Sometimes, it seems like a minor miracle when any small medical-technology company makes it. Such companies face tough questions like this all the time: Does your product work? Can you get paid for it? Do the competitors have better gear? Can your management team handle growth properly? Do you have enough new products and ideas in the back room to keep growth moving forward?
And so on and so forth.
While experienced hands in small-cap med-tech investing probably weren't too surprised to see Foxhollow Technologies' (NASDAQ:FOXH) recent swoon, that doesn't make it any easier to take. The stock of this emerging player in peripheral artery disease has dropped by half recently, as investors have worried whether a trio of high-level management departures -- the CEO, COO, and VP of sales -- signals some sort of trouble ahead.
For the fourth quarter at least, the train remains on the rails. Revenue rose 185% (and 16% sequentially), and the net loss narrowed considerably, from $7.5 million last year to just less than $200,000 this year. One fly in the ointment, though, was a slight sequential fall in gross margin. Management had a good enough explanation -- a supplier issue since resolved -- but investors still don't like to see that kind of slip.
Other metrics of note also improved. The company sold more of its SilverHawk devices, and not only increased its customer base, but also saw usage from its current customers increasing.
There's no shortage of controversy and hope in the mix here. Treatment of peripheral artery disease is a fast-growing market (mid- to high-teens growth) worth about $750 million today, and it's been pegged as the next big thing for companies such as Boston Scientific (NYSE:BSX), Guidant (NYSE:GDT), Bard (NYSE:BCR), and Johnson & Johnson (NYSE:JNJ) outside of coronary care. So while Foxhollow has a strong device and is the leader in mechanical arthrectomy, there lots of fishermen casting lines into this pond.
It's tricky to recommend any single medical-device stock. For every Intuitive Surgical (NASDAQ:ISRG) or Cytyc (NASDAQ:CYTC), there's an Integ, Endosonics, Novoste, or CardioGenesis. The best solution, then, might be to own a small group of them and keep careful watch for signs of disappointing sales growth and/or market acceptance. Foxhollow could certainly fit into such a basket, but I wouldn't trust any fox to guard my entire nest egg.
For more small-cap medical Foolishness:
- AtriCure Sends Investors' Hearts Aflutter
- Phase 2 for Intuitive Surgical
- Cytyc Still Stands on Its Own
Intuitive Surgical is a Motley Fool Rule Breakers recommendation. For more coverage of companies on the cutting edge, check out David Gardner's Rule Breakers newsletter service free for 30 days.
Fool contributor Stephen Simpson owns shares of Johnson & Johnson but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). And, no, he is not related to Foxhollow's founder, John Simpson. The Motley Fool has a disclosure policy.
