Stock Analysis of Medical Devices

Abiomed Inc. (ABMD) Thoratec Corp. (THOR)

DePaul University FIN 524Wanda Hartmann Oehrli

Impella - World’s smallest pump for left ventricle Heartmate II LVAD

Outline

1. ABMD and THOR company’s values– Abiomed Inc. (ABMD) Recovering Hearts. Saving Lives

Thoratec Corp. (THOR) Life Restored

2. Description & competitive environment3. Valuation of Medical Instruments & Supplies

Industry4. More attractively valued company

Abiomed Thoratec

http://www.marketwatch.com/video/asset/help-for-damaged-hearts/24626C3F-2C52-4AEF-809C-F922AE7A8960

•development, and sale of medical devices that provide circulatory support to acute heart failure patients across the continuum of care in heart recovery •Impella – world’s smallest heart pump •Protect, support, assist in recovery after surgery or heart attack• High risk patient • minimally invasive - angioplasty Future•More Applications, Surgical products, Expand Markets

Advanced Stage Heart Failure –ventricular assistHeartmate II Heartmate III

http://www.thoratec.com/videos/about-thoratec.aspx

Medical Devices Competitive Environment

• Estimated worldwide sales > $300 B (2011)• U.S. -largest market - estimated sales of roughly $95B (2010)• Cardiology, Oncology, Neuro, Orthopedic, Aesthetic Devices

and Healthcare IT• Aging population & lifestyle diseases (heart disease, obesity)• Healthcare reform/ FDA policy & regulationsAve Financial Info• Profit Margin 20%• EV/Sales Multiple 3.5x• EBITDA Multiple 12.8

Zacks Investment Report http://finance.yahoo.com/news/Medical-Devices-Industry-zacks-1123678571.html?x=0&.v=1 http://www.fool.com/investing/general/2011/02/25/the-magic-formula-for-these-medical-device-stocks.aspxhttp://www.nytimes.com/2009/11/05/business/05device.htmlhttp://www.horizonviewpartners.com/index.php?p=1_8_Medical-Device-Market

ComparisonABMD stock is up 68% yet EBITDA, Operating Margin and Net Income are Negative?Renewed optimism around sales of Abiomed's Impella heart pump has been a key factor behind the market run-up.

Read more: CEO of red-hot Abiomed sells $1.1M in stock | Boston Business Journal

• New generation of heart pumps• Stock up 68% since start of year

Great December Quarter 2010• More Patient increase 77%• 7th consecutive quarter of triple

digit reorder revenue• Non-GAAP profitable quarter – first

time in a long time• Generated $5 M • $60M in Cash• No debt

Abiomed

ABMD Income Statement

increasing

less negative

less negative

EBITA = Rev – COGS - SG&A + D&A= EBITDA : neg

Revenue growth 22% ave

ABMD Income Statement

ABMD Balance Sheet

Current Ratio = 4.58

No Debt

ABMD Balance Sheet

Long Term Debt to Equity = 0

Debt to Equity = 0

Total Debt = 0

License Leverage= TA =129570 = 1.2 TE 107956

Quick(Acid Test) = 3.74

= 4788 + 53477+13516 18,064

Cash = 3.23

= 4788 + 53477 18,064

ROE = NI/SE= N/A

P/E = Price /earnings = N/A

EPS = N/A

EBITDA MULT= __EV___= N/A EBITDASales Mult = 646.54M/95.60M = 6.76

ABMD Cash Flow

less negative

increasing

increasing

ABMD Cash Flow

increasing

decreasing

increasing

THOR Income Statement

increasing

increasing

increasing

EBITA = Rev – COGS - SG&A + D&A= EBITDA :126.44M

Revenue Growth 39%

THOR Balance Sheet

increasing

increasing

same

Current Ratio = 3.16

THOR Balance Sheet

Long Term Debt to Equity = 0

Debt to Equity = TD = 138,165 = 0.22 TE 621360

Total Debt =TD = 138,165 = 0.16 TA 837,743License Leverage= TA = 837,743 = 1.35 TE 621,360

Quick(Acid Test) = 2.80

= 524571 187017

Cash = 2.40

= 448,143 187017

ROE = NI/SE= 58,166M/621,360= 9% return

P/E = Price/earnings = 35.18

EBITDA MULT= __EV___= 11.79 EBITDA

Sales multiple = market cap/revenue= 1.80B/ 382.97M = 4.7

THOR Cash Flows

increasing

increasing

decreasing

Conclusion: Which is More Valuable?ABMD THOR Industry

Current Ratio 4.58 3.16

Profit Margin 76.6% 67.7% 20%EBIDTA multiple N/A 11.79 12.8Sales Multiple 6.76x 4.7x 3.5xRevenue Growth 22% 39%ROE - 9% 16.27%Summary •Zero debt

•More cash•Higher profit margin•Higher sales multiple•Good revenue growth•Sales multiple is high because stock is being purchased in anticipation of future cash flow increase

•Low debt•Some cash•High profit margin•High sales multiple•Greater revenue growth

•ROE higher for industry

http://biz.yahoo.com/p/s_ttmu.html

THOR

ABIOMED

SNP