Abiomed - An Up-And-Coming Medical Device Maker

As for long-term competitive advantages, Abiomed does not really hold any that are extremely durable. Sure, the company owns a phalanx of patents, but these can be challenged or worked around. Probably the strongest competitive advantages are the high barriers to entry, given FDA approval requirements and securing Medicare and private insurance coverage. Abiomed's first-mover status and virtual monopoly position also gives it "pole position" in the market, as cardiologists become familiar with the product and less likely to accept a competitor.

Risks

There are two major immediate term risks that could hit Abiomed.

The first is theoretical and par for the course in medical devices - safety. Should Impella fail, or be shown to be ineffective or dangerous, Abiomed would be hit very, very hard, as this is its only product. Given the device's years-long efficacy profile, this seems like a low likelihood event, but still one worth mentioning.

Secondly, and more likely, are reimbursement challenges. The nature of Impella's patient demographics means that Abiomed earns a substantial amount of its revenue from Medicare. Last year, the stock was hit on news that Medicare was cutting Impella reimbursement rates by 35%. This ultimately turned out to be lower (19%). However, it is still a good example of the power of the government over the earnings potential for medical device firms, not to mention the movement of their stock prices.

Conclusion and Business Model Rating

Abiomed is an intriguing, upcoming medical device company dominating a large and growing need. We see a robust growth runway for the firm, along with a big lead and no current direct competition. While prospective competition, reimbursement concerns, and a very aggressive valuation are concerns, the business is an attractive one.

Quick Summary

Abiomed is a medical device company focused on the heart. Virtually all of the company's revenue is from sales of the Impella percutaneous heart pump, a device which relieves the burden on the heart during surgery. Currently the device is approved for high-risk percutaneous coronary intervention (angioplasty) surgery, cardiogenic shock, and right-side heart failure procedures.

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