Diversified health care player Abbott Laboratories did better than expected when it reported second quarter earnings. The Abbott Park, Ill.-based company is one of the earliest to start reporting for this period, which in the U.S. was characterized by an initial heavy impact from the ongoing pandemic.
Second quarter sales were $7.33 billion, down by 5.4% but much better than the 11% decline that Wall Street had anticipated. The consensus estimate for sales was $6.81 billion. Medical device sales flagged as elective surgeries were postponed, while diagnostics rebounded after an initial decline due to a return to more normalized testing volumes while COVID-19 testing also kicked in. The latter for Abbbott has hit a total volume of 40 million around the globe to date. Consumer-oriented businesses also remained strong.
Investors were blasé, leaving Abbott shares (NYSE:ABT) roughly flat by the end of trading. Still, the company’s valuation remains at almost $171 billion, close to a high of more than $173 billion in April.
COVID Dx boost
“At the start of the quarter, many areas of the world were under shelter-in-place restrictions, which led to the postponement of elective medical procedures and sharp declines in routine diagnostic testing,” said Abbott President and CEO Robert Ford. “Encouragingly, as we progressed through the quarter, we saw steady improvements in both testing and procedure volumes across our hospital-based businesses.
He continued. “At the same time, our more consumer-facing businesses, which include diabetes care, nutrition and established pharmaceuticals, continued to be resilient in this environment, collectively growing more than 9% in the first half of the year.”
COVID-19 testing-related sales accounted for $615 million of the $1.99 billion in diagnostics sales that Abbott brought in last quarter driven primarily by $152 million in sales of its igG antibody test, $283 million for its m2000 molecular test and $180 million for its rapid ID NOW test. Non-COVID tests also rebounded to about 90% of pre-pandemic levels by the end of the quarter.
The company’s testing for COVID-19 was driven by molecular tests for active infection particularly amongst health care workers during the second quarter, but it expects to start seeing more broad surveillance testing of asymptomatic patients as well as more demand for other types of tests such as antigen and antibody tests. Ultimately, Abbott expects the COVID-19 diagnostics business will also evolve into monitoring and assessment of natural and vaccine-induced immune response to track potential immunity to the virus.
Abbott is developing an antigen test, but declined to offer a timeline. It’s working to develop a reliable, inexpensive test that does not require instrumentation. The company is focused on the long-game with the pandemic, noting that even after a potential vaccine is widely available it will still likely be necessary.
“We think the COVID testing will stick around,” said Ford. “Even when you have a vaccine, I think that I can see patients going to a physician's office with a fever--and they want to know: Is it influenza, is it the flu, is it COVID? So, yes, we think that the capacity that we're building is not only for a high demand during the next 12, 18, 24 months here, but we do see a steady state that will continue to be there.”
As in diagnostics, Abbott saw hospital procedure volumes improve to about 90% of the pre-COVID rate by the end of last quarter. The consumer-oriented Diabetes Care business was the only business that gained ground, growing sales by 27% to $755 million in sales during the second quarter, making it by far the largest Medical Device segment.
Overall, Medical Device sales declined about 20% to $2.4 billion. Neuromodulation fared the worst with its sales cut almost in half, while Heart Failure had the smallest decline at about 20%.
Abbott scored some significant approvals in medical devices last quarter, including for the Freestyle Libre 2 continuous glucose monitor, which could be another big step forward in its Diabetes Care business.
“Libre 2 sets a new standard for accuracy, including when glucose levels are in the lowest range, which is critically important in order to avoid going into hypoglycemia.,” said Ford. “This leading accuracy profile results in superior alarm performance with fewer false alarms than other systems, which can be frustrating, but more importantly, significantly fewer missed alarms, which can be critical to avoiding dangerous glucose levels.
“It's smaller, easier to use and longer-lasting than other glucose monitors, and its value proposition is unparalleled with a cost profile that is not a burden to health care systems,” he continued. “We'll launch Freestyle Libre 2 in the next few weeks at the same price as the current available Freestyle Libre 14-day system.”
Last quarter, Abbott also gained a CE mark for its Triclip, the first minimally invasive repair of the tricuspid valve and an FDA approval for its next-gen Gallant implantable cardioverter defibrillator and cardiac resynchronization therapy defibrillator devices to treat heart rhythm disorders. The latter offers an app to offer better remote monitoring and improved physician engagement.
As the pandemic continues to rage somewhat unchecked within the U.S., it remains unclear what the rest of the year will hold for Abbott. The company felt confident enough to reintroduce 2020 guidance for EPS of at least $3.25, with GAAP EPS coming in at least at $2. The company also indicated that it expects mid-single digit sales growth during the second half.
But some on Wall Street are a little more hesitant around the prospects for the rest of the year, particularly given rapidly growing COVID-19 infection rates in several major states that already are starting to overburden hospitals and again seem likely to cause many U.S. elective procedures to be postponed
“While delays in elective procedures will ultimately vary county by county, Florida, Texas, Arizona, and California collectively account for about 30% of the U.S. population, suggesting nearly one-third of domestic elective volumes are at risk of disruption in the second half of 2020 in these states alone,” summed up an in-depth July 15 analyst note from Margaret Kaczor at William Blair.
“Importantly, the delay in elective procedures is already starting (and can accelerate) despite what is perceived as a lower fatality rate than the earlier days of the pandemic,” she concluded. “Said another way, the lower implied fatality rate we are seeing today may be causing a false sense of security (among both consumers and investors) despite some alarming trends in hospital capacity.”