Abiomed Analyst Day Reveals Pipeline Potential, Reinforces Positive Moat Trend Rating

Abiomed‘s Impella left ventricular assist device, an endovascular percutaneously-delivered LVAD, will soon be getting a more powerful new model. The current model is capable of delivering an augmentation of cardiac output by up to 2.5 liters a minute, but the new Impella cVAD should do around 3.5 L/m, and possibly up to 4 L/m in the not too distant future.Impella

  • Percutaneous, Left-Side support platform
  • Higher level of hemodynamic support for the Cath Lab
  • Peak Flow > 3+ L/min
  • Roadmap to increase to > 4L/min
  • 9 Fr catheter / 14 Fr pump
  • U.S. commercial availability Summer 2012

Abiomed ABMD held its investor day on Friday, and after hearing more details on its expansion plans, we are raising our fair value estimate to $17 per share from $15. About $1 of that increase is related to the firm getting closer to sustainable free cash flows while the other half relates to higher longer-term expectations associated with new expansion projects. These projects not only reinforce our positive moat trend rating on the firm, but could help Abiomed attract more attention from potential acquisitors, which is reflected in our modestly higher acquisition-scenario valuation.

With the Impella product set growing 40% in the second quarter of fiscal 2012, we already saw room for ongoing high growth at Abiomed, especially after hemodynamic support with Impella was included in PCI guidelines this fall. We see this inclusion in the 2011 American College of Cardiology Foundation (ACCH)/American Heart Association (AHA)/Society for Coronary Angiography Interventions (SCAI) guidelines for PCI procedures as key for Impella’s expansion to a broad audience of interventional cardiologists. The firm highlighted this guideline inclusion in early November, so we’d expect significant Impella expansion due to that catalyst for at least the next year.

Beyond the expansion of Impella due to the rising awareness of its clinical benefits, three major projects could help Abiomed grow in the long term and potentially help it dig an economic moat. First, the firm is developing a next-generation Impella device, which it will call Impella cVAD. If Abiomed can successfully launch this product, we’d grow more comfortable with its ability to introduce new products that generate sustainable returns over capital costs in the long term, helping it dig a moat. The Impella cVAD aims to boost the power of the device up from 2.5 liters per minute to over 3.5 liters per minute this generation and over 4.0 liters per minute in subsequent generations. Being able to mimic a normally functioning heart at 5.0 liters per minute while still inserting the device percutaneously would be a great achievement. The Impella cVAD is being developed under the 510(k) regulatory process, and Abiomed aims to receive approval by the summer of 2012. We see this device primarily as a line extension of the Impella 2.5, which should help Abiomed treat more high-risk percutaneous coronary intervention (PCI) and heart attack patients in a minimally invasive fashion.

Abiomed aims to enter the Japanese market with Impella in calendar 2013. Abiomed is targeting a patient population of around 25,000 annually in high risk PCI procedures in Japan; on the upside, the Japanese market could represent more than $1 billion in annual sales, including acute myocardial infarction patients. We currently give Abiomed a 50% chance of expanding successfully in Japan with Impella. If we gave it 100% chance of reaching about 10% of the target PCI market in Japan within five years of launch, our base case valuation would increase by $1 per share.

Perhaps the most exciting, and most risky, expansion project detailed at the meeting was Abiomed’s development-stage product for chronic heart failure patients, Symphony. Abiomed’s long-term mission is to help patients recover use of their native hearts, and this product could push it into the chronic heart failure niche that Thoratec Laboratories THOR currently dominates. The Symphony would target chronic heart failure patients in the Class IIIb category of the NYHA classification system, which have symptoms of fatigue with minimal physical activity. Abiomed’s management team estimates that this target patient population in the U.S. represents about 90,000 patients and more than $2 billion in potential sales annually. This device would take over pumping of the heart at a rate of 3.0 liters per minute, so Symphony would provide partial support, allowing the heart muscle to rest somewhat in these easily fatigued patients.

The most intriguing part of the Symphony device is that, unlike traditional VADs, it wouldn’t require a highly invasive procedure to implant the device, such as a thoracotomy or sternotomy. In fact, the device could be placed in a pacemaker pocket in the infraclavicular fossa, which is much less invasive technique than required for traditional VAD implantation. It is also the most common place for cardiac device placement, which should make it easy for cardiac surgeons to adopt in their practices. Because of the ease of implantation, this device could substantially open up the VAD market to earlier-stage chronic heart failure patients. So far, traditional VADs haven’t been able to meet their full potential for a variety of reasons, including the complexity (for the surgeon) and severity (for the patient) of the implantation procedure.

However, Symphony has had only one human recipient so far, and this PMA regulatory candidate in the U.S. likely will require many more years of study before reaching the market. Also, although it provided that first patient with significant benefits while the device was implanted, it remains to be seen what, if any, long-term benefits can be achieved. So while we are excited to see what this device can do, many questions regarding the long-term usefulness and cost effectiveness remain unanswered. We currently assume only a 25% probability of success with this product and a launch date in fiscal 2016. If we assume a 100% probability of success and sales more than $200 million within five years of launch, our base-case valuation for Abiomed increases by $1 per share. We’d caution that there are many potential timelines and clinical outcomes for this product, both positive and negative, which could cause us to adjust our outlook substantially for Symphony in the future.

Source:http://medgadget.com/2011/12/abiomed-reveals-a-new-more-powerful-impella-cvad-heart-pump.html, https://www.morningstar.ca/globalhome/industry/news.asp?articleid=449693

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