Applied Medical is a twenty-year old company, operating in the field of General and Colorectal Surgery, Urology, Obstetrics, Gynecology and Urology.

Applied’s product lines can be generally classified in one of three types of opportunities: (a) Specialty, where the market tends to be a highly specialized surgical niche, (b) Established, where sizeable developed markets are contested, and (c) Evolving, where new techniques, technologies or modalities are likely to develop and emerge over a number of years and following extensive market development efforts, training of surgeons and publishing.

The majority of Applied’s current revenues are in the second category, where established markets have been dominated by major device participants like J&J and Covidien. The Fastest and most promising segment is the evolving market, where Applied enjoys the lead in products such as Alexis and GelPort. The down side of Evolving Markets is the uncertainty of timing, especially as it applies to market adoption curves. Lastly, the Specialty segment continues to take on a decreasing trend as far as its importance and role to the Applied portfolio.

Applied invests considerably in R&D, the patent process and litigation intended to defend its holding of close to 700 pending or issued patents. R&D spending tends to be between 20 and 22 percent of revenues, while litigation can run between $4.0 million and $8.0 million annually, averaging over $6 million.

Applied’s selling organization is sizeable. The size is deemed necessary for competing with giants such as Ethicon (J&J) and U.S. Surgical (Covidien). Selling expenses have been 40% to 45% lately.

The results of the investments in R&D and distribution have yielded a 30% growth rate for the past four consecutive years. Heavy investments in vertical integration have also yielded solid margins.