A trio of new products has turned Abbott Laboratories into an unlikely growth story.
The North Chicago medical device maker reported 7.6 percent organic revenue growth for the third quarter. It's the third straight quarterly rise of more than 7 percent in sales excluding the impact of foreign exchange and acquisitions. And it outpaces comparable figures from other large medical device companies.
"We think it will be 8 percent in the fourth quarter," CEO Miles White told analysts on Abbott's quarterly earnings call. "The other people that are able to do this are tech companies."
Driving the growth are Abbott's FreeStyle Libre continuous glucose monitor, Alinity diagnostics platform and MitraClip device for leaky heart valves. FreeStyle Libre sales reached nearly half a billion dollars in the third quarter, accounting for 6 percent of the company's $8.08 billion in sales. The growth has propelled Abbott stock up 113 percent over the last three years to $83.61 per share on Oct. 31, nearly triple the rise in the S&P 500 during that period. It also obscures sluggish growth in other Abbott businesses, buying time for White to solve those problems and address major acquisitions that haven't added much.
White also has to keep up the rapid pace that has lifted shares to a dizzying 45 times earnings, where the slightest misstep sends a stock plummeting.
Abbott aims to build a "digital ecosystem" around FreeStyle Libre, in hopes of monetizing reams of patient data through partnerships with insulin makers and technology companies. The diabetes care device, which measures glucose levels through a small sensor rather than frequent finger sticks, is on track to rake in $2 billion in annual revenue.
To maintain momentum, White needs to get the latest version of the product approved by the U.S. Food & Drug Administration. That's taking longer than expected, possibly due to a backlog at the federal agency. Assuming approval is just a matter of timing, "7-plus percent (organic growth) is sustainable for the next two years," says analyst Vijay Kumar at Evercore ISI.
Abbott recently announced deals with insulin maker Sanofi, insulin-pump maker Tandem Diabetes Care and chronic-disease management company Omada Health. Libre, which Abbott got in the $1.2 billion purchase of TheraSense in 2004, "is changing the way millions of people manage their diabetes, and our ongoing efforts to expand awareness, adoption and access for Libre around the world will drive tremendous growth for years to come," White said.
Meanwhile, Alinity boosted core laboratory diagnostics sales, which rose 8 percent to $1.18 billion in the quarter. Abbott received FDA approval for the Alinity blood and plasma screening system in July, and company leaders say the U.S. launch is underway and ahead of schedule.
Alinity, which Abbott developed in-house, "is well positioned to be a multiyear growth platform," White said.
The company's other key growth driver, MitraClip, saw sales increase 30 percent to $176 million in the quarter. The next generation of the device, for the minimally invasive treatment of leaky mitral heart valves, got FDA approval in July.
Abbott acquired MitraClip in the $410 million purchase of Evalve in 2009. Morningstar analyst Debbie Wang predicts it could grow at double-digit rates through 2021 following federal approval that makes more patients eligible for the treatment.
The anticipated expanded Medicare coverage will be critical to sustaining MitraClip's strong growth, potentially accelerating sales through 2020, William Blair analyst Margaret Kaczor wrote in a recent report.
But competition is coming, with Edwards Lifesciences' Pascal device going on sale in Europe this year and FDA approval expected by 2021, Wang wrote in a recent report.
Another headwind could come in the form of hospital customers and insurance companies "tightening purse strings," Wang wrote this year. The $25 billion acquisition of St. Jude Medical in 2017 "broadens Abbott's cardiac device product offering, raising the firm's ability to compete as hospital clients seek to winnow suppliers," but the company "could find itself at a disadvantage compared with key rivals such as Medtronic, Stryker and Johnson & Johnson."
The St. Jude deal also brought a problem child: neuromodulation devices for chronic pain and movement disorders. Sales for the segment fell 4 percent to $204 million in the third quarter.
"Though we have been hoping for a turnaround over the last several quarters, the combination of a ramping-up sales force, tough market and limited new product launches have constrained sales," Kaczor wrote about the neuromodulation business.
Abbott has less financial flexibility after buying St. Jude and spending an additional $5 billion later in 2017 for medical-test maker Alere, after White tried unsuccessfully to back out of the deal.
"We remain skeptical of the acquisition of Alere and its point-of-care diagnostics, which do not seem to add any compelling value to Abbott's technology, distribution or bargaining position," Wang wrote.
Another sluggish segment is Abbott's nutritionals business, which saw sales increase 2 percent to $1.87 billion in the quarter. Slumping sales of baby formula in China offset growth in adult nutritionals. White said "volume in the market declined due to historically low birth rates" but vowed to strengthen the business.
"Nutritionals is an area that generates a lot of cash for the company," says Edward Jones analyst John Boylan. "They're not setting the world on fire, but they're definitely contributing to cash flow."
That cash could come in handy as Abbott looks to acquisitions and partnerships to "help replenish its pipeline of next-generation products," Wang wrote. Beyond small deals, there's no "active M&A on the radar screen," White said.
But, as Kumar says, "never say never with Abbott."