Globus Medical


 NYSE : US$16.75 BUY 
Target: US$24.00

Globus is a medical device company focused exclusively on the design, development, and commercialization of products that
promote healing in patients with spine disorders.
All amounts in US$ unless otherwise noted


Investment recommendation
We maintain our BUY rating on shares of Globus following a mixed Q2/13. Best-in-class top-line growth (albeit a bit light vs expectations) combined with strong operating margins reinforce our thesis of Globus offering investors multiple opportunities to create value.

Our thesis remains intact and we are buyers of Globus on any weakness as the company is well positioned for growth in 2013 and beyond via continuous new product flow, distribution expansion and best-in-class financial discipline.
Investment highlights
 Q1/13 results of $107.0M/$0.21 were mixed relative to our and consensus estimates of $107.6M/$0.20 and $107.5M/$0.20.
 Breakdown of Y/Y revenue growth in the Q2/13: Innovative fusion +3%, Disruptive technologies +26% Y/Y, US grew +11%, and International +20%. Innovative fusion drove upside vs our estimate.
 New rep adds in 1H/13 in-line with all of 2012 with more to come.
 Management reiterated 2013 guidance for revenues of $432M and EPS of $0.81.
We are raising our price target to $24.00 from $22.00 based on a 26.4x PE multiple applied to our 2014 EPS estimate of $0.92.

Intuitive Surgical Robot Surgery

A laparoscopic robotic surgery machine. Patien...
A laparoscopic robotic surgery machine. Patient-side cart of the da Vinci surgical system. Into the sealed Computer God Robot Operating Cabinet, as a Frankenstein slave, at night. Da Vinci Surgical System. (Photo credit: Wikipedia)

ISRG : NASDAQ : US$501.70
Target: US$527.00

Intuitive Surgical manufacturers the da Vinci robotic system that is used in a wide range of surgical procedures, including prostatectomies, hysterectomies, and nephrotomies, as well as mitral valve repair, among others. da Vinci provides 3D magnification of the surgical field and enables more precise movement and positioning of surgical tools. The company also sells EndoWrist instruments to use with da Vinci

ISRG was issued a Form 483 by FDA following inspections of its Sunnyvale, CA facility from April 1 to May 30. The Form 483, dated May 30 and posted to FDA’s website Tuesday, notes four observations in connection with ISRG’s reporting and documentation practices.
We believe the objections listed on the Form 483 are primarily administrative in nature, do not reflect any safety concerns with the da Vinci surgical system, and will not likely pose any material impact to the business.
Investment highlights
 Observation #1 – four field actions between 2011-13 without notifying FDA – had been reclassified by FDA from Class III (non-reportable) to
II. All four have been confirmed by FDA as completed and closed.
 The second one cited five non-device-related Medical Device Reports that were previously reported to FDA, but not listed in the field action
report. This omission has already been corrected.
 The third observation notes ISRG did not document the decision to add a thyroidectomy indication through a Letter-to-File vs. a new 510(k) application. ISRG has implemented a written general procedure, and added detailed written instructions for this process.
 In the fourth, FDA observed that design documents did not list intrasurgical cleaning as a user need. ISRG revised its documentation to
cite this user need.
 In sum, each observation has been reported as corrected, but must be verified by FDA.
 We maintain our BUY rating and $527 target (1.5x PEG, i.e., 25.4x P/E, on our ’14 EPS estimate of $20.62).


GMED : NYSE : US$13.82
Target: US$22.00

Globus is a medical device company focused exclusively on the design, development, and commercialization of products that promote healing in patients with spine disorders. All amounts in US Dollars.

Investment recommendation

We reiterate our BUY rating on Globus following a solid Q4/12. Best-inclass top-line growth combined with strong operating margins reinforce
our thesis of Globus offering investors multiple opportunities to create value. Net, net we are encouraged by Q4/12 results that slightly
outperformed our and consensus expectations. Our thesis remains intact given continuous new product flow combined with distribution
expansion and best in-class financial discipline that positions the company well for both top- and bottom-line growth in 2013 and beyond.
Investment highlights
 Q4/12 results of $100.5M/$0.22 were above our and consensus estimates for $99.2M/$0.18 and $99.1M/$0.19.
 Breakdown of Y/Y revenue growth in the Q4/12: Innovative fusion +3%, Disruptive technologies +35% Y/Y; US grew +13%, and International +36%. Disruptive tech and US drove results.
 Favorable guidance for double-digit revenue growth, ~13%, and adjusted EBITDA of 34%-35% (inclusive of ~ 180bps impact from the medical device tax) vs our expectation for 12% and 33.7%.
We are maintaining our $22.00 price target based on a 24.0x PE multiple applied to our 2014 EPS estimate of $0.92

Edwards Lifesciences


BUY  Target: US$115.00

Edwards Lifesciences manufactures minimally invasive medical devices for the cardiovascular market. Its primary product line is centered on heart valve therapy and includes tissue valves, mechanical valves, and repair products. It has a large offering for critical care, with key products for hemodynamic and pressure monitoring.

Investment recommendation

We expect EW to meet or exceed our Q4 estimates ($501.7M/$0.76) and consensus ($499.2M/$0.77) when they report tonight after close. We
project Q4 TAVI sales of $158M (+70% Y/Y) vs. consensus of $155M, as our research suggests EW saw a boost in stocking orders from non-
PARTNER centers that added a trans-apical (TA) program following FDA approval in Oct. We expect strong sequential US sales growth in Q4
(44%E), driven by TF TAVI uptake in Cohort B patients and initial uptake in Cohort A-high risk patients. While we expect tepid growth in
Europe (4% Y/Y) – reflecting austerity measures, pricing pressure, and new competitive valves – we think Q4 results will show meaningful
improvement from the weak Q3, as we think registry data in H2/12 boded well for SAPIEN vs. CoreValve and also think EW’s share of transaortic
market (TAo) improved. We would add to positions in EW.

We raise our target to $115 as we roll our valuation analysis to 2014E.
Investment highlights
 Expect strong US SAPIEN sales. We project Q4 US TAVI sales of $79M, up from $55M in Q3 and $17.3M in Q411, driven primarily by higher utilization – owing to both FDA approval of Cohort A and improvements in patient throughput at existing centers following the NCD-driven learning curve. Of note, US SAPIEN sales should exceed ROW sales for the first time in Q4.
 TA training likely trumped new center adds. EW reported ~200 US TAVI centers at its analyst day in December. We think its focus in Q4 (and in Q1/13E) will be on training non-PARTNER centers on TA


Stryker Corporation
Stryker Corporation (Photo credit: Wikipedia)


SYK : NYSE : US$61.87
BUY Target: US$69.00

Stryker Corporation is a global developer, manufacturer and marketer of medical devices and instrumentations in the orthopedic and other medical specialties.

Investment recommendation

We reiterate our BUY rating following the release of Q4/12 results that were in line with preliminary numbers. Strong growth in US recon,
regardless of easy Y/Y comps, is encouraging as the company appears to be taking share and growing at above-market rates. European weakness
is expected to continue in the near term as new leadership and operating structures gain traction. We continue to view Stryker favorably given its diversified product offering and believe strength in recon, endoscopy and neuro/spine will continue throughout 2013.

Investment highlights

 Stryker reported full-year sales results in line with preliminary figures, and EPS better than our and consensus expectations.
 US hip and knee results were very strong, albeit against easy Y/Y comps, and indicate improving market momentum into 2013.
 The Trauson acquisition is expected to close in the Q2/13 and management noted it anticipates leveraging the acquisition to more
broadly enter the value segments of the emerging markets globally.

We are raising our price target to $69.00 from $64.00 as we transition to 2014 estimates. Our price target is derived from a 15.0x multiple
applied to our 2014 pro forma EPS estimate of $4.62.