Abiomed Beats on EPS, Profit Dips

Leading cardiac assist devices maker, Abiomed Inc. (ABMD - Analyst Report), reported third-quarter fiscal 2013 adjusted earnings per share (EPS) of 7 cents (up 16.7% year-over-year), beating the Zacks Consensus Estimate of 6 cents.

However, the Massachusetts.-based company registered a profit of $2.7 million (or 7 cents per share), down roughly 7%. Profit declined on account of higher expenses, which led to a contraction in gross margin. However, a share repurchase program helped to leverage the bottom line in this quarter.

Revenues

Revenues climbed 19% year over year to $38.3 million, roughly in-line with the Zacks Consensus Estimate of $38 million. This marked the 13th straight quarter, in which Abiomed recorded year-over-year double-digit growth. Growth was led by solid sales of the Impella heart pumps. Additionally, the company posted record patient utilization of the Impella device in the quarter.

Globally, Impella sales soared 21% year over year to $33.5 million in the third quarter. U.S. Impella sales grew 22% to $31.1 million. Abiomed opened 23 new U.S. Impella 2.5 sites in the quarter to end with a total of 718 customer sites.

Margins

Gross margins declined to 78.7% from 80.5% a year ago, reflecting increased expenses associated with capacity expansion and manufacturing costs of the new Impella CP device. However, operating margin was 7.7% compared with 7.0% in the prior-year quarter.

Selling, general and administrative expenses were at 54.6% of sales versus 53.4% in the year-ago quarter. Research and Development expenses, as a percentage of sales, fell to 16.4% from 18.9%.

Balance Sheet

Abiomed exited the quarter with cash, cash equivalents and short-term marketable securities of $85.7 million, 23.1% higher than the previous year. Free cash flow in the quarter amounted to $7.3 million. The company had no debt.

In an effort to leverage its bottom line, the company repurchased 0.8 million shares in the quarter for $10.7 million as a part of its repurchase program to buy back up to $15 million of its common stock.

Guidance

The company reiterated its revenue guidance for fiscal 2013. Abiomed forecasts revenues to grow 23%—24% to $155 – $157 million. Global Impella sales are expected to increase more than 30%.

Recent Developments

Abiomed had initiated a controlled launch of its Food & Drug Administration (FDA) approved Impella product, Impella CP (Cardiac Power), in the U.S. (also known as Impella cVAD outside the U.S.) in Sep 2012. The device was sold to 34 top hospitals, ending with a total of 46 customer sites.

Moreover, Abiomed achieved a major milestone by winning the Investigational Device Exemption (IDE) clearance from the FDA for the use of Impella RP (Right-side Percutaneous) in a clinical trial called “Recover Right”. The study is intended to gather information on the safety and efficacy of the Impella RP device. Results from the study will be used by Abiomed to apply for a Humanitarian Device Exemption (HDE) approval, for which the company has already received a HUD (Humanitarian Use Device) approval on Jul 13, 2012.

In December 2012, the 515i FDA panel recommended a Class III status for Abiomed’s Impella devices and stated that all future temporary ventricular assist devices will require Post Market Approval (PMA). Meanwhile, the company will continue to sell its Impella products under the 510(k) clearance and is working with the regulatory body to submit the required clinical data under the PMA application process.

Our Take

Abiomed is enjoying a strong demand for its Impella products. Impella utilization continues to grow at a healthy pace, as is evident from the increasing number of patients being treated with the device. We are impressed by the company’s efforts to achieve clinical as well as operational excellence.

However, we are wary of negative sentiments amongst investors regarding the Impella 2.5 investigation process. Moreover, the company must control its expenses to enhance profitability and growth.

The company has a Zacks Rank #2 (Buy). Other medical stocks such as IDEXX Laboratories, Inc. (IDXX - Snapshot Report), Natus Medical Inc. (BABY - Snapshot Report) and Cyberonics (CYBX - Analyst Report) with a Zacks Rank #2 (Buy) appear impressive.