Med-tech stocks alike Abiomed (NASDAQ: ABMD) and Intersect ENT (NASDAQ: XENT) dine been red warm at contemporary years. However, both of these businesses recently failed ought alive up ought investors' expectations.
In this episode of The Motley Fool's Industry Focus: Healthcare, host Shannon Jones and Fool.com contributor Brian Feroldi controversy what went wrong because both of these companies and if the businesses can recover.
To grab total episodes of entire The Motley Fool's liberate podcasts, check out our podcast center. A total transcript follows the video.
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This video was recorded above can 8, 2019.
Shannon Jones: Let's kick things off with our first loser. It's a company called Abiomed, ticker ABMD. Brian, I can impartial say because this company, 2019 has no been equal class ought this center pump maker. Stock has been down approximately 20% because the begin of the new year off of some safety concerns from the FDA. except when we're talking approximately earnings, it sounds alike we're starting ought visit some of those concerns begin ought strike their sumit line.
Brian Feroldi: Yeah, and that's indeed shocking, because this is a company that has been an unbelievable actor because many years now. because those that absence a refresher, Abiomed makes minimally invasive, temporary center pumps that are put into a patient's body, because healthful after they dine a center aggression or ago a high-risk surgery and it lowers their dare profile, and it helps them ought restore faster. And these guys are basically the sole company that does what they've done. And they dine impartial grown at a blistering speed because many years. except at the most contemporary quarter, they impartial produced 19% revenue growth and 100% salary growth, which sounds lovely good at the big design of things, except this indeed fell short of their guidance.
Jones: They were guiding because approximately 25% sumit row growth. A bit of a disappointment. because we briefly mentioned, there were some concerns uphold at February when the FDA sent out a warning letter, no a remember because some interpreted it ought be, except a warning alphabet ought physicians, basically stating that there were some concerns approximately the mortality estimate associated with their bread and butter machine, the Impella. What can you say us approximately that? How did you visit that play out at earnings?
Feroldi: As you mentioned, the FDA did send out a alphabet ought providers at February. Unfortunately, the media took letter of this and they basically disperse news that the Impella was under a remember above safety issues. That turned out ought exist no the case at all, that was a misinterpretation. except at that point, the company basically spent the final half of the first quarter above destroy control. They basically said that they couldn't obtain their growth where they needed it ought exist at time. They're cabin actively working along that issue, and they dine seen progress. except that was a major conflict why this company failed ought encounter its guidance because the first time at because wish because I've been covering the company.
Jones: Yeah, and it wasn't impartial the media. I can say that reading that safety alphabet from the FDA was a small confusing. They were hasty ought point out that there is a difference when you were looking at the studies that they utilize ought obtain this approved vs. some of those post-marketing studies that they did. I study there was a 56% difference among survival rates, lovely significant. except the FDA then it came uphold at the finish and said, "Despite that, we cabin study the Impella has a equal favorable dare utilize profile." Basically telling physicians, "Don't recess prescribing it, except this is something you absence ought exist mindful of, and something that we're watching." consequently I'm sure a destiny of disturbance impartial out there at the marketplace because prescribers are trying ought form out what ought conduct with this class of news because they wait. except because you mentioned, Brian, this is a company that hasn't impartial been taking it. They dine been trying ought conduct much more of an education and awareness campaign, and indeed approximately helping physicians decide who's the accurate patient because this class of device. consequently cabin they don't understand exactly why that difference is there, it was a relatively little example size at the post-marketing study, the company does confide there's some confounding factors, specially that the patient basis at this post-marketing learn was impartial slightly sicker than what they had at the initial study. consequently that's entire ought say, cabin a destiny of mystery marks because this company. I study it'll accept some time ought play out. except how are you emotion overall approximately this company, Brian? I understand you've been tracking and following this company because a while.
Feroldi: Yeah, I mean, personally I recommendation this because more of a hiccup than anything else here. I study that this management team knows exactly what they absence ought conduct ought obtain the growth novel uphold above track. You mentioned the stock charge movements above the final year ought date. It hasn't been a lovely 2019. except this company has wish traded at a very, equal tall multiple of salary and sales. They were priced because continued growth and guidance increases. consequently the fact that they came out with an salary clarify that was less than what the neutral was hoping for, I was indeed surprised ought visit their stock didn't refuse more based above this information. consequently that tells me that Wall route cabin believes that this company has a substantial quantity of growth left ahead of it. That's what I outlook the company ought cabin conduct moving forward.
Jones: Exactly. And they dine a amount of products that are at the pipeline. They've got the Impella 5.5, the Impella ECP and a BTR system too because impartial extra enhancements. They're cabin trying ought multiply internationally because well. I conduct study that this is a blip at their long-term growth story, except we'll exist sure ought get eyes above this one, because sure.
But let's carry our attention ought the second company that indeed took a beating above earnings. This is a lesser known company, one called Intersect ENT, ticker XENT. Stock is down approximately 30% due ought this morning, and it's no impartial approximately the poor salary here, Brian. There's a destiny going above with this stock. ago we obtain into earnings, though, I study it's significant because our listeners ought understand exactly what it is this company does. can you say us what they indeed conduct and how they invent money?
Feroldi: Yeah, sure. consequently this is a company that is focused above ear, nose and throat market, that's the ENT at their name. And they basically invent a family of products that drug chronic sinusitis, which is inflamed nasal passages. They invent these devices that are inserted direct into the nasal passage and they get it open, about alike a stent at an artery. cabin it's at there, it indeed slowly delivers a steroid ought the inflamed area, and the blend of having it opened up plus a steroid leads ought long-lasting results. And some of their products are indeed absorbed by the body above time, consequently it's impartial a minimally invasive procedure ought obtain it at there and then it provides long-lasting relief.
This is a company that had been growing equal rapidly above the final attach of years. They dine a multi-billion neutral dollar occur ahead of them. consequently this is a company that I was following equal closely and was equal interested in. However, the results from this quarter, I think, indeed raised some mystery marks approximately the long-term latent of this business.
Jones: Yeah. The results and too a alter at leadership that, honestly, Brian, has me scratching my head. impartial looking at some of the headline figures, revenue grew 8%. strike guidance. You too had some full rim expansion because well. except operating expenses grew. I doubt this will too exist a giant isolate of their story. Looking from the outer in, Brian, I visit a company alike this that has a device, and indeed devices, that indeed dine an interesting machinery of deed and are lovely innovative. consequently it's a small surprising ought me ought no visit growth figures at the way that I used to outlook because this quarter, and more importantly, knowing that they're going ought dine ought beef up their commercial team, I conduct anxiety approximately expenses indeed overrunning and overtaking sumit line. What are your thoughts approximately that?
Feroldi: Yeah, I agree. I mean, this is a company that has wish touted its neutral advantage, its innovative products, its giant opportunity. consequently ought visit revenue growth at the only digits is, ought me, equal disappointing. I mean, this is a company that ought exist posting at a minimum at the double digits. Their get above this summon was that a new manufacture launch called Sinuva, which they're impartial at the process of getting out there, has been off ought a much slower begin than what they originally focused on; and they invested heavily ahead of the launch here at an effort ought motivate growth. consequently because a arise of their indeed poor first quarter results, no sole did their net loss expand, except they chop their guidance because the year. They were previously calling because $123 million ought $127 million. That was reduced down by $10 million ought $113 million ought $117 million.
But because we teased a small bit earlier, the big news ought me here is that the longtime CEO, Lisa Earnhardt, announced that she was leaving the company after 11 years ought accept a leadership stand at Abbott Laboratories. That indeed had me scratching my head. It's no always that you visit the CEO of a supposedly high-growth, equal innovative company choosing ought enter center management of an established medical equipment maker.
Jones: Exactly. It does no abandon you with any class of confidence at the management team at this point, specially approximately the order of this company. at listening ought the rally summon because earnings, they talked a destiny approximately reimbursement issues, and indeed the inefficiency of trying ought obtain their products reimbursed. A destiny of the physicians' offices -- this is an outpatient procedure that's done -- are using this buy and bill system. There's some hurdle ought obtain a destiny of these doctors' offices ought conduct the buy and bill. consequently the company now is indeed focused above beefing up its reimbursement specialists, because opposed ought sales. They indeed outlook the salesforce ought exist focused above selling the benefits of this equipment and less above a destiny of the uphold office, trying ought obtain these patients started. consequently basically, they're calling it a reshuffle of their commercial team.
There's cabin some skepticism though, because these aren't necessarily new issues. above the past nine months or so, they've been dealing with this reimbursement overhang. I think, at looking at where they're going and how they're trying ought tackle the problem, and now with the CEO leaving, I'm no because confident that they've got a clean tactic outlined because the way forward.
Feroldi: Yep, I consent with you there. And it is feasible that a new management team could carry at and rejuvenate the business, invent changes ought the sales team, obtain the growth novel uphold above track. except because me now, I dine more questions than answers approximately this business. I used ought exist equal excited approximately it, except the contemporary results out of this company indeed dine me questioning the bull prose because this stock.
Jones: Yeah. It's no impartial approximately getting past the approval line. It's too approximately commercial viability, something that we address a destiny approximately above this show.
Brian Feroldi owns shares of Abiomed. Shannon Jones has no stand at any of the stocks mentioned. The Motley deceive owns shares of and recommends Abiomed. The Motley deceive has a disclosure policy.
