Abiomed (NASDAQ:ABMD) has enjoyed tremendous success over the last seven years. At the start of 2013, the company traded at $14 and today its stock price is $183. The medical device maker's main product is the Impella line of heart pumps, devices that are inserted percutaneously (through the skin) which improve blood flow and act as a heart pump. These devices are the only approved percutaneous heart pumps for treating patients with advanced heart failure or cardiogenic shock due to a heart attack.

Nonetheless, 2019 has not been kind to Abiomed as a series of bad news items hit the company -- evidenced by the fact that the company was trading at $351 to begin the year -- seeing a loss of almost half its value by today. So, what is going on with this health stock that has gone from analysts pegging it to reach as high as $480 a share this year to it trading around $180 currently?

An FDA approval stamp next to pills

Image Source: Getty Images

Bad news in 2019

The bad news for Abiomed is well-known. In February, the U.S. Food and Drug Administration sent out a letter to healthcare providers that was widely reported as calling into question the safety of Abiomed's Impella RT heart pump. Then, Abiomed's earnings reports in early May (Q4 2019) and late August (Q1 2020) failed to meet analysts' expectations. These events sent the stock from a year-to-date high of $362 in February down to under $192 by the end of the first week of August.

But the bad news was not over. In November's American Heart Association conference, a study was presented that compared the outcomes of using the Impella device to using balloon pumps among patients who underwent angioplasty to reopen clogged arteries. The study found that use of Impella was associated with greater risk of death, bleeding, and stroke than with balloon pumps. While hospital stays were about one day shorter when using Impella, the costs were about $15,000 more than those associated with balloon pumps. 

Safety, efficacy, and value of Impella brought into question

The company is basically a one product business: the Impella Heart Pump. The fact that its safety, effectiveness, and cost outcomes are being questioned has put a real damper on Abiomed. But a brighter outlook was ushered in on Dec. 2 when the FDA published an update to the letter it sent to healthcare professionals in February.

In this update, the FDA said that post-market study results show that when the Impella device is used on patients who met the eligibility criteria during the premarket clinical trials the survival rate was 72.7%, a similar figure to the 73.3% survival rate in the premarket trials. The survival rate for those patients who would not have met the criteria for an Impella device in premarket trials was a much lower 13.6%. These results show that when the Impella device is used on the correct patient population, it is effective.

In addition, the company responded to the data in the AHA's presentation, citing three reasons the study was flawed: 

  1. The patient selection was very small and covered just a fraction of Impella patients and could also not differentiate between complications; 
  2. The patients using the Impella system were much sicker and had more pre-procedure risks than the study population at large;
  3. The data did not include the costliest non-Impella patients, which in turn made the costs of the Impella system seem high by comparison.

More centers, more doctors

The FDA interim post-approval study report combined with Abiomed's response to the AHA presentation shows the importance of cooling any fears of the safety and efficacy of the Impella system.

Abiomed's future growth depends on having more doctors and centers use the Impella device. FDA letters and AHA conference presentations that challenge the efficacy of the device harm the company's ability to convince more doctors to use the device. Such news has played a role in the company's inability to grow. So while the company may look nice on paper with its earnings growth, free cash flow generation, strong margins, and even revenue growth-if that revenue growth falls short of expectations, it will be a warning sign to investors.

Revenue growth is of utmost importance and depends on what is perhaps the most important aspect of this company currently: placing the Impella system in more sites. The company opened up 62 new sites this last quarter compared to 135 last year. That is not terrible but it is another reason some investors have been scared away from Abiomed's stock this year.

What should investors make of all this?

With this drama finally in the past, Abiomed looks like a promising health stock. It's making money, generating cash flow, and increasing revenue. The latest earnings report released at the end of October showed a year-over-year increase of 27.7% in earnings per share. The company also reported revenue growth of 12.8% year-over-year. 

Should you buy Abiomed?

Whether you should buy Abiomed or not depends largely on your goal. It is unlikely the stock will hit $400 or more in the coming anytime soon like many analysts were predicting near the end of 2018. 

However, the company has a solid balance sheet, is growing earnings and revenue, and has a unique product that can save lives. While growth should continue, it won't be as fast as many hoped in 2018. Abiomed's stock is a buy for those who take the long view and are comfortable with temporary setbacks.