Endologix Q4: Smooth Sailing

Endologix, developer of Powerlink, a treatment for abdominal aortic aneurysms (AAA), posted another strong quarter. I am an unabashed fan of the company which, in November, rejected a $98 million ($2.25/share) buyout offer from New York-based hedge fund, Elliott Associates. Commenting on that decision, John McDermott, Endologix President and CEO, said,

“We believe that Elliott’s proposed valuation does not reflect recent FDA product approvals, increasing gross margin and our expectation of achieving positive operating cash flow in the first half of 2009. Additionally, we believe that volatility in the capital markets has negatively affected micro-cap companies like Endologix, and we expect the situation to improve in the future.”

In mid-2007, Endologix moved the manufacture of its ePTFE graft material in-house, resulting in a fully integrated manufacturing process. This helped the company improve gross margin by ten percent: 72% in 2008 versus 62% in 2007. The company anticipates continued improvement in gross margin as manufacturing volumes increase.

For 2008, Endologix expects revenues of $37.6 million, a 35% increase over last year. The company pointed to the introduction of new products (Powerlink XL) and increased physician adoption of the Powerlink System. “Our recently launched suprarenal proximal extensions and Powerlink XL have opened up new market segments enabling us to treat a broader AAA population,” said McDermott.

Endologix is on track to launch the IntuiTrak Delivery System in the second quarter of 2009. IntuiTrak simplifies the delivery and deployment of Powerlink devices. Physician feedback from a limited market release has been “encouraging”.

Given its track record (16 sequential quarters of domestic sales growth), and the ease at which another company could purchase and integrate Powerlink into its product portfolio, I believe Endologix is an attractive buy.

The company expects 2009 revenues in the $44 million to $46 million range, a 17% to 22% improvement over 2008 revenue. Endologix has $7.9 million of cash on hand and is confident it will begin generating positive cash flow in the first half of 2009.

The comments are closed.