NxStage Medical Inc. (NSDQ:NXTM) is poised to take a $1 billion bite out of the dialysis market as it drives its share from 1 percent of dialysis patients into double-digit range, according to a Wall Street analyst.
After meeting with the Lawrence, Mass.-based company’s CEO Jeffrey Burbank and investor relations VP Kristen Sheppard last week, Leerink Swann’s Danielle Antalffy wrote in a note to investors that NXTM stock is a smart buy these days.
"Our meetings reiterated our belief that the company’s fundamental long-term growth story remains intact, and the recent selloff in NXTM shares presents an attractive entry point," Antalffy wrote, referring to the 26.7 percent nosedive the stock has suffered since NxStage announced its first-quarter earnings in early May. "Despite increasing investor anxiety driven largely by an ongoing customer contract renegotiation and a potentially more gradual adoption uptake post-bundle than some had hoped, NXTM seems poised to drive 15%-20% sales growth — at least — for the next few years."
With its System One home hemodialysis device in use by about 1 percent of U.S. dialysis patients, at least according to Burbank, NxStage could gain considerable market share over the next five years — as much as 15 percent, Burbank told Antalffy. The top could also benefit from further international expansion, an increasingly positive clinical data set and the twin factors of lagging competition and an improved reimbursement landscape.
Baxter International (NYSE:BAX) is on the cusp of launching a clinical trial for its home hemodialysis system, putting its entry into the market off by a few years, according to Burbank.
"NXTM’s experience has been that it takes 2.5-3.0 years for a product to come to market once the company initiates a clinical trial," Antalffy wrote. "Mr. Burbank also seemed confident that NXTM is developing a product that will be ‘sufficiently better’ than the competition."
Investors spooked by the ongoing customer contract renegotiation, "with whom we suspect is Fresenius," Antalffy noted, should be comforted by Burbank’s assertion that such dealings are par for the course and that this one is "going as expected."
"And, based on our recent physician conversations — including those at FMS centers — it seems unlikely to us that these negotiations will be significantly incrementally more negative for NXTM," Antalffy added.
Despite beating The Street’s expectations and posting record first-quarter revenues, NXTM shares dived nearly 14 percent the day it released its Q1 numbers.
NxStage reported losses of $6.0 million on sales of $50.6 million during the three months ended March 31. That compares with net earnings of $9.0 million, or 19 cents per diluted share, on sales of $40.4 million during the same period last year.
The top-line boost was attributed to sales of the in-home version of the company’s System One hemodialysis system, which increased almost 37 percent from $19.0 million in 2010 to $26.0 million in 2011, and the Total System One, which had a sales increase of more than 33 percent from $25.1 million to $33.5 million.