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Cardiovascular Systems: Loss Scenario to Continue on Higher Expenses

On Nov 10, 2015, we issued an updated research report on Minnesota-based medical device manufacturer - Cardiovascular Systems Inc.CSII . The company develops a unique Orbital Atherectomy System (OAS) of products that helps remove plaque in arterial vessels in minimal treatment time.

Cardiovascular Systems ended its first quarter of fiscal 2016 on a mixed note. While loss incurred was narrower than expected, the top line failed to meet the mark. Meanwhile, loss widened year over year due to rising operating expenses.

Unfortunately, management expects losses to persist for some time, going ahead. The company expects to witness a rise in its general and administrative expenses with growth in its business. Moreover, with management projection of a 5% further rise in operating expenses in the next quarter, we fail to see any near term improvement in this scenario. Also, tough competition and the imposition of the medical device tax continue to pose challenges for the stock.

On a positive note, during the reported quarter, Cardiovascular Systems' gross margin increased 50 basis points, driven by a significant reduction in its unit costs. Going forward, management expects engineering enhancements and higher production volumes to continue to reduce unit cost. This will facilitate a higher gross margin in the coming quarters. In addition, increased sales of the coronary device, which has a higher average selling price, should help keep gross margins close to the range of 80%.

Further, Cardiovascular Systems provided favorable one-year results from its Tissue Removal Assessment with Ultrasound of the SFA and Popliteal (TRUTH) study. We are also looking forward to the company's OPTIMIZE peripheral Orbital Atherectomy System (OAS) study in Europe, which has enrolled its first set of patients a month before. We believe such clinical research continues to highlight the safety and efficacy of Cardiovascular Systems' unique OAS products, while recent research illustrates the company's versatility in the emerging vascular market.

Currently, Cardiovascular Systems carries a Zacks Rank #4 (Sell).

Key Picks in the Sector

Some better-ranked medical products stocks are Hill-Rom Holdings, Inc. HRC , ICU Medical, Inc. ICUI and Nxstage Medical, Inc. NXTM . All the three stocks hold a Zacks Rank #1 (Strong Buy).

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NXSTAGE MEDICAL (NXTM): Free Stock Analysis Report

HILL-ROM HLDGS (HRC): Free Stock Analysis Report

ICU MEDICAL INC (ICUI): Free Stock Analysis Report

CARDIOVASCLR SY (CSII): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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