Abiomed, Inc.: The Best Medical Device Companies of 2013

Abiomed's Impella heart pumps are carving out an important niche in cardiac cath labs.

Jan 9, 2014 at 1:53PM

With the S&P Healthcare Equipment Select Industry Index up 32% this past year, it's clear that the industry performed well in 2013 -- but which stocks were the biggest winners? Some of the best performers outpaced the index significantly last year, and in this series, I review five of the biggest movers.

So far I've outlined the reasons for the robust returns last year at diabetes device maker Dexcom and cardiovascular device play Cardiovascular Systems (NASDAQ:CSII). That brings us to No. 3 in my series, Abiomed (NASDAQ:ABMD), a company that saw its latest product line propel its shares 98% higher in 2013.

ABMD Total Return Price Chart

ABMD Total Return Price data by YCharts

Pumping up sales
Abiomed has been around since 1981, but share prices really took off in 2013 thanks to rising demand for the company's Impella product line, which includes catheters, sensors, and pumps used to boost circulation before, during, and after heart surgery.

More than 16,000 Impella ventricular heart pumps have been implanted in patients, including more than 1,000 of Abiomed's latest, higher-flow Impella CP, which won FDA approval in September 2012. The Impella CP approximates roughly 80% of what a healthy heart can pump every minute, and the device accounts for 35% of reported Impella patient use, up from 30% quarter over quarter.

A 24% increase in patient use and adoption of the Impella CP helped lift sales of Impella devices 21% to $37 million in the company's fiscal second quarter. That performance raised Abiomed's total sales 19% year over year to $44.3 million, marking the 16th consecutive quarter of double-digit revenue growth. 

Importantly, gross margin remains strong at nearly 80%, suggesting that unit volume increases could provide profit opportunity over time. That would be welcome, given that investments to advance Abiomed's ongoing clinical trials and expand its products outside the United States weighed down earnings this past year.

Regardless, the company is still making money, and the sales upside has strengthened Abiomed's balance sheet. The company remains debt free, with roughly $71 million in cash, cash equivalents, and short-term investments on its books. That strong financial position may provide a future boost to the company's $15 million buyback authorization, which the company's board approved back in November 2012. 

Competing for heart pump market share
Abiomed's products provide circulatory support for up to six hours and are designed for use in cardiac cath labs or during heart surgery, but competitors Thoratec (NASDAQ:THOR) and Heartware (NASDAQ:HTWR) target the intermediate- and long-term-use market instead.

Thoratec is by far the largest of the three companies. It was the first to win FDA approval for a left ventrical assist device, or LVAD, and captured the majority share of the LVAD market as a result. However, Thoratec, which racked up $126 million in third quarter sales, is increasingly being challenged by up-and-coming Heartware.

Heartware won FDA approval for its own LVAD in 2012, and sales have moved substantially higher since, suggesting the company is winning business from the slower-growing Thoratec. Heartware's sales hit $54.8 million in the third quarter, up 140% from last year, as U.S. sales grew 12% from Q2 to $28 million and overseas sales improved by 38% to nearly $27 million.

Fool-worthy final thoughts
Abiomed is enrolling patients in a study supporting its Impella RP, an investigational heart pump for use in the right side of the heart for patients with right heart failure. The company plans to use results from this study to file for a Humanitarian Device Exemption, or HDE. That exemption is designed to allow use of devices in small patient populations of 4,000 people or less and could come as early as February 2015. It's also working on a device for use in children.

Additional growth is likely to come from winning approval for Impella's use in Japan. Currently, the company hopes to have reimbursement approval there sometime in 2014. Given that the company hit records last quarter for usage and the number of procedures, investors should keep a close eye in the coming quarters to see whether those trends continue. If they do, Abiomed may find fiscal 2015 sales come in even higher than its $180 million to $185 million guidance for fiscal 2014. Investors should also watch Thoratec and Heartware, given the potential for these players products to overlap.  

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC.  E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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