Colorado Springs-based Spectranetics Corp. saw its stocks fall a staggering 34 percent in July, following a disappointing second-quarter report. Shares fell $8.53 to close at $16.30 for the month.
As of the CSBJ deadline Wednesday, SPNC traded at $16.40.
The reason behind the freefall? CEO Scott Drake told stockholders that the results fell short of expectations because of increased competition in the drug-coated balloon arena.
“Performance of our AngioSculpt [scoring balloon catheter] franchise was below expectations due to relatively rapid adoption of competitive drug-coated balloons and our ongoing sales force optimization efforts,” Drake said. “Significant actions are underway to augment and improve sales performance, optimize the potential for our Stellarex drug-coated balloon platform, and adjust expenses to offset the revenue shortfall.”
Spectranetics is a medical supply company specializing in cardiac device lead management, as well as periphery and coronary interventions.
“While we are disappointed with these mixed results,” Drake continued, “we are focused on driving our key initiatives today and also look forward to the headwinds of drug-coated balloons becoming tailwinds in the not too distant future.”
Spectrantics acquired Covidien’s Stellerex platform in November 2014 for $30 million.
“We didn’t meet our own projections or those of the Street,” Spectranetics Chief Operating Officer Shar Matin told the Business Journal, adding the company’s balloon catheter sector is comprised of Stellarex and Angioscore, two subsidiaries purchased by Spectranetics within the last year.
By the numbers:
Spectranetics’ financial highlights through Q2:
• Revenue of $61.7 million increased 42 percent (45 percent constant currency); 9 percent (12 percent constant currency) excluding AngioSculpt.
• Vascular intervention revenue of $26.4 million, excluding AngioSculpt, increased 17 percent (19 percent constant currency) — U.S. peripheral atherectomy revenue grew 21 percent — AngioSculpt revenue of $14.2 million.
• Lead management revenue of $17.3 million increased 7 percent (11 percent constant currency).
• Laser, service and other revenue of $3.8 million decreased 23 percent (21 percent constant currency).
Source: PricewaterhouseCoopers, Convention Industry Council
“This acquisition advances SPNC’s objective to provide comprehensive solutions to … prepare and treat the most complex vascular conditions,” Drake said in a news release at the time. “Drug-coated balloons are and will be an integral part of the vascular landscape for many years to come. Global thought leaders believe that primary patency is the most important clinical metric, and Stellarex’s feasibility data stands apart. We believe this technology will meaningfully add to our near-term revenue growth and expand operating leverage over time.”
The Stellarex platform received European approval in December 2014 and U.S. commercialization is expected in the 2017 timeframe, following FDA approval, Matin said.
While Spectranetics’ balloon-catheter performance disappointed investors, Matin said it’s a small part of the company’s overall portfolio. He said the lead management product line, including excimer laser sheaths, dilator sheaths, mechanical sheaths and accessories for the removal of pacemaker and defibrillator cardiac leads, has met expectations.
“On that side, we’re a market leader with one other major competitor,” he said. “We own about 80 percent of the market in the U.S.”
“But you can’t just sizzle forever, you have to deliver.”
– Allan Roth
Matin said Spectranetics would “optimize” its sales force by improving training and filling gaps.
“There’s significant potential for our sales reps [to recruit new business], but not enough time to do that and support old accounts, so we’re redrawing some territories,” he said. “Our inside sales representatives are driving the adoption of therapy in conjunction with physicians, but some [markets] lack representation.”
While laser lead management is Spectranetics’ strongest performer, its Form 10-Q, filed with the Securities and Exchange Commission, indicates uncertainty.
“Certain critical components used in manufacturing our products may be subject to supply shortages, which could subject our business to the risk of price increases and delays in the delivery of our products,” the form said. “There is a shortage of neon gas, which is affecting the laser industry. Neon gas is used in our CVX-300 excimer laser system. Although our supplier has assured us it can still supply us with neon gas to satisfy our current needs, we are experiencing substantial price increases related to our neon gas supply. … We cannot assure you we can continue obtaining required materials that are in short supply, such as neon gas, within the time frames we require at an affordable cost, if at all.”
Despite the tempered outlook, several analysts continue to promote its stock. According to an article on Wall Street website Streetinsider.com, “Dougherty & Co maintained a ‘Buy’ rating on Spectranetics with a price target of $33.”
“We want to be on the record that SPNC under $16 or $20 is as attractive a pull-back as we ever hope for from a stock we believe in,” analyst Charley Jones said. “We believe SPNC will continue to be one of the most attractive long-term assets in the med-device space over the next several years … There are few technological approaches to medicine that we believe will stand the test of time over the long-term and we think SPNC’s laser technology is one of them. In our opinion, with the exception of heavily calcified plaque, SPNC has the best plaque removal product on the market and it is a matter of education and training that will drive adoption.”
According to Allan Roth, founder of Wealth Logic, LLC, a local investment advisory and financial planning firm, Spectranetics’ devaluation is “not uncommon for tiny market cap companies like this that are not profitable. It’s got a story and the story is great growth. If the results don’t match that storyline, stocks plunge. Last [spring] shares were $36.44. It’s plummeted by more than 50 percent.”
Roth said that’s a hazard of owning individual stock, rather than spreading risk via a total stock index. “The retained earnings of this company is $135 million negative,” he said. “In the aggregate, since its founding, it has lost money.”
Roth also addressed an investigation launched by the Law Offices of Howard G. Smith in Bensalem, Pa., “concerning the recent disclosures regarding [Spectranetics’] lackluster earnings, and the Company’s and its officers’ possible violations of federal securities laws.”
Smith declined to comment on the investigation, but Roth said such lawsuits are not uncommon. Matin also addressed the suit, adding whenever a publicly traded company takes a 20 percent or more hit on the exchange, attorneys will seek investor testimony to further potential suits.
“This is America, the land of the lawyers. Lawsuits are everywhere,” Roth said. “But you can’t just sizzle forever, you have to deliver. I certainly hope it does well, because it’s Colorado Springs-based. I hope they take their acquisitions and turn them into profitable revenue.”