Have you ever met an analyst who previously worked in the industry he or she now covers? Probably not, especially not in Israel. In the US, by contrast, there are a number of such analysts, and CE Unterberg, Towbin senior medical devices analyst Keay Nakae is one of them. He joined the investment bank in 2004, and covers Israeli companies such as Syneron Medical Ltd. (Nasdaq: ELOS), Shamir Optical Industries Ltd. (Nasdaq: SHMR; TASE: SHMR), and Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN). Nakae is also careful to follow InSightec Image Guided Treatment Ltd., which is slated to go public on Nasdaq this year, and Lumenis Ltd. (Pink Sheets:LUME.PK), which is due to leave the pink sheets.
Before joining CE Unterberg, Towbin, Nakae covered the same sector at Wedbush Morgan Securities. Prior to that, he spent five years at ARCO, in various corporate finance roles, including two years managing a portfolio of derivative financial instruments. Previously, he spent five years at St. Jude Medical as a design engineer in cardiac pacemaker research and development.
“After completing my MBA in finance, I decided to switch from medical devices to finance. Thanks to my previous career, I have a better understanding of the sector than other analysts,” he says.
Nakae recently came to Israel for a two-day visit, during which he toured Syneron and Lumenis, and met with the management of Shamir Optical Industries. “During my previous visit to Israel, which was also my first, I popped over to tour the company’s offices on the kibbutz. This time, they came to Unterberg’s offices,” he says. Nakae is careful to praise Israeli medical devices companies. “Israeli companies have unique technology,” he says.
“Globes”: What is the main risk now facing medical devices companies?
Nakae: “The main risk is regulation, or more accurately, dealing with the US Food and Drug Administration (FDA). In contrast to high-tech companies that develop a product and begin marketing it without the need for regulatory approval, medical devices companies must obtain marketing certification from the FDA or its counterparts in Europe and the rest of the world. Consequently, a product’s time to market is liable to be delayed. This risk is also an opportunity, however, because it constitutes a barrier against the entry of competitors into the market. In addition, dealing with regulatory agencies continues after a device is marketed, especially if a problem with it arises.”
Your visited Syneron. What new things did you learn about the company?
“Syneron is a very interesting story, especially in the US. The main purpose of my visit was to examine new products. One of them is a non-invasive device for eliminating fat, which the company expects to apply for FDA marketing approval in the first half of 2007. The second is a product line for home use, which has great potential.”
Despite Syneron’s profit warning for the fourth quarter, its share hasn’t been volatile, but remained stable at $28-29. Why do think this is?
“What happened at Syneron happens to almost every company that shows high growth rates. The share benefits from the positive momentum, and investors with short-term perspectives buy the share, which soars to peak prices. In Syneron’s case, this was $46 per share, which reflected the high expectations from the company.”
Were these expectations too high, in your opinion?
“In retrospect, yes, which is why the share fell sharply both before and after the profit warning. Nevertheless, Syneron is still on the growth track, and has quite a few developments in the pipeline that will be launched in the future. Today, because of the profit warning, the level of expectations from the company is lower.”
What are the main risks and opportunities facing Syneron?
“Syneron’s main opportunity is the company’s new developments, and its ability to exploit its market position to win market shares in new aesthetic medical niches, such as products for home use. The main risk the company faces has nothing to do with the company itself, in my opinion, but with the sector it operates in. The medical aesthetic sector is liable to grow more slowly in future, therefore hurting growth rates of companies in it, including Syneron.”
In contrast to Syneron, Shamir Optical’s share is unable to stay above its issue price, and trading volume in it is low. Is it true that investors are far less interested in it than in Syneron?
“Shamir Optical had a successful flotation, but as you hinted, there’s much greater awareness about the medical aesthetic field among the American people in comparison with Shamir Optical’s field (the company develops and manufactures multifocal lenses, T.T.) Put simply, Shamir Optical’s share isn’t as sexy as Syneron’s share, which is one reason why it doesn’t attract the interest of US investors.
“Another reason is that the company disappointed investors with some of its quarterly results following its flotation.
“True, but this is a company with a solid foundation that will enable it to grow handsomely this year. I think that the company will resume growth in the first quarter of 2006, and meet market forecasts.”
You also visited Lumenis. What’s your impression about the measures the company has recently undertaken to deal with the US Securities and Exchange Commission (SEC) investigation?
“In my opinion, the compromise Lumenis reached was essential. The company must clarify the situation, and put the story behind it. That’s the only way it will be able to make a fresh start.”
What do you think is Lumenis’s biggest problem?
“Among other things, employee motivation. I haven’t worked at Lumenis, and I don’t really know what the employees’ spirit is like. However, like anyone else, I changed jobs several times, and I assume it’s unpleasant to work for a company that has some problems.”
Published by Globes [online], Israel business news - www.globes.co.il - on March 30, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006