Fred, congratulations on your short-term profit in an ABMD "short" position, but you may want to rethink your position. Frankly, I wouldn't want to be in your paper profit shoes, given how thinly this stock trades and the strength of its emerging story with bona fide institutional investment appeal.
You've probably noticed (and perhaps been more than a little frustrated) by the stock's resilience at current prices. It's strength is derived from both fundamental and technical factors, which you don't fully comprehend or of which you are simply unaware.
First of all, the recently announced FDA approval was NOT for a single, "minor" additional indication of need. Essentially, the FDA decision gives cardiac care providers blanket approval to employ the BVS device in any instance where there is "reversible heart failure." In the company's press release, an example of viral myocarditis was used, but it hardly represents the entire universe of now approved BVS applications.
Post-cardiotomy shock (after open heart surgery) remains the largest market segment, to my understanding. In 1996, the Company sought and gained approval for two additional indications of need that were relatively small, but very important "politically". The most recent announcement was perhaps even more important, for four reasons: [1] it further expands the economic market for the BVS device and the company's business opportunity; [2] it further validates the ABMD artificial heart technology and capability; [3] it provides a higher level of "comfort" for the cardiac care physician in prescribing use of the device as the correct therapy in instances of reversible heart failure (further expanding the economic and business opportunities); and [4] it increases the probability of third party reimbursement, i.e. insurance and Medicare, an important consideration when investing in medical device companies.
My valuation model, based on predicted sales and earnings only for the BVS 5000 and the relatively minor contributions from other existing commercial products, suggests that ABMD shares should currently be trading in the $18-$20 range. While that represents a generous return from today's prices, BVS (however successful) is not the primary reason to own this story.
The real story is that ABIOMED is committed to developing a "family" of mechanical, cardiac assist devices, including its leading position in the development of a totally artificial heart (TAH) as an alternative to heart transplantation, a multi-billion market with but limited competition and dramatic human need. In essence, this represents a "structural change" in the way we will live and do business. The company's public statements are that it will enter human clinicals by the year 2000, only about 30 months away, or less. The yet-to-be-recognized aspect to the ABMD opportunity is that you can buy the company today for the value and growth of its existing commercial products, while getting the bigger, more institutional aspects of this story essentially "for free". |
