Abbott's Stent Struggling to Maintain Market Share
A product it makes for a rival company could threaten its current dominance.
A drug-eluting stent is a small metal piece of scaffolding covered in a therapeutic drug that's used to keep the arteries of the heart from collapsing while slowly releasing the drug to keep the blockage from returning. The US market for drug-eluting stents had reached $1.8 billion by the end of 2008, accounting for 43% of global returns, according to a report by Medtech Ventures.
Abbott Laboratories announced Friday that Xience V has received approval for use in Japan, where approximately 200,000 stent procedures are performed annually -- making it the second-largest market behind the US. Leerink Swan analyst Rick Wise expects the launch in Japan will add $100 million in sales to Abbott's top line.
Abbott makes a private-label version of Xience called Promus that's marketed by Boston Scientific (BSX) under an agreement between the two companies.
"Each aspect of Xience V's design, from the thin struts to the flexible delivery system to the drug and polymer, was carefully engineered for optimal deliverability and to improve safety and efficacy outcomes for patients compared to earlier generation stents," said Robert Hance, senior vice president, vascular, Abbott. "These attributes have made Xience V the market-leading drug eluting stent around the world, and we look forward to making Xience V available to physicians in Japan shortly."
Xience, which releases a drug made by Novartis (NVS), received regulatory approval from the US Food and Drug Administration in late 2008. At the time, Boston Scientific's Taxus and Johnson & Johnson's (JNJ) Cypher stents led the market.
Now, the companies are battling to retain market share. Data from recent studies released in September of last year showed that Xience/Promus outperformed Boston's Taxus. Prior to the release of this data, US market share was Xience 30%, Promus 24%, Taxus 22%, Medtronic's (MDT) Endeavor 13%, and Cypher 11%.
"In the next six months, we expect Xience/Promus share to climb from an aggregate 54% to 60% - 62% and for Taxus share to fall from 22% to 16% to 17%," JP Morgan analyst Michael Weinstein said in a recent research note.
Yet, the erosion of the Taxus market share may not be all bad for Boston Scientific (even if Promus is a lower-margin product than Taxus). "The good news for Boston is that it's likely to convert most of that lost Taxus share to Promus," said Weinstein. "As a result, we expect Promus to surpass Xience in share and become the leading drug-eluting stent in the first quarter of 2010."
So what does all this mean for investors in 2010? Analysts agree that it's time to buy the medtech stocks.
UBS analyst Gbola Amusa says US medtech stocks have be undervalued over the last year.
"The current 13% discount reflects uncertainty and a near worst-case scenario in terms of US health-care reforms. We expect multiple expansion as valuations increasingly reflect a more realistic policy outcome," he said.
Meanwhile, JP Morgan's Weinstein adds that the sector has been underperforming due to pessimism related to US health-care reform. Medtech companies have been worried about a potentially lofty medical device tax that could be included in the legislation, but analysts say fears of this are starting to subside as Washington seems to be veering away from the idea.
Leerink's Wise says that pricing pressures have been weghing heavily on these companies. He estimates that the average stent price is between $1,800 and $1,900; down $200 to $300 since the economy took a turn for the worse.
"In 2010, as markets continue to return to more normal growth and currency turns positive, we expect a year of top- and bottom-line improvement for the Medical Supplies and Devices industry. In addition, over the next few months, as the US health-care reform overhang gradually fades, we think the group is likely to gain greater attention from investors given the relatively attractive growth and even more attractive vs. the S&P 500 index valuation," he adds.
The future in drug-eluting stents is not far-off. The companies are working on stents that are bioabsorbable and will dissolve into the flesh over time. Abbott is expected to launch a bioabsorbable stent in 2015.
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