Cardiovascular Systems: Heart-Felt Buy

03/14/2014 7:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Among our latest small-cap recommendations is a medical device company focused on developing minimally invasive treatment solutions for vascular disease, including peripheral artery disease (PAD) and coronary artery disease (CAD), explains Jim Oberweis, Editor of The Oberweis Report.

Cardiovascular Systems, Inc. (CSII) sells devices (called atherectomy devices) that remove the plaque altogether versus traditional angioplasty devices that push the plaque into the vessel.

The company’s original system for the PAD market was launched in 2007 following FDA clearance, with their latest third generation version being launched in 2011.

CSII's device is superior, versus other atherectomy devices, because it can differentiate between hard plaque and soft vessel tissue and can treat multiple vessels in one procedure.

The company most recently received approval from the FDA in October 2013 for their CAD system as a treatment for severely calcified coronary arteries. This represents the first atherectomy product to treat moderate to severe plaque in coronary arteries in over 20 years.

CSII plans to leverage their existing sales force, which already targets interventional cardiologists, once the limited launch is complete; we expect sales to ramp more significantly in the second half of 2014.

Because this is an early stage medical device company planning to invest in sales and marketing, and further research and development, ahead of a substantial market opportunity, we do not expect bottom line profitability in the coming quarters.

However, given an estimated $2 billion PAD market opportunity, in which the company expects to gain market share, coupled with an upcoming launch into the $1.5 billion CAD market, we feel the stock represents an attractive opportunity at present.

In the company’s latest reported second quarter, sales increased approximately 28% to $32.3 million from $25.3 million in the second quarter of last year. Clients of Oberweis Asset Management own approximately 288,000 shares. These shares may be appropriate for risk-oriented investors.

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