Here’s What Will Drive Abbott’s Near Term Revenue Growth

by Trefis Team
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Abbott Labs (NYSE:ABT) generates its revenues from Medical Devices, Nutritionals, Diagnostics, and Generic Pharmaceutical Products. Medical Devices is the largest segment, and accounts for roughly 40% of the company’s total revenues and profits. This can primarily be attributed to the St Jude acquisition, which led to a 2x growth in segment revenues in 2017.  We forecast strong revenue growth for the Diagnostics business in the near term, primarily reflecting the impact of the Alere acquisition. We have created an interactive dashboard ~ What Are Abbott’s Key Sources of Revenue. You can adjust the revenue drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Diagnostics Revenue To See Strong Growth In The Near Term While Nutritional Business May Remain Sluggish

Abbott’s Diagnostics business includes systems and tests such as immunoassay, assays used for screening for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases, and infectious diseases, such as hepatitis and HIV. An assay is a quantitative or qualitative test of a drug to determine its components. The segment revenues have grown from $4.5 billion in 2013 to $5.6 billion in 2017. We expect a sharp jump to north of $7 billion in 2018, due to full inclusion of the Alere acquisition, which closed in Q4 2017. In the long run, we expect the division’s revenue to grow in mid-single digits to north of $10 billion.

Abbott’s Alere acquisition can help it emerge a leader in the market of medical tests with the addition of tests for heart attacks, influenza, and drug abuse to Abbott’s suite of diagnostic products. The company will likely see strong growth in the emerging markets, which have been experiencing rapid growth, and Abbott has been focused on expanding its footprint in these markets. In fact, the company has a strong presence in rapidly growing markets, such as China, India, and Brazil.

Looking at the company’s Nutritionals business, which primarily includes dietary supplements, functional foods, and clinical & medical foods, hasn’t seen much growth over the past few years, and the revenues have hovered around $6.9 billion. We don’t expect any significant growth in this segment, given the nutritional industry is highly fragmented, and large pharmaceutical companies and packaged food and beverage companies compete for the same consumer base. Further, there is also a challenge from local label brands.

Medical Devices And Generic Pharmaceuticals Segment Will Likely See Mid-Single Digit Growth

The company’s Medical Devices business includes minimally invasive medical devices for heart diseases, stroke, carotid artery disease, and other vascular conditions. In addition, it also contains St. Jude Medical’s business, which Abbott acquired in 2017. The segment revenues have doubled in 2017 due to the St. Jude acquisition. We forecast the revenues to grow in mid-single digits in the coming years, primarily led by electrophysiology, which is seeing strong demand of late.  Apart from electrophysiology, structural heart continues to benefit from higher MitraClip sales. We expect this trend to continue in the near term, and drive the segment growth.

Abbott’s Generic Pharmaceutical Products includes branded generic drugs such as Creon, Biaxin, Klacid, Influvac, Brufen, Synthroid, and Dicetel among others. The segment revenues on an average have grown in high single digits over the past 5 years, and the figure stood at $4.3 billion in 2017. We forecast continued growth in revenues in the coming years, primarily led by its expansion in emerging markets. The company has been focused on the emerging markets, especially China and India, and is seeing strong growth in these regions. However, the pharmaceutical industry is characterized by intense competition globally, as many companies compete for the same consumer base. As such, we don’t expect any significant growth in the segment revenues going forward, and forecast the figure to be around $6 billion towards the end of our review period. 

 

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