Abbott’s Revenue Jumps on Higher Device Sales

Pharma major gains FDA approval for its bioresorbable heart stent called Absorb

Source: Company's Website
Source: Company’s Website

Drug major Abbott Laboratories Inc. (NYSE: ABT) announced its Q2 FY16 financial results on July 20th, 2016. The Abbott Park, Illinois-based Abbott is a global healthcare company that is involved in the development of products and technologies that span the breadth of healthcare. With a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals, and branded generic pharmaceuticals, Abbott has operations in more than 150 countries and operates under four segments: Established Pharmaceuticals Division (EPD), Medical Devices, Diagnostics, and Nutrition. Read more about Abbott’s financial results below.

Q2 FY16 financial highlights

Abbott’s Q2 FY16 worldwide revenue increased 3.2% on a reported basis and 6.4% on an operational basis to $5.33 billion. The revenue increase, which includes an unfavorable impact of 3.2% of foreign exchange, was driven by the sales performance of Abbott’s medical device unit, helped by the settlement of an issue relating to royalty revenues from a previous year and higher demand for MitraClip, a device used to repair damaged mitral valves in the heart. The Company’s endovascular business also posted strong results, led by sales of stents used to treat blocked blood vessels in the legs and devices used to close puncture wounds.

Abbott’s international sales grew 2.8% on a reported basis and 7.5% on an operational basis during Q2 FY16 as compared to the year-ago period. International operational growth was led by strong performance across all of Abbott’s business segments.

Abbott’s emerging market sales increased 1.1% on a reported basis and 8.5% on an operational basis during Q2 FY16 as compared to the year-ago period. Excluding the impact of Venezuelan operations, emerging market sales would have increased 4.8% on a reported basis and 12.4% on an operational basis.

Segmental highlights

Abbott’s worldwide Nutrition sales grew 1.4% on a reported basis to $1,740 million in Q2 FY16 and increased 4.3% on an operational basis. The segment’s sales include an unfavorable 2.9% effect of foreign exchange during the reporting quarter. Excluding the impact of Abbott’s Venezuelan operations, worldwide Nutrition sales would have increased 3.3% on a reported basis and 6.2% on an operational basis.

Abbott’s worldwide Diagnostics sales rose 4.1% on a reported basis to $1,226 million in Q2 FY16, and increased 6% on an operational basis. The segment’s sales include an unfavorable 1.9% effect of foreign exchange during the reporting quarter.

Source: Company's Presentation
Source: Company’s Presentation

Abbott’s Established Pharmaceuticals sales grew lower than expected at 0.4% to $980 million on a reported basis in Q2 FY16, and increased 9.5% on an operational basis. The segment’s sales include an unfavorable 9.1% effect of foreign exchange during the quarter under review. Excluding the impact of Venezuelan operations, Established Pharmaceuticals sales would have increased 4.6% on a reported basis and 14.1% on an operational basis.

Abbott’s operational sales growth in EPD was led by robust growth in India, which comprises more than 20% of Abbott’s Established Pharmaceuticals sales, as well as Russia, China and several countries throughout Latin America. Key Emerging Markets include India, Russia, Brazil and China, which represent long-term growth opportunities for Abbott’s branded generics product portfolio. Sales in these key geographies grew 3.9% on a reported basis and 15.9% on an operational basis during the reporting quarter.

Abbott’s worldwide Medical Devices sales grew 6.4% to $1,372 million on a reported basis in the second quarter, and increased 6.8% on an operational basis. The segment’s sales include an unfavorable 0.4% impact of foreign exchange during the quarter under review. Worldwide sales of Vascular products jumped 8.3% on a reported basis during Q2 FY16. Sales growth in Vascular products was led by double-digit growth of MitraClip®, Abbott’s device for the treatment of mitral regurgitation.

Abbott’s profit from continuing operations in Q2 FY16 fell to $599 million, or $0.40 per share, from $786 million, or $0.52 per share, in the year-ago quarter, owing to the unfavorable impact of foreign currency. Excluding specified items, adjusted diluted EPS from continuing operations was $0.55 in Q2 FY16 as compared to $0.52 in the year-ago quarter, above the previous guidance range.

Guidance for FY16

Going forward, Abbott projects EPS from continuing operations under GAAP of $1.26 to $1.36 for the full year FY16. Abbott forecasts net specified items of approximately $0.88 per share for FY16. Specified items include intangible amortization expense, the impact of the Venezuelan currency devaluation in Q1 FY16, expenses associated with acquisitions, including bridge facility fees and charges related to cost reduction initiatives and other expenses, were partially offset by the favorable resolution of various tax positions from prior years. Excluding specified items, projected EPS from continuing operations remains unchanged at $2.14 to $2.24 for FY16.

Other highlights

Abbott achieved a major breakthrough after the U.S. Food and Drug Administration (FDA) approved on July 5th, 2016, its first-of-its-kind bioresorbable heart stent called Absorb, used for the treatment of people with coronary artery disease (CAD). With this approval, Abbott has gained a leg-up in the high-growth cardiovascular market since CAD affects over 15 million people in the U.S. alone and remains a leading cause of death worldwide. The FDA’s approval for Absorb holds much promise for Abbott since it controls a little more than a third of the U.S. stent market.

Abbott also gained FDA approval for TECNIS Symfony intraocular lenses for the treatment of cataracts, the first and only extended depth of focus lenses for people with cataracts.

During Q2 FY16, Abbott announced the global launch of AlinIQ, the first-of-its-kind informatics solution with enhanced capabilities to help diagnostics laboratories increase productivity and flexibility in managing data throughout hospital networks.

In the recent past, Abbott has focused on reshaping its portfolio through strategic acquisitions/divestitures. In February 2015, Abbott completed the sale of its branded generics pharmaceuticals business in developed markets to Mylan Inc. (NASDAQ: MYL) for 110 million shares of a newly formed publicly traded entity that combined Mylan’s existing business and Abbott’s developed markets pharmaceuticals business. Also in February 2015, Abbott completed the sale of its animal health business to Zoetis Inc. (NYSE: ZTS). The Company’s realignment of its Established Pharmaceuticals Division (EPD) through acquisitions in Latin America and Russia, along with business divestitures in developed markets, has augured well for its growth over the next few years. The Company has also been taking strategic steps to expand its footprint in key geographies and investing in R&D, which has resulted in numerous new product launches across its businesses.

Acquisitions

Acquisition of St. Jude Medical – In recent years, Abbott has been stepping up the pace of acquisitions to enable it to develop capabilities in high-growth categories and extend its global reach. On April 28th, 2016, Abbott entered into a definitive agreement to acquire medical devices manufacturer St. Jude Medical Inc. (NYSE: STJ). The merged entity would create a medical device leader with a leading position in the high-growth cardiovascular market and the neuromodulation market. Under the agreement, St. Jude Medical’s shareholders will receive $46.75 in cash and 0.8708 shares of Abbott common stock, representing a total consideration of approximately $85 per share, valuing the transaction at roughly $25 billion.

The deal would give Abbott access to St. Jude Medical’s new medical device products including the EnSite Precision™ next-generation cardiac mapping system. The combined entity is expected to achieve annual pretax synergies of $500 million by 2020, including sales and operational benefits. The transaction, which is pending regulatory approvals, is expected to close in Q4 FY16.

Acquisition of Alere – Abbott announced on February 1st, 2016, that is has signed a definitive agreement to acquire Alere Inc. (NYSE: ALR), significantly boosting its global diagnostics presence. Under the terms of the agreement, Abbott will pay $56 per common share at a total expected equity value of $5.8 billion. Once the transaction is completed, Abbott will become the leading diagnostics provider of point of care testing. Abbott’s total diagnostics sales will exceed $7 billion after the acquisition. More than half of Alere’s $2.5 billion in sales are from the U.S. market. Alere also has a strong presence in key international markets, where Abbott’s capabilities and infrastructure will drive growth of Alere’s portfolio. The combined entity is expected to garner annual pre-tax synergies of $500 million by 2019, including both sales and operational benefits.

Stock Performance

A3Abbott’s stock stood at $43.17, inching up 0.30%, at the close on Friday, July 22nd, 2016, having vacillated between an intraday high of $43.26 and a low of $42.81 during the session. The stock’s trading volume was at 10,205,059 for the day. The Company’s market cap was at $63.69 billion as of Friday’s close.

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