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Is Abbott Losing Share in Key Medtech Markets?

Abbott Laboratories reported a strong second quarter overall, but in medical devices, the company appears to be losing share in cardiac rhythm management and neuromodulation. Could Abbott's loss in these markets be Medtronic or Boston Scientific's gain?

By and large, Abbott Laboratories had a phenomenal second quarter this year – and investors took notice. The company's stock hit its highest point since 1995 on Wednesday after beating Wall Street's quarterly expectations and raising its own outlook for 2018.

Abbott, MD+DI's 2017 Medtech Company of the Year, clearly has a lot to celebrate as it continues to show the world what its made of. But at least one medtech analyst noticed that the company appears to have lost market share in cardiac rhythm management (CRM) and neuromodulation.

Abbott reported CRM sales of $543 million in the second quarter, representing a growth of 4% compared to 0% growth in the first quarter and missed consensus of $568 million.

"Since we estimate that the CRM market declined 2% in 2Q18, it appears that [Abbott] lost some modest share to both [Boston Scientific] and [Medtronic], likely due to competitor product launches and a replacement headwind," said Needham & Co.'s Mike Matson in a report issued Wednesday.

Matson also noted that Abbott's neuromodulation sales of $222 million grew 5.8% compared to 18.8% in the first quarter and missed consensus of $242 million. He estimated that the neuromodulation market grew 12% in the second quarter and said it appears Abbott lost share to competitors, particularly Medtronic, given its new spinal cord stimulation product, and Boston Scientific, given its new spinal cord stimulation and deep brain stimulation products.

Other medtech analysts also noticed these soft spots and asked Abbott's CEO Miles White about those areas during the company's earnings call on Wednesday.

In the CRM business, White explained, the company faced a tough comparison to last year at this time because of its launch of low voltage MRI compatible products earlier in the year.

"But beyond that, there is also sort of an underlying battery replacement timing thing going on here because when St. Jude, prior to us, in 2015, 2016 had it's battery issues, it pulled forward a lot of replacements to replace those batteries," White said. "So you see fewer replacements now because they were pulled forward, whereas, in the de novo segment, we have got new patients, we are doing extremely well."

White said he anticipates that the business will pick up in the future with a bit of a tailwind once it gets past the battery replacement phenomenon relative to 2016. He also said that for the rest of the year he expects CRM growth to be flat, which he noted is not a satisfactory position.

"We are not happy with what the growth rate looks like, but we think we understand why," he said.

In neuromodulation, interestingly enough, White said the company is faced with a problem of its own making because Abbott saw "explosive growth" in that area last year and did not expand its sales force in concert with that growth.

"I think this was a bit of a self-inflicted wound," White said during the company's earnings call on Wednesday. "This is a business where the business is very dependent on the involvement of the representative, the sales representative, etcetera, not only with the physician but also with the patients."

And when the company finally did expand its neuromodulation sales force recently, it turned out to be "pretty disruptive to do that in the way we did it," he added.

White said he believes the slower growth seen in neuromodulation is a temporary condition and is fixable.

"And we will figure out how to successively expand our sales force in concert with our growth in, let's just call it, a smoother fashion in the future. We did this to ourselves," he said.

Abbott does appear to be gaining share in electrophysiology, however. Matson noted that the company's growth in that sector improved from the first quarter (21.6% compared to 18.6%) and beath consensus of $406 million.

"Since we estimate that the electrophysiology market grew 14% in 2Q18, it appears that [Abbott] gained share from competitors," Matson said.

White said the growth in electrophysiology was led by Abbott's advanced cardiac mapping and ablation portfolio as well as Confirm, the company's smartphone-compatible insertable cardiac monitor.

Another area that continues to shine for Abbott is its diabetes devices, specifically the FreeStyle Libre glucose monitoring system, which FDA approved last year.

"With regard to Libre, we can't be anything but pleased," White said during the call, as transcribed by SeekingAlpha. "It's going extremely well. We are on track with where we want to be in terms of patient acquisition and growth, etcetera. We have nothing to compare us to. No real market dynamics compare ourselves to other than the acquisition of patients and we expect to go out of the year with over a million patients, which is unprecedented and unseen."

White said Libre represents a mass-market product rather than a niche medical device product because there are so many people that are either insulin-dependent or trying not to be insulin-dependent.

"So I think the opportunity here remains enormous. I think the growth is quite sustainable. There is quite a lot more to do to keep enhancing, not only the product, the offering, the market so forth," he said. "... Just about everything about this is going better than planned. So I think this is one of the key big sustainable growth drivers of the company along with the system family Alinity in the diagnostic area."

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