Abbott Reports Strong Q3 Earnings Driven by Double-Digit Growth in Medical Devices

▍ Compiled by: Chocolate

Medical devices remain Abbott's largest business segment.

Medical Device Revenue: RMB 21.7 Billion

Recently, Abbott released its third-quarter 2019 financial report. In the third quarter of this year, Abbott's total revenue reached $8.1 billion, a year-on-year increase of 7.6%.

The medical device segment generated revenue of $3.06 billion, equivalent to approximately RMB 21.7 billion, representing a year-on-year increase of nearly 11%.

It is understood that Abbott’s four major business segments include medical devices, diagnostics, pharmaceuticals, and nutritionals. Based on the financial reports from the first three quarters of this year, the medical devices segment has consistently been the largest and fastest-growing division.

The Surging Medical Device Business

The third-quarter report shows that in the third quarter of this year, Abbott's Diagnostics segment generated revenue of $1.9 billion, a year-on-year increase of 6.6%; its global pharmaceuticals business generated revenue of $1.2 billion, a year-on-year increase of 8%; and its nutrition business generated revenue of $1.87 billion, a year-on-year increase of nearly 4%.

The 11% growth rate of the medical device business is significantly higher than that of the aforementioned three sectors.

In addition, global sales of Abbott's medical device business increased by 10.5% year-on-year in the second quarter. The growth rate in the first quarter was the lowest but still reached 9.5%, which remains significantly higher than that of other segments.

In fact, based on Abbott’s 2018 annual report, medical devices also constitute its largest business segment.

In 2018, Abbott’s Medical Devices segment was the only business unit to surpass the $10 billion mark, with revenue reaching $11.37 billion. The Diagnostics, Nutrition, and Pharmaceuticals segments reported revenues of $7.495 billion, $7.229 billion, and $4.422 billion, respectively.

Although the pharmaceutical business is Abbott's smallest segment, the company was originally founded on pharmaceuticals.

In 1888, Abbott Laboratories was founded in Chicago, USA. In 1927, Abbott entered the infant formula market and began producing infant formulas. In the same year, it launched Similac infant formula, which became a bestseller in the United States.

It was not until 1985, when Abbott launched its first AIDS diagnostic kit, that the company formally entered the diagnostics sector. Although medical devices were the last area Abbott ventured into, the division has since surged to the forefront, becoming the highest-revenue segment among its four core business units.

How Does Abbott Make Money?

Abbott’s global sales in its medical devices business exceeded $3.06 billion in the third quarter, primarily driven by double-digit growth in its electrophysiology, heart failure, structural heart disease, and diabetes care businesses.

It is reported that Abbott’s FreeStyle Libre® continuous glucose monitoring system achieved global sales of $496 million in the third quarter, representing a year-on-year increase of 67.6%.

Global sales of the MitraClip® reached $176 million in the third quarter, representing a year-over-year increase of 31.9%. According to reports, this product is primarily used to improve survival rates and clinical outcomes in patients with mitral regurgitation through minimally invasive transcatheter treatment of mitral valve insufficiency.

In addition, the growth in the heart failure business was primarily driven by the HeartMate 3 Left Ventricular Assist Device (LVAD), while cardiac diagnostic and ablation catheter products also contributed solid growth to the electrophysiology business.

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Like most multinational giants, Abbott's medical device business was able to catch up and surpass competitors, also relying on large-scale acquisitions.

In 2016, Abbott announced the acquisition of cardiac device manufacturer St. Jude Medical for $25 billion, marking the largest deal of 2016 and the largest acquisition in Abbott’s history.

It is understood that St. Jude Medical was founded in 1976, with its business covering five major areas: cardiac rhythm management, cardiac electrophysiology, cardiac surgery, cardiovascular interventional diagnosis and treatment, and neuromodulation.

Its product portfolio includes cardiac pacemakers, implantable cardioverter-defibrillators (ICDs), cardiac resynchronization therapy defibrillators (CRT-Ds), three-dimensional electroanatomic mapping systems, ablation and diagnostic catheters, prosthetic heart valves, and repair products. In the first quarter of 2016 alone, St. Jude Medical’s revenue reached $1.45 billion.

Furthermore, in 2017, shortly after completing its acquisition of St. Jude Medical, Abbott announced the acquisition of Alere, a leader in point-of-care testing, for $5.3 billion.

In fact, as early as February 2016, Abbott announced its intention to acquire Alere. After 14 months of twists and turns, the acquisition was officially completed in April 2017.

It is understood that in 2010, Inverness consolidated the brands of its more than 60 subsidiaries and uniformly renamed them Alere.

Alere is also a company that grew through mergers and acquisitions. Relevant data shows that the company acquired more than 100 point-of-care testing-related enterprises, with its market share reaching 20% at the time.

After acquiring Alere, Abbott surpassed Siemens and Danaher to become the world’s second-largest in vitro diagnostics company, trailing only Roche.