Biotech M&A: Analyst Gives 5 Potential Targets in Biomedical Devices

Jason Mills, an analyst from Canaccord Genuity, believes that the medical technology sphere may see some M&A consolidation over the next year despite the market's recent slowdown in takeover activity. Many companies are sitting on cash, and he believes profitable opportunities abound in biomedical devices.

In a note to investors on this earnings season, Mills identified five companies in the sub-industry that he believes are the most likely candidates. These companies all specialize in products used to treat or detect cardiovascular disorders.

The five companies are listed below, along with Mills reasoning. Do you think these biomedical companies are likely candidates for a takeover? (Click here to access free, interactive tools to analyze these ideas.)

1. AtriCure (NAS: ATRC) : Develops, manufactures, and sells cardiac surgical ablation systems designed to create precise lesions, or scars, in cardiac tissue. Market cap of $197.88M. With regard to AtriCure, Mills said, "We like the company's leadership position in the surgical atrial fibrillation market currently, and we also favor the company's new product and clinical trial pipeline. Both make us optimistic the company can produce double-digit growth for a while. We also see ATRC as a potential take-out candidate over the next 12-18 months."

2. Heartware International (NAS: HTWR) : Develops and manufactures small implantable heart pumps or ventricular assist devices for the treatment of advanced heart failure. Market cap of $868.81M. For Heartware, Mills said, "We continue to believe HTWR will achieve leading outside the United States in 2011 and number one worldwide share by 2015. We would be buyers of HTWR at current levels."

3. The Spectranetics Corporation (NAS: SPNC) : Designs, manufactures, and markets single use medical devices used in minimally invasive surgical procedures within the cardiovascular system. Market cap of $245.21M. Regarding Spectranetics, Mills said, "We continue to believe the lead management business is worth the stock's current valuation on its own, noting its growth profile, high barriers to entry, low penetration, and SPNC's leadership position."

4. Thoratec (NAS: THOR) : Develops, manufactures, and markets proprietary medical devices used for circulatory support. Market cap of $2.22B. With regard to Thoratec, Mills said, "For long-term investors, we recommend targeting a slightly lower entry point to accumulate THOR."

5. Volcano (NAS: VOLC) : Designs, develops, manufactures, and commercializes a suite of intravascular ultrasound (IVUS) and functional measurement (FM) products. Market cap of $1.34B. As for Volcano, Mills said, "We have a favorable view of the company's revenue growth trajectory and are encouraged by improving operating leverage. However for now remain on the sidelines looking for a better entry point."

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Alexander Crawford.does not own any of the shares mentioned above.

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