We recently downgraded health care technologies company
) from 'Outperform' to 'Neutral'.
Since our 'Outperform' recommendation two months back, Abiomed's
shares are hovering around its 52-week high level combined with a
five-year high P/B ratio of 7.7. Given its stretched valuation, we
believe upward potential of the stock is limited at present and
hence revert to a 'Neutral' recommendation. However, the stock
carries a short-term Zacks #2 Rank (Buy rating).
Abiomed's fourth quarter fiscal 2012 adjusted (excluding one-time
items except stock-based compensation expenses) earnings per share
of 7 cents beat the Zacks Consensus Estimate of 6 cents per share.
Revenues soared 31% year over year to $37.3 million (a quarterly
record), beating the Zacks Consensus Estimate of $35 million.
The company is enjoying strong demand for its Impella products. The
company opened 26 new U.S. Impella 2.5 sites in the fourth quarter,
to end with a total of 631 customer sites. Moreover, the company
intends to foray into the Japanese market with its Impella products
in 2013. Based on these tailwinds, the company expects global
Impella sales to rise by roughly 30% in fiscal 2013.
Abiomed recently announced CE Mark approval for its new "Impella
cVAD" in the European Union, where it is expected to become
commercially available in early fiscal 2013. In June 2012, the
company also received the Canadian approval to launch cVAD. These
achievements will further boost the company's presence in the
international medical devices market. We note that Impella cVAD is
not commercially available in the U.S. The company expects to
receive 510(k) approval for the product by the second half of
However, due to the new technology of the Impella products
(especially cVAD), we remain concerned about its adoption by
cardiovascular surgeons and interventional cardiologists who hold a
significant position in selecting medical devices. Moreover,
clinicians have to be trained to use the product efficiently to
avoid misuse. Failure to do so can result in unsatisfactory
outcomes and may eventually lead to a drop in demand.
In addition, Abiomed faces the risk of third-party reimbursement
for its devices. The company's products are reimbursed by the
Center for Medicare and Medicaid (CMS) and commercial payers. Any
reimbursement cuts in the future will negatively impact sales of
Abiomed's products and subsequently the company's top line.
While we are upbeat about the prospects of Impella, we remain
cautious about the intensely competitive environment. Abiomed faces
competition from organizations developing permanent heart assist
) Jarvik Heart,
World Heart Corporation
) and MicroMed Technology.
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