We reiterate our Neutral recommendation on Abiomed (ABMD), a firm engaged in the development and marketing of medical products to assist or replace the pumping function of the failing heart.Second-quarter fiscal 2011 net loss per share of 9 cents was below the Zacks Consensus Estimate of 14 cents.
Net loss narrowed 58% year over year as revenues (up 17%) were boosted by strong sales of the company’s Impella cardiac pumps, which cruised 33% in the quarter. However, the results were partly eclipsed by a 15% year-over-year decline in non-Impella sales.
Abiomed is enjoying a strong demand for Impella; the company is pursuing a number of strategies to boost the utilization of this drug. Roughly 597 U.S. commercial patients were treated with Abiomed’s Impella products in the second quarter, a 77% annualized growth.
Abiomed has a broad portfolio of products that are life-sustaining in nature. The company’s strategy focuses on heart recovery as the goal for all acute cardiac attacks. Abiomed’s products are designed to enable the heart to rest, heal and recover. We believe this niche product line feeds a growing trend towards procedures that are either minimally invasive or assist the body to recover more naturally.
However, Abiomed remains a loss-making entity and operates in an intensely competitive environment and faces significant reimbursement risks. Competition among providers of treatments for the failing heart is intense and subject to rapid technological changes and evolving industry requirements and standards.
Moreover, Abiomed faces the risk of third-party reimbursement for its devices. Third-party reimbursement programs in the U.S. and abroad, both government-funded and commercially insured, are currently developing different ways to control health care costs including prospective reimbursement cuts. This may impact the sales of Abiomed’s products and its top line.
Based on a favorable Impella outlook, Abiomed recently raised its revenue guidance for fiscal 2011. However, the company’s legacy (non-Impella) business is shrinking and it does not expect to make any profit in fiscal 2011, in part due to the hefty expenses associated with Impella. Our recommendation is supported by a short-term Zacks #3 Rank (Hold).
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