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    Endologix Climbs 11% on Unexpected Profitability

    The shares of Endologix Inc. (Nasdaq: ELGX) climbed 10.6% on February 23 after the company reported better-than-expected results and turned to profitability in Q4 2010. By the end of the day, more than 2.2 million shares changed hands, six times above the trailing 3 months average daily volume, and the stock price hit $6.08. The company lost 15% since the beginning of 2011, after gaining 35% in 2010.

    ELGX is a developer and manufacturer of minimally invasive treatments for vascular diseases. The company’s flagship product, the Powerlink® System, is an endovascular stent graft for the treatment of abdominal aortic aneurysms (AAA), a weakening of the wall of the aorta, resulting in a balloon-like enlargement. Once AAA develops, it continues to enlarge and, if left untreated, becomes increasingly susceptible to rupture. Powerlink has been commercially available in Europe since 1999 and in the U.S. since 2004. The Powerlink design is covered by 17 U.S. patents with 361 allowed claims.

    Following the FDA clearance in 2004, ELGX reported significant progress, with revenue growing at a CAGR of 57%, hitting $55.4 million in 2010. Total revenue in Q4 2010 reached $19.2 million, a 41% increase from $13.7 million in Q4 2009 and an 8% sequential increase.  Gross profit was $15.0 million in the fourth quarter of 2010, which represents a gross margin of 78%. This compares with a gross profit of $10.3 million and a gross margin of 75% in the fourth quarter of 2009.

    The company reported a net income of $8.0 million or $0.15 a share for Q4 2010 on a GAAP basis, compared with a net loss of $676,000, or $0.01 per share, for the fourth quarter of 2009. Excluding one-time items, ELGX broke even. Analysts, pooled by Thompson Reuters were expecting the company to post a loss of 0.01 per share.

    Last December, ELGX completed the acquisition of Nellix Inc., a medical device company that developed a revolutionary endograft for the treatment of AAA. Nellix’s device is expected to address the limitations of existing endovascular aneurysm repair (EVAR) devices and broaden the global AAA market. According to ELGX, Nellix can treat more AAA anatomies than other EVAR devices and is the only device that completely seals the aneurysm sac.

    For the full year 2011, the company expects total revenue to be in the range of $78 million to $82 million, representing growth of 16% to 22%.  In addition, the company anticipates generating a GAAP net loss of between $0.25 to $0.30 per share due to planned investments in building a direct sales force in Europe and developing the acquired Nellix technology in anticipation of both a commercial launch in Europe and the initiation of a U.S. IDE clinical trial in 2012. According to Thompson Reuters, analysts are expecting the company to report GAAP EPS of $(0.25) on revenues of $81  million for fiscal 2011.

    The overall patient mortality rate for ruptured AAA is approximately 75%, making it a leading cause of death in the U.S.  It is estimated that 1.7 million persons over 55 years of age have an AAA in the U.S. Each year, physicians diagnose approximately 200,000 people with AAA resulting in 60,000 repair procedures. Altogether, the company estimated that the target opportunity could be valued at $1.7 billion by 2015.

    A strong core business, acquisition of Nellix, as well as solid new product pipeline positions ELGX to become a leading player in the AAAs market. During 2011, the company plans to roll out its new product sizes in Europe and other international markets, launch its new lower profile device, the AFX™ Endovascular AAA System, and complete patient enrollment in the PEVAR clinical trial. Besides, the company will be focused on integrating Nellix and building the direct sales force in Europe in anticipation of the 2012 launch of the Nellix and Ventana systems in this market.

    Altogether, the company plans to launch 17 new products over the next five years, as well as to prove and strengthen its technology leadership leveraging the minimal invasive treatment momentum. Through 2015, ELGX expects to sustain a CAGR of revenue in the range of 25%, operating margins at 25%-30%, reaching total company profitability by the end of 2012.

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