Miles D. White, Chairman and CEO
Brian J. Blaser, Exec. VP, Diagnostics Products
Robert B. Ford, Exec. VP, Medical Devices
Michael T. Rousseau, President, Cardiovascular and Neuromodulation
Brian B. Yoor, Exec. VP, Finance and CFO
Jaime Contreras, Sr. VP, Core Laboratory Diagnostics, Commercial Operations
Eric S. Fain, M.D., Sr. VP and Group President, Cardiovascular and Neuromodulation
Deepak S. Nath, Ph.D., Sr. VP, Abbott Vascular
Jared L. Watkin, Sr. VP, Diabetes Care
NUMBER OF EMPLOYEES: 75,000
GLOBAL HEADQUARTERS: Abbott Park, Ill.
Medical device megamergers are fast becoming an annual tradition.
Abbott Laboratories’ $25 billion purchase of St. Jude Medical Inc. was by far the most momentous medtech news of 2016—yet another continuation of almost yearly deals valued in the double-digit billions. (Although there was no mega-M&A activity in 2015, 2014 made up for that with two: Zimmer’s $14 billion Biomet purchase and Medtronic’s $50 billion deal for Covidien.) 2017 has already seen its landmark deal in Becton, Dickinson and Company’s $24 billion procurement of C.R. Bard announced in April. This string of deals will undoubtedly have the industry on tenterhooks at the beginning of each new year, as everyone awaits the latest in monumental medtech mega-purchases.
The St. Jude grab endowed Abbott with the product arsenal to compete in almost every area of the cardiovascular device market. St. Jude’s strong seat in heart failure devices, atrial fibrillation, and cardiac rhythm management heartily complements Abbott’s vascular division, which includes a healthy pipeline of coronary intervention and transcatheter mitral repair products. Abbott also inherited a completely new neuromodulation division consisting of St. Jude Medical’s variety of spinal cord stimulation, dorsal root ganglion stimulation, deep brain stimulation, and radiofrequency therapy technologies to manage chronic pain and movement disorders. Some of St. Jude’s notable products now in Abbott’s possession include:
- The Quadra Allure and Assura line of cardiac resynchronization therapy (CRT) pacemakers and defibrillators with MultiPoint pacing
- The EnSite Precision Cardiac Mapping System, which allows automation, flexibility, and precision for a wider range of arrhythmias
- CardioMEMS HF System, a wireless heart failure monitor
- The Axium dorsal root ganglion (DRG) neurostimulator system for chronic pain
The deal wasn’t without a few hitches, however. St. Jude faced a number of problems for Abbott to contend with during integration, including a U.S. Food and Drug Administration (FDA) investigation of claims by short-seller Muddy Waters that St. Jude’s heart devices were vulnerable to fatal cyber-attacks. These claims resulted in the combined company suing Muddy Waters and cyber research firm MedSec Holdings, with then St. Jude CEO Michael Rousseau (who now leads Abbott’s Cardiovascular and Neuromodulation division) citing misleading information to investors and patients regarding the devices’ safety. According to Abbott, St. Jude’s Cardiac Rhythm Management business—which sells pacemakers and defibrillators—also struggled toward the end of 2016 as it lost out to rival MRI-compatible devices in the United States. Further, St. Jude recalled some of its 400,000 implanted heart devices in October 2016 because of premature battery depletion, which was linked to two deaths in Europe.
The issues appeared to have been resolved fairly quickly, however, because Abbott completed the acquisition on Jan. 4, 2017, without much further ado. St. Jude became a wholly-owned subsidiary of Abbott and the company became a force to be reckoned with in the medical device arena.
However, according to Bloomberg, one question Abbott will have to answer is whether the deal extends far enough to ease pressures from hospitals seeking to cut costs and become more efficient under the Affordable Care Act (still in place, as of July). The added scale St. Jude provided should help, but Abbott is launching itself headlong into a market that often depends on government reimbursement and is especially susceptible to healthcare policy changes. It’s the type of market White said in the past he was trying to diverge from, seeking a more consumer-facing strategy focused on emerging markets. However, White also made a decent point to Reuters that could assuage some of the tensions here—with St. Jude, Abbott can more aptly compete in an environment where hospitals prefer only two or three vendors.
Investors and shareholders will have to wait and see whether 2017’s annual performance reflects the enormous market potential St. Jude has promised for Abbott.
(Editor’s note: Because the St. Jude Medical acquisition was completed after the end of Abbott’s fiscal year 2016—ended Dec. 31—Abbott’s consolidated financial statements do not include the financial condition or operating results of St. Jude Medical. St. Jude Medical’s 2016 financial report is included in this year’s Top 30 as entry No. 16.)
This deal was so momentous that it somewhat overshadowed the troublesome $5.8 billion buy of point-of-care diagnostics firm Alere, which has been undergoing negotiations for about 18 months now, having been announced in February 2016. The purchase has been rife with troubles since the outset, to the point that Abbott attempted to exit the agreement twice during the year.
2016 touted a laundry list of troubles for Abbott to reach the agreement. Less than a month after the acquisition’s announcement, Alere informed Abbott of a delay in its 2015 annual report filing due to issues with African and Chinese revenue. In March, the U.S. Department of Justice subpoenaed Alere for documents concerning sales practices in Africa, Asia, and Latin America, and the company’s shares fell 8 percent in early trading following the news. An investigation of bribery concerns overseas came next, and Abbott attempted to terminate the deal for the first time in April and offer Alere $30 to $50 million—which Alere promptly rejected.
So the deal slogged on. The catastrophes were far from over, however—in July, Alere recalled its INRatio devices, which monitor patients taking warfarin, a blood-thinning medication. In August, Alere filed a lawsuit against Abbott, accusing the company of dragging its feet on key antitrust submissions to sabotage the deal. By December, Abbott had reached the last straw. The recall, subpoenas, and then five-month delay in Alere’s 10-K filing encouraged Abbott to file a formal complaint with the Delaware Court of Chancery seeking to terminate the proposed acquisition.
“Alere is no longer the company Abbott agreed to buy 10 months ago,” Scott Stoffel, Abbott’s divisional vice president of external communications, said in a press release. “These numerous negative developments are unprecedented and are not isolated incidents brought on by chance. We have attempted to secure details and information to assess these issues for months, and Alere has blocked every attempt. This damage to Alere’s business can only be the result of a systemic failure of internal controls, which combined with the lack of transparency, led us to filing this complaint.”
With tensions rising, Abbott and Alere went into mediations at the start of 2017 to determine the terms and potential cancellation of the merger agreement. Negotiations over the next few months resulted in Alere’s purchase price being lowered $500 million to $5.3 billion, which Alere shareholders approved in July. The transaction is expected to (finally) close by the end of the third quarter of 2017.
ANALYST INSIGHTS: After a busy year of acquisitions (St. Jude and Alere), Abbott will be focused in the coming months on synergies (savings) and core portfolio (growth) to pay for its heavy buying spree. Watch for “opportunistic” divestitures as well as “Reductions in Force” to continue to improve their balance sheet.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
In order to develop a more centralized product portfolio—and perhaps make some headway on the $5.8 billion in debt assumed from St. Jude—Abbott entered into an agreement with Johnson & Johnson in September 2016 to sell its Medical Optics (AMO) vision care division for $4.3 billion. Abbott’s vision business has products in areas including cataract surgery, laser vision correction (LASIK), and corneal care products. The decision reflected Abbott’s proactive tailoring of its medical device portfolio in line with the strategic priorities of the St. Jude acquisition to establish Abbott as a cardiovascular leader. White further explained the sale in saying although AMO had historically gained share and operated profitably, he did not see the opportunity to expand the business into a broad-based leader.
“We’ve been actively and strategically shaping our portfolio, which has recently focused on developing leadership positions in cardiovascular devices and expanding diagnostics,” White said in a company press release. “Our vision care business will be well-positioned for continued success and advancement with Johnson & Johnson.”
To further adjust its product anthology and take an important step toward completing the St. Jude acquisition, in October 2016 Abbott sold a portion of its and St. Jude’s vascular closure and electrophysiology businesses to Terumo Corp. for $1.1 billion. The divestiture included St. Jude Medical’s Angio-Seal and Femoseal vascular closure products as well as Abbott’s Vado Steerable Sheath; the deal closed on Jan. 20, 2017—shortly after the close of the St. Jude acquisition. Abbott retained the remainder of its vascular closure technologies to support its formidable cardiovascular technology portfolio.
With all the hullaballoo surrounding Abbott’s Medical Devices and Diagnostics divisions, it’s easy to forget that the company also touts strong Established Pharmaceuticals and Nutrition businesses that make up about half of the company’s $20.9 billion revenue. However, the Medical Devices and Diagnostics segments make up the totality of Abbott’s medtech offerings, and amidst massive restructuring, 2016 medical device sales rose 4 percent to $10.1 billion.
Worldwide 2016 Diagnostics sales expanded 3.6 percent to $4.8 billion, just shy of a fifth of the company’s total revenue. The sales growth reflected continued penetration by the Core Laboratory business in the United States and China, as well as growth in other emerging markets, most prominently in Latin America. The Diagnostics division was vastly invigorated in 2016 with the unveiling of Alinity, Abbott’s unified family of next-generation diagnostics systems.
The Alinity line (the name of which is derived from the attributes of alignment, innovation, and unity) includes a harmonized group of systems across immunoassay, clinical chemistry, point-of-care, hematology, blood and plasma screening, and molecular diagnostics. The Alinity systems are designed with universal, intuitive interfaces and common software/hardware, run more tests in less space, achieve faster test results, and minimize human errors. The comprehensive offering mitigates the challenges of using multiple diagnostics platforms, which can lower testing efficiencies. In the final quarter of 2016, Abbott was granted CE mark clearance for the i-STAT Alinity point of care, immunoassay, clinical chemistry, and blood screening systems. The handheld blood testing platform analyzes a large menu of tests ranging from blood chemistries to cardiac markers with only two to three drops of blood. The test provides results in two to 10 minutes, and its advanced connectivity features permit testing to be conducted virtually anywhere.
“We spent countless hours doing on-the-ground research with doctors, nurses, lab directors, point-of-care coordinators, and other customers from around the world. We asked about their pain points and listened to what they want and need for testing,” Matt Bates, Abbott’s divisional vice president, research and development, Point of Care Diagnostics, said in a company press release. “Using these customer insights, Abbott designed and built i-STAT Alinity for better access, efficiency, and speed to improve clinical decision making.”
Abbott expects to obtain approval for and launch a number of devices in the Alinity family over the next few years.
Abbott’s Vascular division—which includes coronary, endovascular, structural heart, vessel closure, and other medical device products—reported 2016 sales of $2.9 billion, rising 3.7 percent from the previous year. This was primarily stimulated by double-digit expansion of the MitraClip structural heart device to treat mitral regurgitation, combined with endovascular franchise sales success. That increase was partially offset by pricing pressures on Abbott’s drug-eluting stents (DES), and a lower market share for the Xience DES franchise in some regions. However, the Vascular segment saw Abbott’s (and perhaps the medtech industry’s) most noteworthy product release of the year—the Absorb bioresorbable stent.
July’s FDA approval of the Absorb GT1 Bioresorbable Vascular Scaffold (BVS) system marked the first ever fully dissolving stent approved to treat coronary artery disease. Stents have traditionally been made of metal, but the Absorb stent is composed of a naturally resorbing material similar to that of dissolving sutures. Except for two pairs of tiny metallic markers remaining in the artery to indicate to physicians where it was placed, Absorb disappears completely in about three years after doing its job of leaving a clogged artery open and bolstering the treated artery section’s healing process. It is a direct contrast to permanent metal stents, which restrict vessel motion for the patient’s entire life.
“The Absorb bioresorbable scaffold represents a major advance in the treatment of coronary artery disease,” Gregg W. Stone, M.D., FACC, FSCAI, director, cardiovascular research and education, Center for Interventional Vascular Therapy, Columbia University Medical Center, New York-Presbyterian Hospital and chairman of the Absorb clinical trial program, said in a company press release. “This technology appeals to both physicians and patients alike because after treating the underlying blockage it is completely absorbed, leaving nothing behind. No metal means the treated artery can pulse and flex naturally as demands on the heart change with everyday activities. No metal may also reduce the potential of future blockages that occur with permanent metallic stents, and allows easier access to other treatment options should they prove necessary in the patient’s future.”
However, highly anticipated research presented at the Transcatheter Cardiovascular Therapeutics (TCT) conference in October 2016 revealed some rather underwhelming evidence for those hoping it would outperform metal stents.
The two studies comparing Absorb to Abbott’s metallic stent Xience V demonstrated that it didn’t work much better than the Xience model. After two years, Absorb’s rates of clinical events, cardiac death, and device thrombosis (which Absorb was attempting to minimize) were comparable to Xience. Much of the reason Absorb BVS didn’t outperform Xience in the trials can be attributed to physicians not implanting Absorb stents properly, said Charles Simonton, M.D., chief medical officer at Abbott, in an interview with the news website Cardiovascular Business.
“What we learned in two or three years is that the key to really good outcomes with Absorb is getting a really good final expansion of the scaffold or the stent itself,” Simonton told Cardiovascular Business. “The patients in the trial were enrolled about two years before we actually discovered how to properly implant Absorb. So we weren’t surprised that the results were not up to par. The results now, what they reflect, is what you can get if you implant the device the way we did it back then, which is not the way we’re doing it now. Next year you’ll see some of the other Absorb data coming out and that hopefully will help clarify some of this.”
Further adding to the company’s structural heart offerings, MitraClip NT, Abbott’s latest in the line of MitraClip transcatheter mitral valve repair devices, was launched in the United States in 2016.
Abbott’s remaining segments, the Diabetes Care and recently divested Medical Optics businesses, are classified as non-reportable and therefore are not broken down any further. In 2016, these businesses contributed $2.4 billion in revenue, a 5 percent increase over the year prior.
The FDA approved the Tecnis Symfony intraocular (IOL) lenses in July. They are the only lenses in the United States that simultaneously allow a full range of continuous, high-quality vision post-cataract surgery and mitigate the effects of presbyopia by helping to focus on nearby objects. The FDA approval also included a version of the lens for astigmatism, the Tecnis Symfony Toric IOL. The Tecnis IOL—along with the rest of Abbott’s Medical Optics products—is now in the possession of Johnson & Johnson.
In September, Abbott gained FDA approval for the FreeStyle Libre Pro system, a continuous glucose monitoring (CGM) system intended for a clear, visual snapshot of glucose levels, trends, and patterns for up to two weeks. The sensor does not need fingersticks for calibration, but rather measures glucose in insterstitial fluid through a tiny filament (5.0 x 0.4 mm) inserted subcutaneously. Glucose levels are recorded every 15 minutes, resulting in 1,340 glucose results over two weeks that provides a complete glycemic patient profile. The two weeks’ worth of data stored in the sensor can be downloaded by a healthcare professional in as little as five seconds.
“Abbott has been an enduring company because we’ve never hesitated to be an evolutionary company,” White said in the closing of his letter to Abbott’s shareholders in the company’s annual report. “Changing times require changing practices. What remains unchanged is our commitment to bringing people the health innovations they need to live their best possible lives. To that end, we have again reshaped our company. Today’s Abbott is built to deliver more and better healthcare solutions, to improve more lives around the world, and to strengthen our competitiveness and accelerate our growth. That’s what a leading healthcare company does. And it’s what we’ll keep doing here at Abbott.”