The Motley Fool Previous Page

Know Abiomed's Ifs, Ands, and Buts

Keith Speights
August 17, 2012

Medical device maker Abiomed (Nasdaq: ABMD  ) could be your next big winner. Note that I used the word "could." When something is a sure bet, we say that there are no ifs, ands, or buts about it. That's not the case with Abiomed. Here are several ifs, ands, and buts you should know about.

Abiomed's primary product is the Impella 2.5, a micro heart pump used to temporarily help patients' blood circulation. The company has experienced great success with the Impella 2.5, but its future success hinges upon how well several newer products fare.

Two of these products, the Impella 5.0 and Impella LD, are approved for use in more than 40 countries. However, the Impella 2.5 still drives most of the company's revenue.

Abiomed launched its latest iteration, the Impella cVAD, in December 2011. The company received the European CE mark in April. While it hasn't received FDA approval yet, Abiomed expects to clear that hurdle in time for a U.S. market rollout in the latter part of fiscal 2013.

Another product announcement also came in late 2011. Symphony is a cardiac implant designed to help patients with moderate heart failure have a better quality of life. Abiomed recently conducted its first human implant, but the device is not available for sale yet in the U.S.

If the Impella cVAD and Symphony gain approval and the transition from Impella 2.5 to 5.0 goes smoothly, Abiomed's future should be bright. There are at least a couple of "ands" to consider, though.

Even if we assume Abiomed gets the regulatory approvals for its new products, there is another governmental hurdle to overcome: reimbursement. There are two primary risks for the company related to reimbursement.

First, the Centers for Medicare and Medicaid Services (CMS) could reconsider reimbursement for Abiomed's Impella devices. Lazard downgraded the company from buy to neutral in May in large part because of concerns about potential CMS action.

Second, CMS could move Impella into a new diagnosis-related group (DRG). Payments to acute-care providers are determined by these DRGs. If Impella moved to a lower-paying DRG, that could be a disincentive for hospitals and surgeons to use the devices.

Another "and" is that Abiomed must beat its competition to be successful. Thoratec (Nasdaq: THOR  ) announced earlier this year that it planned to seek FDA clearance for a percutaneous heart pump that would directly compete with Impella. Thoratec's Centrimag device already competes in the same market as Impella.

But with a P/E multiple in the high double digits, Abiomed still must pull off some incredible earnings growth to justify its stock price, even if it achieves everything already mentioned. Thoratec's P/E of 24 looks pretty cheap in comparison.

Other medical device companies with strong growth prospects show lower P/E multiples as well. Edwards Lifesciences (NYSE: