Stocks moving up on a bad day- CVTX, BSX, and ISRG

As I surveyed the carnage from last week’s market drop, I tried to focus on those stocks that actually moved up. Of these, the most interesting to me are CVTX, BSX, and ISRG. I have written about the first two before, so I will be brief here.

As I surveyed the carnage from last week’s market drop, I tried to focus on those stocks that actually moved up. There are several reasons I did this: 1) so as not to get too depressed 2) To see what stocks have very positive market sentiment and 3) to get a feel for where things will go over the near term. Only a very few stocks I follow managed to trade up. Of these, the most interesting to me are CVTX, BSX, and ISRG. I have written about the first two before, so I will be brief here.

Regarding CVTX, as anyone who follows the stock knows, it hasn’t exactly been a wall street darling. They make a novel anti-anginal drug, Ranexa, which has worked very well in many of my patients and have an interesting pipeline. The sales of Ranexa continue to grow too slowly to satisfy the street, and the stock has been getting punished. Why then was the stock up the last three trading days- popping off its recent low of 9 to now trade as high as 9.80 in the middle of the day Friday. It closed Friday at 9.63 ( a respectable 6% gain over the past three days.) The company has released no news over this period. My guess though is that the stock is trading up on upcoming diabetes data for Ranexa- which will be released in two weeks at the AHA. A reader posted that he had heard from his rep that the data was very good. The might be worth a play in the November options market.

BSX was also up strongly on Friday. They announced layoffs and beat very low expectations- primarily on growth of their rhythm management division (the old GDT). To me, this surge represents a great opportunity to short the stock. The company is still losing money, and things will get much worse over the next few quarters. The drug eluting stent market continues to shrink, now prices are starting to fall (as JNJ stated in their conference call) and a third entrance into the market is coming very soon. The Endeavor- which is now the number one stent in Europe- will soon be introduced here. The FDA panel just unanimously voted for its approval. The ICD market was just starting to recovery, but should take another big hit after the last recall (this one by MDT, but it will hurt all three companies.) The third company is Intuitive Surgical or ISRG. The makers of the Da vinci device, a robotic surgical device which is quite cool. Their robots can move in multiple planes almost like a human. There stock has had an almost google like trajectory over the past few years. I looked at the company seriously about three years ago. At that time, I went to a minimally invasive cardiac surgery conference with one of the surgeons I work with. I had the opportunity to talk to a number of surgeons who were using these robotic techniques. The general impression I got was that surgeons- even those who are comfortable with these machines still prefer old fashioned surgery with larger fields of view and the ability to use their hands. To them, the robotic surgery movement, was primarily a fad driven by marketing. Patients were more likely to see surgeons if they used the robots. The sales of the Da Vinci have continued to grow- and sales are great, but I still haven’t met a surgeon who prefers it. It certainly make me wonder if the sales can continue to grow. The PE is over 100, so any slow down would be a real problem for this stock. I am uncertain if the device is more helpful in other fields where it is used that in CV surgery. It is also possible that younger surgeons who started their training on this device, as more comfortable with it. I would love to hear from anyone who has personal experience with the device. For now I am staying away from the stock. I wouldn’t short it though. Too much momentum for that.

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Comments

  • Terry Powers

    October 22, 2007

    I can't understand how you can reconcile your long position on MDT with your short on BSX. Aren't they entirely in the same boat now?

  • pharmaking

    October 22, 2007

    @Terry,

    They are in the same boat regarding ICDs.
    There are some major differences.
    1)BSX took on so much debt that they are an now in real financial trouble. That debt is rated as junk by the major rating houses.
    2) MDT is entering the Drug coated stent market. While BSX's revenues will be hurt by a new competitor,
    and 3) MDT is way down, and BSX is way up.

  • Anonymous

    October 23, 2007

    I think you're mistaken -- at least when you combine Taxus Express and Taxus Liberte, Boston Scientific still has the plurality of market share in Europe, and J&J is #2 with Cypher and Cypher Select. Medtronic is #3, not #1.

  • anonymous

    October 23, 2007

    Don't underestimate Boston, which will have the advantage of being able to Abbott's Xience under its own label, Promus.

  • pharmaking

    October 23, 2007

    @ anon,
    All I said was the Endeavor is the number one stent in Europe. I didn't say MDT was the #1 company in the European stent market (although it might be if you include bare metal stents) My point isn't that the Endeavor is a great stent- I don't think it is. I am a cypher user myself.
    I am not too sure that the Xience is going to get approved. They have been rumors that they may need more long term data. If it does enter the market, it will lead to further dilution of the market and more price competition. I am not sure the FDA will let BSX release the Promus until their warning letter is resolved. Who knows when that will be.

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