Somanetics: Medical Technology Company Worth Monitoring

Alan Brochstein, CFA submits:

Somanetics (SMTS) (14.02, $169mm), the tiny manufacturer of a non-invasive patient monitoring system that measures oxygen levels in the brain and other vital organs, made news this week when it filed suit against an even tinier want-to-be competitor, CAS Medical (CASM). I have been amazed at how cheaply SMTS has been trading. Could this patent infringement suit serve as a potential catalyst?

SMTS, which I own in a portfolio I manage as well as in my Top 20 Model Portfolio, is a neat little company. It sells the INVOS system (In Vivo Optical Spectroscopy), which consists of a monitor (razor) and sensors (blades). The primary markets are for cardiac surgery as well as neonatal and pediatric surgeries, none of which are elective. It fits a theme that I have been pursuing (MedTech companies with high recurring revenue), and I first got involved with after they reported in June. The stock has fallen about 15% since then despite an overall strong market, so I have been checking my assumptions.

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