CryoLife Resurrects Reputation

CryoLife Inc.

Kennesaw, Ga.

cryolife.com

It took a long time, but CryoLife has finally gotten back into the good graces of Wall Street.

The medical device maker's stock hit a five-year high of 15.20 in early trading Friday, continuing a run-up that began in March. A return to profitability has helped.

On May 1, CryoLife CRY reported first-quarter earnings of 4 cents a share, ending a long string of losses. Thomson Financial analysts forecast a full-year profit of 23 cents, up from a 10-cent loss in 2006.

CryoLife CRY makes products for the repair of heart defects. Its implantable biomaterials, surgical adhesives and vascular grafts are focused on infants and children under 15. They can also be used in older patients who have suffered heart damage.

Between 6,000 and 8,000 children in the U.S. need complex heart reconstruction, says CryoLife Chief Executive Steven Anderson. Children receive 70% of the company's heart valves.

Since the market is small, there's not much competition. One rival is nonprofit LifeNet.

THE FINANCIALS

CryoLife lost money each year from 2002 to 2006. The red ink was mainly due to problems stemming from a 2002 product recall.

The Food and Drug Administration ordered CryoLife to recall distributed human tissue, other than allograft heart valves, processed since October 2001.

At the time, the FDA said it had determined that Cryolife couldn't ensure that the human tissue it processed for implantation was free of fungal and bacterial contaminants. CryoLife faced numerous lawsuits, which it has since settled.

The firm has now strung together six straight quarters of double-digit sales gains. Analysts see 2007 sales rising 19% to $96.3 million.

"What this company has in front of it are improving margins, interesting technology and a pipeline," said analyst Raj Denhoy of Piper Jaffray, which has done business with CryoLife.

THE COMPANY

CryoLife makes heart valves from both human and animal tissue. Tissue products account for more than 50% of its revenue. The company markets to about 500 U.S. cardiac specialists with 35 of its own sales representatives.

It also sells a surgical adhesive, CryoGlue, in North America and Europe. Another product is CardioWarp, a protective sheet for healing after surgery. The body can absorb it without side effects.

CryoLife is waiting for European approval for BioDisc, a product to replace the nucleus of spinal discs. A decision is expected by year-end.

LOOKING AHEAD

CryoLife is on tenterhooks as it waits for the FDA to rule on SynerGraft, a technology that eliminates the risk of rejection of a tissue implant. SynerGraft can mean a patient wouldn't need anti-rejection drugs.

"The ramifications are significant," Anderson said.

One potential result: Heart valves and other components for repair of human hearts could be made from animals, which would eliminate the supply problem with human tissue.

If the FDA approves SynerGraft, CryoLife will immediately change its manufacturing to incorporate the technology. Approval of SynerGraft would add as much as $14 million to CryoLife's revenue in 2008, Denhoy says.