A recent study has concluded that drug-eluting stents (DES) are being overused in patients, who are at low risk of restenosis.  Restenosis usually refers to a situation when an artery or other blood vessel subsequently become re-narrowed after being treated for first blockage. Researchers have suggested that cheaper bare-metal stents (BMS), which don’t require long-term dual anti-platelet medication, may be used for low restenosis risk patients. Abbott Labs‘ (NYSE:ABT) Xience is the market leader in DES market. Below we take a detailed look at how it could impact the company’s value.
Our price estimate for Abbott Labs stands at $66, in-line with the current market price. We will soon update our price estimate to reflect the recent developments.
According to the study, 74% of patients received DES, even though they had a less than 10% risk of restenosis. Further, nearly 78% of patients had 10%-20% risk over one year while 83% patients had risk greater than 20%. According to researchers, doctors could reduce $205 million annually in healthcare spending, even if half of those patients received a BMS instead.  This means savings could be much larger than $200 million if more than half of patients receive BMS.
The result of the study comes at an inopportune time for drug-eluting stents market as health payers seek cost-effective treatments in the wake of national health reforms. Accordingly, they will want more BMS to be used in treatment, which cost less than DES.
The total U.S. DES market size is close to $2 billion and a cut of $200 million is more than 10% of total market size.  While the threat doesn’t look imminent at this stage, it could however hurt Abbott’s revenue from its DES product Xience going forward. In our model, stents are a part of Vascular division. Consequently, it will mean a loss in the company share in Vascular market.
Further, healthcare companies usually enjoy higher margins on DES than BMS. Accordingly, any change in usage pattern could hurt the vascular EBITDA margins of Abbott Labs.Notes:
- Use of Drug-Eluting Stents as a Function of Predicted Benefit, Archives of Internal Medicines, July 2012 [↩]
- Drug-Eluting Stents Overused, Study Suggests, medpageToday, July 10 2012 [↩]
- Drug Eluting Stents Market – Current Situation & Future Forecast, Research and Markets, Feb 2009 [↩]