A Steady Growing Medical Device Maker

01/13/2009 10:09 am EST


Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

Vahan Janjigian, editor of Forbes Growth Investor, says device maker CR Bard makes products patients and doctors need—regardless of the economy.

CR Bard (NYSE: BCR) makes consumable medical products used for surgical, diagnostic, and patient care purposes. It specializes in the vascular, urology, and oncology markets. These products are typically discarded after a single use.

BCR markets its medical products in more than 100 countries. It generated [nearly 70% of sales in the] first nine months of 2008 in the US, 18.6% in Europe, 5.1% in Japan, and 6.7% in all other regions.

BCR has been growing organically and with the help of acquisitions. A year ago, it acquired the stent business of Edward Lifesciences. Last June, it acquired Specialized Health Products International, a maker of vascular access products.

Urology products accounted for 28.6% of [net sales in the] first nine months. Its best-selling product is the Foley catheter (a thin, usually latex tube that passes into the bladder to drain urine—Editor.) Other products include surgical slings for treating stress urinary incontinence and devices used in ureteroscopic procedures and stone removal.

Oncology produced 26.6% of sales. Products include specialty access catheters, ports, vascular access ultrasound devices, and enteral feeding devices. Specialty access products are used in chemotherapy.

Vascular products generated 26.1% of sales. They include minimally invasive endovascular products such as percutaneous transluminal angioplasty catheters, guidewires, introducers, peripheral stents, stent grafts, vena cava filters, and biopsy devices.

Surgical specialty products produced 15% of sales. They include patches and fixation systems used in hernia and other soft tissue repairs, irrigation devices for orthopaedic, laparoscopic, and gynecological procedures, and products for topical hemostasis.

Third-quarter net sales increased 13.2% year over year to $616.8 million. Oncology and vascular product sales [both] increased [around 20%], but all product categories reported gains. The gross profit margin improved 39 basis points to 61.17%. The operating profit margin expanded 120 basis points to 26.20%. Pro forma net income grew 14.2% to $112.4 million or $1.10 per share.

Because BCR relies on third-party payers such as government programs, private insurers, and managed care plan providers, unfavorable changes in reimbursement policies would hurt sales and profits. However, most of the company’s products are used in nonelective medical procedures, which make the company resistant to economic cycles.

Growth will be fueled by favorable demographic trends and new product introductions. In October, BCR won [Food and Drug Administration] approval for the Flair Endovascular Stent to treat patients undergoing dialysis bypass grafts. Management believes there are currently over 300,000 US patients who rely on these grafts. In December, the E*Luminexx Vascular Stent won approval to treat patients with common or external iliac artery occlusive disease. Management expects the potential patient population for this procedure to grow at a 10% annual rate. (The stock closed above $83 Monday—Editor.)

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