Abbott Labs (NYSE:ABT) has won the CE mark status for its next-generation Xience Xpedition, a drug-eluting stent (DES). This means that the product complies with the essential requirements of the relevant European health, safety and environmental protection and may be sold in the European Union region. The company will immediately begin selling the product in Europe. Below we take a detailed look at how the event could impact the company’s value.
The medical device market is highly competitive and consumers mainly care about technological innovation and convenience of use, among other factors. In addition, healthcare companies have been facing increasing pricing pressure due to austerity efforts following the slowdown in the global economy. The strengthening of the U.S. dollar also poses a concern for these companies. Hence, they have increased their efforts to launch technologically advanced products at regular intervals to maintain or grow their market shares.
For the same reasons, Abbott Labs is making continuous efforts to expand and diversify its Xience line of stents even as it has more than a 100 brands across 12 product segments in its product portfolio. Nearly 17 million people die of cardiovascular diseases each year while a vast portion of the cardiovascular market, in which Abbott is the distinguished leader, remains untapped. The launch of Xience Xpedition will provide more options for the doctors as well as patients. The product has a new and improved stent delivery system designed to optimize acute performance in challenging coronary anatomies.
While Abbott already sells Xience Xpedition in Asia and the Middle East, the CE mark will open the vast European market for the company. The product, however, is still in a testing phase in the U.S market even as we expect the product to eventually receive FDA approval. In our model, stents are part of the company’s Vascular franchise. Backed by such new products, we expect the company’s overall vascular market share to increase to our expectations of nearly 19.2% by the end of the Trefis forecast period. The vascular segment is Abbott’s largest contributor to growth of late due to the success of the Xience and Promus coronary stents.
A recent study however indicated the overuse of more expensive DES in U.S. patients, who are at low risk of restenosis, the re-narrowing of an artery or blood vessel after being treated to clear the blockage. While the threat doesn’t look imminent, it could hurt the DES market, including Abbott, as health payers seek cost-effective treatments in the wake of national health reforms.
Our current 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 earnings and recent developments.