It’s been a rough end of the summer on The Street for Zoll Medical Corp. (NSDQ:ZOLL), which has seen its share price cut nearly in half over the past six weeks.
On August 1 shares of the Chelmsford, Mass.-based resuscitation company hit an all-time high of $70.82 during midday trading on Wall Street. Investors, buoyed by the company’s strong earnings results, helped push the stock price to new heights.
One week later, a massive sell-off shaved more than 36 percent off the price and the stock has continued to slide through September, closing out last week at $37.19, some 47 percent off its high-water mark.
CEO Richard Packer told MassDevice that the culprit behind the slide is a single paragraph buried in the company’s quarterly report:
“On August 4, 2011, a Durable Medical Equipment Regional Carrier issued for comment draft revisions to the local coverage determinations with respect to Medicare reimbursement for automated external defibrillators and wearable defibrillators, including our LifeVest product,” company officials wrote. “The draft revisions would limit the indications for Medicare reimbursement for the LifeVest product. These draft revisions are subject to public hearings and comments. We believe that following the public hearing process, the current indications for Medicare reimbursement of the LifeVest product will not be limited; however, in the event the draft revisions were to become final, the draft limitations on the indications for Medicare reimbursement would have a material adverse effect on our LifeVest business.”
Packer told us that uncertainty over the panel’s decision has weighed heavily on Zoll’s share price, mostly because the company has so much invested in the LifeVest wearable defibrillator. Packer has called it one of the “most promising product lines” for the future of the company.
Through the first nine months of 2011, Zoll pulled in some $79 million in rental revenues from the LifeVest, which is prescribed by doctors for patients who lease the product, typically for between two to three months, according to regulatory filings. The patients are generally covered by health care plans.
“The market is looking for zero risk,” Packer explained. “Wall Street is very concerned and all of the movement in the stock is related to risk around the draft policy going into effect.”
The company is confident in the case it presented to the panel, he added, noting his and Zoll’s belief that there is a “low probability” of a change in reimbursement rates for the LifeVest. That said, Packer acknowledged that there would likely be no respite from the stock fluctuation until the panel makes its decision.
“The process has to be in place,” he said. “If we’re right, then the value of the company will rise dramatically. If we’re wrong, the lack of uncertainty will go away and the value will be reflected.”
That resolution is at least another five weeks off, Packer said. The DME regional committee is expected to begin deliberating after the public comment period ends Sept. 23 and will likely take about 45 days to come to a decision.
In the meantime, he said, the company is maintaining its focus.
“We’ve had to remind people that doctors don’t track this. We haven’t created hubbub, we don’t need a 10,000-man letter-writing campaign,” he said. “We continue to be very confident that the proposed policy will not be taken into effect.”