On Dec 23, 2015, we issued an updated research report on Minnesota-based medical equipment developer – Cardiovascular Systems Inc. CSII. The company develops a unique Orbital Atherectomy System (OAS) of products that helps remove plaque in arterial vessels in minimal treatment time.
The imposition of the 2.3% Medical Device excise tax enacted as part of the Patient Act has adversely affected Cardiovascular Systems’ financial results, forcing the company to find ways to reduce spending in other areas or raise additional capital to offset the increased expense.
Unfortunately, Cardiovascular Systems has failed to pass on the cost of the tax to its customers or offset the same through higher sales volumes resulting from the expansion of health insurance coverage. The ongoing implementation of this legislation has every chance of adversely affecting the company’s operational and cash flow numbers, going forward.
Moreover, the company has been incurring net losses in each fiscal since its inception in 1989. Lately, the company incurred net losses of $35.3 million and $32.8 million in fiscal 2014 and 2015, respectively. Management expects these losses to continue, going ahead. All of these indicate that there is no near term respite from the company’s continuing operating loss structure. Tough competitive headwinds also continue to pose a threat to the stock.
On a brighter note, however, Cardiovascular Systems stands to gain from several favorable trends existing in the peripheral arterial disease (PAD) as well coronary arterial disease (CAD) markets. Since the PAD space is still underpenetrated at large, it holds significant opportunities for Cardiovascular Systems to expand therein. Additionally, Cardiovascular Systems is focused on innovating solutions for the most severe form of PAD that leads to amputations, and cost the U.S. healthcare system over $10 billion every year.
Moreover, the company witnessed a 50 basis point improvement in its last reported result’s gross margin, driven by a significant reduction in its unit costs.
Currently, Cardiovascular Systems carries a Zacks Rank #4 (Sell).
Key Picks in the Sector
Some better-ranked medical stocks are Anika Therapeutics Inc. ANIK, Baxalta Incorporated BXLT and Heska Corporation HSKA. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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