Why Is The FDA Approval Of Absorb Significant For Abbott?

The recent FDA approval of Abbott’s  (NYSE:ABT) fully absorbable stent-Absorb, which is used to treat the coronary artery disease, is a significant breakthrough for the company. The following are the key reasons as to why this is significant:

• Unlike a metallic stent that remains permanently in the Coronary artery after opening a blockage, Abbott’s Absorb stent dissolves completely in three years, leaving the vessel in the natural state after it is fully restored. A fully restored vessel has the potential to flex and dilate in response to the person’s lifestyle. Given the large number of people suffering from the coronary heart disease, which is responsible for 370,000 deaths each year in the U.S., Abbott has a huge opportunity to tap this market.
• According to studies, the U.S. remained the largest cardiovascular market in the world, with a share of around 40% of the overall market in 2016. Absorb, being the first of its kind in the U.S., is expected to attract significant adoption in the U.S. market. With the FDA approval of Absorb, Abbott stands a chance to reverse the declining trend in its market share in the vascular segment, which constitutes approximately 12% of its value as per our estimates. We currently forecast the company’s market share in vascular segment to decline from 16% in 2015 to 12% over the next six-to-seven years. However, successful commercialization of Absorb can help Abbott reverse this declining trend.

• Given that bioresorbable stents have twice the price of a conventional drug-eluting stent, owing to the product’s benefits, Abbott stands a strong chance of improving its gross margins as well. ((Leaders emerge in the race for the first U.S. bioresorbable stent, FierceMedicalDevices, July 31, 2014)) Abbott’s gross margin stood at approximately 60% in 2015. An improvements of 2 percentage points in the gross margins over our current projections can translate to more than 10% upside to our current price estimate.

• The popular drug-eluting stents are associated with the risk of causing stent thrombosis, which can result in death or a large myocardial infarction. Abbott’s Absorb stent is expected to reduce this risk significantly. However, the FDA evaluated data for the approval showed a comparable risk in both the stent types. The study shows that the rate of blood clots forming from the use of Abbott’s Absorb devices was 1.54%.

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