Funny thing about companies in the biotechnology and medical technology spaces: Sometimes they can succeed and yet the stocks trade as though they had failed. Canadian biotech/med-tech hybrid Angiotech Pharmaceuticals (Nasdaq: ANPI ) is one such example. While the company's drug-eluting stent partner, Boston Scientific (NYSE: BSX ) , has had great success with the Taxus stent, Angiotech's stock doesn't seem to reflect that.
Results in the first quarter were solid. Although down slightly from the fourth quarter, the revenue of nearly $57 million in U.S. dollars for the quarter was almost five times the year-ago level. Year-ago comparisons for profitability aren't really relevant because Angiotech lost money last year, but it posted operating income of $29 million, with an operating margin of 51%, and net income of nearly $19 million, on a net margin of 33%.
Though Angiotech does sell a relatively small amount of its own products and receives periodic license fees, a very large percentage of its revenue comes from its drug-eluting stent partnership with Boston Scientific. So it is fair to say that "how Boston Scientific goes, so goes Angiotech" for the time being.
But that's not to say that Angiotech is a one-trick pony. The company has a variety of clinical programs under way. In addition to a next-generation stent for Boston Scientific (the Liberte), the company is developing a paclitaxel-laced vascular wrap; has an anti-adhesion product candidate for myomectomy, which is surgery to remove fibroids from the uterus; and has a drug-eluting peripheral stent program with Cook Medical as its partner. Angiotech also has a partnership with CABG Medical for a bypass application and other independent early-stage programs.
It's inevitable that Angiotech is going to be compared to SurModics (Nasdaq: SRDX ) -- the med-tech company that provides the coating technology for Johnson & Johnson's (NYSE: JNJ ) Cypher stent -- so let's look at the two companies.
SurModics is relatively less dependent on J&J at this point than Angiotech is on Boston Scientific. What's more, SurModics has numerous partners and nearly 100 licensed products, but Angiotech is considerably more concentrated in terms of partners and products. Lastly, while SurModics seems happy to earn a small amount of money on a large number of products, Angiotech seems oriented more toward making a lot of money from a smaller number of products.
That said, there is a startling gap in valuation between the companies. Angiotech trades at about 6.5 times its $176 million in trailing revenue, while SurModics trades at nearly 13 times $55 million in trailing revenue. While SurModics' stock has climbed nearly 75% over the past year, Angiotech's has dropped more than 30%.
Certainly there's room for debate as to which approach is superior, but I don't think there's much debate that Angiotech has done all right from an operational perspective but hasn't really been rewarded by the market. While I could perhaps accept the notion that maybe Angiotech should trade at a discount to SurModics, I think the current gap is a bit excessive.
Of course there are no guarantees in the space where biotech and med-tech meet, so investors must do their own due diligence and proceed with caution. But with a solid present-day product, a very strong balance sheet (about $4/share in cash and investments) and some interesting clinical programs, Angiotech appears as though it should have more upside ahead.
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Fool contributor Stephen Simpson owns shares of Johnson & Johnson.