Abbott Looking To Electrophysiology For Medical Device Growth

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ABT: Abbott Laboratories logo
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Abbott Laboratories

Abbott Laboratories (NYSE:ABT) recently expanded its medical device business and entered the fast-growing catheter-based electrophysiology market with the acquisition of Topera, Inc. Last month, Abbott entered into an agreement to buy the medical device company for $250 million, plus other potential performance-based payments in the future. The deal is expected to close by the end of the fourth quarter. Apart from Topera, the company also secured the right to buy Advanced Cardiac Therapeutics (ACT), a startup working on developing a novel ablation catheter. Heading Abbott’s electrophysiology business will be Michael Pederson, former President and CEO of private medical device company VytronUS. Prior to that, he was also Vice President and General Manager of Boston Scientific’s Electrophysiology business. [1] [2]

Abbott’s interest in the electrophysiology market signals the company’s focus on turning around its ailing medical device business, which is significantly impacting its overall top line growth. Operational sales in the medical device division reported negative growth in the first nine months of 2014 year-over-year (y-o-y), compared to a growth of 3.9% in company-wide sales in the same period. Excluding the medical device business, Abbott’s operational sales grew 5.3% y-o-y. The global catheter-based electrophysiology market is expected to grow in double-digits to about $3 billion by 2020. There is significant scope for growth in this business for Abbott but it is also likely to face intense competition from existing players including General Electric (NYSE:GE), Medtronic (NYSE:MDT), Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ). [3]

We have a price estimate of $42 for Abbott Labs, implying a slight discount to the current market price.

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Topera’s System And Technology

Topera has developed innovative technology, including a diagnostic catheter and mapping software, to help improve diagnosis and treatment of atrial fibrillation. Atrial fibrillation (irregular heartbeat) is one of the most common cardiovascular conditions affecting almost 3 million people in the U.S. and 20 million worldwide. Its prevalence increases with age and it is estimated that the number of people diagnosed with atrial fibrillation in the U.S. will double in the next 30-40 years. [4] Topera’s newest generation of 3D-mapping system was cleared by the FDA earlier this year and it helps identify rotors (associated with atrial fibrillation) using a color-imaging module. Abbott reported that a study on the use of Topera’s system with catheter ablation suggested that patients had a success rate of 87.5% for the first ablation procedure, with a 80.5% success rate after one year. In comparison, catheter ablation alone has a success rate of only 50%-60%.

The Global Electrophysiology Market

The global electrophysiology market, comprising of ablation catheters, diagnostic catheters and lab systems, was valued at $1.56 billion in 2013 and is estimated to grow to about $3 billion by 2020, according to research firm GlobalData. [3] Of this, advanced diagnostic catheters and standard ablation catheters are expected to grow to $1.2 billion and $575 million, respectively. This growth is likely to be fueled by an expanding geriatric population base, growing prevalence of atrial fibrillation in the population and increased penetration of diagnostic and ablation catheters in developing markets such as Asia and South America.

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Notes:
  1. Company Press Release, Oct 2014 []
  2. Abbott creates electrophysiology biz by moving in on a trio of NEA startups, Fierce Medical, October 2014 []
  3. Global Electrophysiology Market Value to Almost Double by 2020, as Arrhythmia Incidence Continues to Grow, Global Data.com, Feb 26 2014 [] []
  4. Atrial Fibrillation Fact Sheet, Biosense Webster []