at driving adoption of Nellix in the traditional infrarenal AAA market (US IDE trial, global registry) as well as in the complex infrarenal segment (highly angulated necks, ruptures). In addition, ELGX announced it would launch VELA (a.k.a. AFX-2) in Q1/14, which is about a quarter earlier than we expected.
Also, ELGX confirmed our supposition that Ventana clinical studies would be delayed a bit more. Now, the company expects to resume trials in 2015 – roughly a one-year delay. However, our 2014-2018 estimates are unchanged, as clinical trial revenue from the US IDE for Nellix (which we had not modeled, but confirmed at the meeting) offset the Ventana delay. What’s more, we believe that if Nellix IDE results match the positive experiences Europe, then our estimates in 2016 and beyond could very well prove to be overly conservative.
ELGX represents one of the most attractive growth companies in med-tech. Posting over 25% CAGR over the past two years, estimated to produce 20% growth over the next two years in our model, and possessing over 75% GM, we think ELGX deserves a multiple at least in line with the high-growth med-tech group (~7x 2014E), which we use to derive our $22 target.
Notably, the company announced that Robert Mitchell has been promoted to president of ELGX and will be responsible for sales, marketing, clinical affairs. Teamed with Chairman/CEO McDermott, CFO Thunen and new CMO Dr. David Deaton (joined ELGX in October 2013), ELGX possesses one of the strongest management teams in small-cap med-tech, in our view.