Kensey Nash: Now the Comeback Kid?

Kensey Nash (Nasdaq: KNSY  ) is, perhaps, a good case in point of why I don't like to shut the door on smaller med-tech companies. As long as you have good products, you can stay in the game and possibly be only a quarter or two away from better results. Then again, let's keep this in perspective -- even with today's strong position, Kensey Nash stock is basically flat for the year and below levels seen in 2005 and 2004.

Still, let's focus on the positives for now. Revenue for the third quarter was up 6%, since both product sales and royalties posted mid-single digit growth. Although cardiology was weak (because, management says, of shipment timing), orthopedics seemed to come around, partly because of orders from Orthovita (Nasdaq: VITA  ) , Zimmer (NYSE: ZMH  ) , and Medtronic (NYSE: MDT  ) .

News on the TriActiv front takes a little more explaining. Sales were again pretty minor, but there was good clinical data during the quarter that could be very meaningful for the future. In a study called ASPIRE, the company's currently unapproved TriActiv FX device showed a MACE (that is, major adverse cardiac events) rate of only 3.2%. I admit that I don't follow this space with quite the same intensity as I did a few years ago, but that seems like a fantastic result; my recollection is that devices from Boston Scientific (NYSE: BSX  ) and Medtronic usually deliver MACE rates in the high single digits (versus 15%-20% if you use nothing).

Assuming that the company can get approval for the device this quarter, and launch it reasonably promptly, the clinical data could make this a very interesting product for the company. And that's still very much needed if Kensey Nash is going to succeed as an investment idea -- the orthopedics business has decent growth potential, but this is a tough and sometimes volatile market and that doesn't always translate into robust market valuations.

Although respectable management guidance and this TriActiv FX data make me feel better about the stock, the move up from the lows (including today's 12% move) has already accounted for quite a lot of this. Still, given that there aren't an abundance of cheap but high-quality small med-tech ideas out there, I can understand the attraction to Kensey. By the same token, I'd keep an eye on the valuations and err on the side of cheapness.

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Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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