Merit Medical Systems, Inc., a name familiar to those in the medical device industry, may seem like just another steady player. But buried within their recent earnings call transcripts, a fascinating trend emerges, one that might have slipped past even the most seasoned Wall Street analysts. While everyone is focused on the much-anticipated Wrapsody launch, something else is brewing, something potentially far more significant for Merit's long-term trajectory.

While Wrapsody undoubtedly holds potential, Merit's quiet, consistent growth in research and development (R&D) spending could be the sleeping giant, ready to awaken and propel the company to a whole new level.

Everyone is talking about Merit's new Continued Growth Initiatives (CGI) program, focusing on a projected revenue of $1.46 billion and a 20% operating margin by 2026. But what truly stands out is their commitment to R&D, a commitment that has quietly but steadily intensified over the last several years.

Look at the numbers. In 2017, Merit's R&D spend as a percentage of revenue was approximately 6.8%. Fast forward to 2023, and that number has steadily climbed to nearly 7.4%. This may not seem like a dramatic increase, but consider this: during this period, Merit's revenue almost doubled. This means that their absolute R&D spend has grown at an even faster pace than their revenue.

Why is this significant? It signifies a deliberate, strategic shift within Merit. They're not just content with maintaining their current market position. They're actively investing in future growth, prioritizing innovation even as they execute on efficiency programs like FFG and CGI.

What's particularly intriguing is that this R&D investment isn't just focused on one blockbuster product like Wrapsody. Merit is spreading their bets, focusing on a steady stream of "singles and doubles," as CEO Fred Lampropoulos likes to call them. These are incremental product innovations and line extensions that, while not individually grabbing headlines, collectively build a powerful engine of growth.

And this strategy is paying off. Merit is consistently announcing new product introductions and regulatory clearances, quietly building a broader, more diversified portfolio. Their recent FDA clearance for the Scout MD Surgical Guidance System and the launch of the Micro ACE micro-access system are perfect examples.

This is where the real story lies: while everyone is focused on the potential windfall from Wrapsody, Merit is laying the foundation for a much broader and more sustainable growth story. Their increasing R&D spend, coupled with their focus on steady, incremental innovation, suggests that they're building a pipeline that could deliver far beyond any single product launch.

Let's take a hypothetical scenario. Assuming Merit maintains their current R&D spend as a percentage of revenue, their absolute R&D spend by 2026, based on their CGI revenue target of $1.46 billion, would be approximately $108 million. This is significantly higher than their 2023 R&D spend of $82.7 million.

Now, imagine if even a small percentage of this increased R&D investment translates into successful new product launches. The potential revenue impact could be substantial, potentially adding hundreds of millions of dollars to their top line over the next few years.

Here's the kicker: this R&D-driven growth potential isn't factored into their current CGI targets. Those targets are based on existing products and the OUS sales of Wrapsody. Any success from their increased R&D investment would represent pure upside, potentially propelling Merit's growth well beyond their stated objectives.

Merit's R&D Expenditure as a Percentage of Revenue (2017-2023)

This chart depicts Merit Medical's steady increase in R&D investment as a percentage of revenue, underscoring their commitment to innovation.

While the market is buzzing about Wrapsody, a quiet revolution is underway within Merit Medical. Their increasing R&D investment, combined with their focus on a diversified portfolio of new products, could be the catalyst for a period of explosive growth, one that might take even the most astute analysts by surprise. The quiet giant might be about to make some noise.

"Fun Fact: Merit Medical's commitment to innovation extends beyond product development. They also focus on clinical validation, as seen in the MOTION study for their Embosphere microspheres in treating knee osteoarthritis. This study could significantly expand the market for Embosphere and establish Merit as a leader in this emerging treatment area."