Abiomed Inc. ABMD reported earnings of 20 cents per share in first-quarter fiscal 2016, which beat the Zacks Consensus Estimate by 12 cents. The company had reported a loss of 4 cents per share in the year-ago quarter. The impressive earnings performance was primarily driven by higher revenue growth in the quarter.
Quarter Details
Revenues surged 50.4% year over year to $73.4 million, outpacing the Zacks Consensus Estimate of $67 million. The year-over-year upside was supported by robust performance by the Impella product line. On a constant currency (cc) basis, revenues increased 36%.
Globally, Impella revenues grew a strong 53% to $68.8 million in the quarter. U.S. Impella revenues improved a meaningful 60% to $63.7 million while outside the U.S., Impella revenues shot up 25% at cc to $5.1 million. In the U.S. Impella patient usage soared 62% driven by record number of patients in both prophylactic and emergent support (protected PCI).
Abiomed revealed that an additional 15 hospitals purchased Impella heart pumps during the quarter, bringing the installed customer base to 973 sites. As part of Abiomed's continued Impella CP(R) launch, 54 new hospitals purchased Impella CP during the quarter, reaching the Impella CP U.S. site count to 694.
Abiomed noted that an additional 15 sites made initial purchases of Impella RP, bringing the total number of Impella RP U.S. sites to 23 at the end of the quarter.
Gross margin expanded 500 basis points (bps) to 85.2%, primarily led by favorable product mix, euro exchange rate, as well as increased production levels.
Operating expenses, as a percentage of revenues, stood at 64.7% compared with 83.3% in the year-ago quarter. This was primarily due to lower research & development (R&D) and selling, general & administrative (SG&A) expenses.
Abiomed reported operating income of $15 million as compared with a loss of $1.5 million in the year-ago quarter.
Product Updates/Other Details
Abiomed is set to submit FDA PMA supplements for the Impella CP and 5.0 products in the second quarter of fiscal 2016. Timely approval of these devices will further expand the company’s addressable market. The Impella RP received Humanitarian Device Exemption (HDE) approval in Jan 2015, which will be a key growth catalyst in our view. Also, the approval now allows the company to sell the device in the U.S., which opens up another source of revenue generation.
Meanwhile, Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) asked the company to submit a supplement of its latest Impella platform that has been approved by the FDA. Abiomed believes that the submission will help it to attain new approvals, on the basis of which it can market Impella 2.5 and 5.0 products in Japan. However, the new submission will delay the commercial rollout of these products by three to five months.
In June this year, Abiomed announced that the U.S. Department of Justice (DOJ) has closed investigations into the company’s marketing and labeling practices related to the Impella 2.5 device, without taking any enforcement action.
In Mar 2015, Impella 2.5 heart pump received FDA Pre-Market Approval (PMA) for use in high risk PCI procedures. Notably, Impella 2.5, the world's smallest heart pump, is the first hemodynamic support device to be permitted for such an indication.
The FDA sanction enhanced Impella 2.5’s growth opportunities by expanding its total addressable patient base. Reportedly, about 100,000 patients suffering from cardiac problems in the U.S. are declared unfit for heart surgery due to extreme risks associated with the procedures. The Impella 2.5 pump obliterates such risks to a large extent, which accounts for its popularity among a broad range of patients.
Hence, it is explicable that DOJ’s decision to close the investigation comes as a huge relief for Abiomed, as an adverse decision would have marred the company’s top line to a considerable extent.
On Jul 31, 2015, Centers for Medicare and Medicaid Services (CMS) reconfirmed Impella reimbursement and payment. Hence, Impella’s existing MS-DRG mapping (215-221) will remain unchanged in the ICD-9 to ICD-10 transition, which is scheduled on Oct 1, 2015.
Guidance
Abiomed raised its fiscal 2016 revenue guidance to the range of $300–$310 million from the earlier guided range of $285–$295 million. The upgraded guidance reflects year-over-year revenue growth of 30% to 35% and includes approximately $6–$8 million of revenue from the launch of Impella RP.
For fiscal 2016, the company reiterated its gross margin guidance at the 83%–85% range. Abiomed projects reported operating margin in the band of 14% to 16%.
Our Take
Abiomed’s Impella utilization is growing at a remarkable pace with an increasing number of hospitals and customer sites purchasing the same.
We note that Abiomed plans to invest roughly $15 million to $20 million to expand its facilities in Massachusetts and Germany to support additional manufacturing capacity and growth in the operational support infrastructure. We believe that this will help the company to eliminate any risk of limitation in the supply chain and meet the growing demand for its offerings.
Stocks to Consider
Currently, Abiomed sports a Zacks Rank #1 (Strong Buy).
Some other favorably-ranked stocks in the medical instruments industry are LDR Holding LDRH, RTI Surgical RTIX and Masimo MASI. All these stocks carry the same Zacks Rank as Abiomed.
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