The Heart of Abbott's Future

It's not an easy time to be a health care investor.

Between the patent cliff, taxes, and Europe's meltdown, there's enough information and legislation swirling about to keep concerned shareholders up for days. Perhaps the biggest trend of a changing industry has come from spinoffs, however: Abbott Labs made waves in health care by offloading its pharmaceutical business, and other companies have joined in the spinoff game by dumping unwanted divisions.

With some of the biggest players in the industry shaking things up, investors are left wondering what to make of companies they've invested in -- and what to expect from the future. Let's take a look at Abbott Labs and one key area that could power the growth of tomorrow for this radically changed company: its vascular business.

Playing with heart
Growth's a tough thing for Abbott these days. New pharmaceuticals offer instant revenue-generating power when they hit the market, and blockbuster drugs can fuel a company for a long time -- Abbott's spun-off pharmaceutical branch, AbbVie , relied on a single drug for over half of its 2012 sales, for instance. Abbott can no longer rely on such lucrative avenues for growth in its post-pharmaceutical life.

So, what's so promising about its vascular business? At first look, the business isn't particularly eye-opening. It generated 3.4% operational sales growth after excluding one-time items in 2012, hardly enough to wow investors. However, around half of those sales came from a single product line -- Abbott's family of Xience drug-eluting stents. The Xience line has been the top-selling stent family for several years, exceeding yearly revenue of $1 billion every year since 2009.

The Xience family alone cranked out $1.6 billion in sales during 2012, with massive growth abroad. While the American market may be slowing for stents, this line should keep carrying Abbott forward -- and the company has a new generation of stent ready to emerge to boot.

Promising picks
Abbott recently picked up FDA approval for another next-generation line of Xience, the Xpedition. It's another success for this tried-and-true product family, but Abbott's Absorb stent, currently in clinical trials in the U.S., represents the future.

Absorb is a bioresorbable stent that fully absorbs into the bloodstream -- a trick that competitors in this space haven't yet caught up to. It launched in Europe last year, and Abbott has plans to file for regulatory approval in the U.S. by 2015. There's limited competition for something like the Absorb, with only Boston Scientific pushing into the next generation of stents right now with its Synergy stent.

Even as the stent market's on the decline because of pricing pressures, signs point to it picking back up and exceeding $6 billion worldwide by 2015. That's just in time for Abbott to take advantage if it can pick up FDA approval for Absorb, ensuring that its substantial market share in this industry -- Abbott controlled 31% of the stent market in 2010 -- won't go away.

If it can hang onto its market share, Abbott will see strong growth out of this business if the industry picks up as planned.

Looking for growth
Even with the U.S. stent market in retreat today, Abbott's still managed to boost its vascular business' sales. When the industry returns, the company will be primed to capitalize -- and investors will be the big winners. Still, vascular products are only one part of Abbott's portfolio in its post-pharmaceutical life; this company will have to find growth in other areas, as well, to succeed.

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