Abbott (ABT) recently acquired two medical device manufacturing companies, IDEV Technologies and OptiMedica. Abbott closed the IDEV Technologies deal for $310 million and OptiMedica for $250 million. Both companies have a unique product with huge market potential. Abbott's Mitral regurgitation, or MR, treatment device MitraClip has received a favorable recommendation from FDA advisory committee. Also, the company recently announced a share repurchase program and consecutive quarterly dividend for the quarter, ended in September 2013.
Growing the inorganic way
After spin-off from AbbVie, Abbott is looking for new revenue drivers to increase its top-line. The above mentioned acquisitions bring two unique products with huge commercial potential. IDEV Technologies' Supera Veritas stent is a small mesh tube that is used for the treatment of narrow or weak arteries in peripheral artery disease, or PAD. PAD occurs when blockages build up in the arteries, limiting the free flow of oxygenated blood to the organs. This disorder can lead to heart attack. Supera Veritas' design is based on biomimetic principles; its strength and flexibility helps it to mimic the body's natural movement, which allows the blood to flow efficiently in the treated area. Abbott's conventional stent market is maturing, but the treatment of peripheral artery with Supera Veritas' stent opens a new opportunity for Abbott. From 2000 to 2010 the number of people with peripheral artery disease increased 24%, from 164 million to 202 million, worldwide. The product is already available in the European market and it is currently under regulatory consideration in the U.S.
Abbott is expanding its vision care business with OptiMedica's Catalys Precision Laser System. This system is designed to allow surgeons to replace the technically demanding manual steps in cataract surgery with an image guided, femtosecond laser technology. The Catalys laser system has approval in Europe and is cleared by the FDA. According to WHO's estimates, by 2020 about 32 million cataract operations will be performed worldwide, which shows huge potential for the system.
Both the deals are a good fit in Abbott's portfolio, and we expect a positive impact on Abbott's revenue from the first quarter 2014.
After favorable vote, FDA approval is likely for MitraClip
MitraClip is a device to treat MR, a heart valve deficiency that occurs when the heart's mitral valve doesn't close properly and allows blood to flow backward in the heart. If the mitral valve doesn't work efficiently, blood can't flow properly through heart to the rest of the body, and the consequences can be as serious as heart failure. MitraClip treatment involves implanting a metallic clip that connects the two leaflets of the mitral valve, which reduces the size of the valve opening, thereby reducing backwards bloodflow. MitraClip was originally developed by Evalve, which was acquired by Abbott in 2009.
The device is approved in the European market and has been available for the past five years, but the FDA hasn't approved it for the U.S. market. However, in March this year the FDA advisory committee voted favorably for MitraClip, and we expect the FDA to approve the treatment by the first quarter 2014. About four million people in the U.S. suffer from Mitral regurgitation, and 250,000 new patients are diagnosed each year with moderate to severe mitral regurgitation.
In a research published in JACC Journal on cost effectiveness of MitraClip compared to mitral valve surgery, the clip treatment proved more cost efficient. The research showed at the price of $18,000 per clip, Mitraclip reduced the treatment cost by $2,200 per patient. If approved by FDA and priced at similar levels, the product has huge commercial potential in the U.S. market.
Another share buy-back program
Abbott continues to deliver value to shareholders through its share buy-back program. On June 14, 2013, the company announced a new share repurchase program of up to $3 billion of its common stock. The new share repurchase program will replace the previous $5 billion buy-back program, which it announced in October 2008. The company took almost five years to complete the previous buy-back at an average yearly repurchase of $1 billion. Assuming the same pattern, we expect Abbott to take a maximum of three years to complete a new buy-back program.
Consecutive dividends for 359 quarters
On Sep 12, 2013, Abbott's board of directors declared a quarterly common dividend of $0.14 per share. This is the 359th consecutive quarterly dividend announced by Abbott since 1924. Dividends are particularly important for investors to consider; since 1926, dividends have contributed over 50% of the total market return. The best performers in terms of consecutive dividend in the marketplace include Johnson & Johnson (JNJ) and Procter & Gamble (PG). Johnson & Johnson has grown its dividend for 51 consecutive years; the stock has a fair dividend yield of 3%, and Procter & Gamble grew the dividend for 57 consecutive years with the current dividend yield of 3%. In past 20 years, Procter & Gamble has increased its dividend extraordinarily by 776%, which means had you bought the stock in 1993, then you would have earned a yield of 33%. We think, in the long term, these stocks will provide great returns for income investors.
IDEV Technologies and OptiMedica are both a good fit in Abbott's portfolio. We expect the acquisitions to contribute positively to the company's revenue by the first quarter of 2014. Also, the favorable vote from the FDA advisory committee on MitraClip will expedite its approval in the U.S. market. The new buy-back program and consecutive dividends reinforces the company's commitment towards increasing shareholders' value. We expect the latest developments in Abbott will brighten the company's outlook, and we advise investors to stick with the stock for positive returns.
Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.