Strong Broad-Based Growth; Recent Discussion Focused on MitraClip
Abbott Laboratories is a diversified healthcare conglomerate with revenue coming from Medical Devices, Nutrition, Diagnostics, and Established Pharma (generic pharmaceuticals). The stock has performed well as its segments have continued to perform at or above expectations, and the company's recent 2Q results supported this growth trajectory with solid 8% worldwide organic sales growth.
Recent discussion around the stock has focused specifically on MitraClip, the cornerstone of the company's Structural Heart franchise. It's important to remember that the drug is a tiny portion of revenue (making up an estimated $300-500 million of revenue), but is also responsible for a decent sized chunk of the company's revenue growth going forward (growing in the double digits).
Background on Mitral Valve Regurgitation
Let's first talk about what MitraClip does. MitraClip is a medical device that is used to treat mitral valve regurgitation (MR). MR is a condition in which blood flows backward into the left atrium from the left ventricle. The condition is a debilitating illness that can lead to numerous types of heart failure. There are an estimated 15 million global patients suffering from MR, with an estimated 4-10 million suffering from severe MR.
There are two kinds of MR: degenerative mitral valve regurgitation (dMR) and functional mitral valve regurgitation (FMR). In dMR, the mitral valve is structurally damaged, causing the blood to flow backwards. In FMR, the left ventricle is enlarged, which causes the mitral valve to only partially close. FMR cases make up anywhere between 60-80% of all MR cases.
MitraClip is approved for dMR globally, and FMR outside of the US (but not in the US). The device is delivered in a minimally invasive way through transcatheter - a useful alternative given that other treatment options generally consist of open heart surgery on bypass. The MitraClip attaches to the mitral valve and allows it close more completely, thereby reducing regurgitation.
While the drug has grown solidly since its launch in 2013, growth would accelerate even further with the FMR indication in the US.
ABT Misses on MITRA-FR, but How Comparable is it to Upcoming COAPT?
In late August, Abbott presented MITRA-FR results, which examined MitraClip treatment versus optimal medical therapy for FMR. Results missed its primary composite endpoint of all-cause death and unplanned rehospitalizations. The lead investigator for the trial provided the following summary:
“MITRA-FR is a negative study. The safety of the device is confirmed, the efficacy and the reduction in MR is confirmed, but the presence of the MitraClip does not impact the prognosis in this severe MR population.”
Industry experts and analysts were quick to translate the results to the upcoming COAPT trial, which will also examine MitraClip’s safety and efficacy in the treatment of FMR (results will be presented at the Transcatheter Cardiovascular Therapeutics 2018 conference on September 23rd). Recall that the COAPT trial will serve as the pivotal trial for FMR indication expansion in the US, and is therefore the key trial to watch.
There is a mixed debate on what the COAPT trial might show. The argument against positive COAPT results is not just that MITRA-FR missed the primary outcome, but that some physicians were surprised at the overall lack of efficacy in MITRA-FR; the trial missed in the composite endpoint as well as in the individual components of all-cause death and unplanned rehospitalizations.
Another concern among some investors is the potential impact that negative results from COAPT might have on FMR use outside of the US. As a reminder, MitraClip is approved for FMR outside of the US. Note that many analysts estimate FMR use outside of the US at greater than 50% of total MitraClip use. With a negative readout from MITRA-FR as well as from future readouts, physicians may become less inclined to recommend the treatment for patients, even though it has received approval.
However, numerous physicians, industry experts, and analysts are not yet ready to throw in the towel on COAPT. There are several differences between MITRA-FR and COAPT that are worth noting:
MITRA-FR used a smaller patient group (304 randomized patients) than the COAPT study (610 patients), and was based solely in France (vs. COAPT based in the US)
MITRA-FR's patients were more sickly; patients used were required to have a prior heart failure hospitalization over the last twelve months, and included severe FMR (vs. COAPT which includes moderate-to-severe and severe FMR).
MITRA-FR's intervention group had greater co-morbidities than the control group at the start
Primary endpoints differ; MITRA-FR examined a composite of heart failure hospitalization and death, whereas COAPT will study heart failure hospitalization (with death as a secondary endpoint). Additionally, COAPT's primary endpoint is after 2 years, whereas MITRA-FR was after 1 year.
Some experts, including the co-principal investigator of COAPT, Dr. Gregg Stone, noted that MITRA-FR results were surprising, and believed that some of the miss may have been due to the lack of operator experience in the study. This is further supported by the fact that patients still had a suboptimal reduction in MR 12 months later, which is inconsistent with MitraClip data.
As a result, while the majority of investors see the MITRA-FR results as an incremental negative data point for COAPT and for MitraClip, it's perhaps not as negative as it might initially appear. Consensus now appears to anticipate a negative primary outcome, but some form of positive results (either in secondary endpoints or in one of the two primary endpoints). Investors will be closely watching the results, which are expected to be presented at 7:20AM EST on 9/23 at the TCT 2018 conference. A positive outcome would likely provide a boost to the stock.
Another point worth noting is that the results will have implications for numerous other companies such as Medtronic (MDT), Edwards Lifesciences Corp (EW), Boston Scientific Corp (BSX), and LivaNova (LIVN), all of which are pursuing transcatheter mitral valve repair (TMVR) as well. A positive outcome would more than double the TMVR market by opening it up to the larger FMR indication.
Investors Remain Excited about Libre and the Diabetes CGM Market
As mentioned previously, ABT continues to see strong growth across its numerous other segments. One of the most exciting prospects within the Diabetes segment is the Freestyle Libre. Since its approval late last year, Libre has been widely discussed by investors, and the device has outperformed expectations.
Recall that the Libre was the first CGM to not require using a fingerstick to calibrate the device. This makes the device significantly easier to use, and its launch was expected by many to grow the market for CGMs significantly. Note that CGMs provide other benefits as well, including superior management of insulin levels. As I wrote in my Medtronic article reviewing their CGM device, Medtronic expects the CGM market to grow from $1 billion today to $2-3 billion within the next several years.
So far, Libre has delivered the growth. The device remains on track to hit management’s guidance of 1 million patients globally by year end (with over 800K currently). In terms of sales, the device grew by over 20% in 2Q18, and consensus expectations are now for $130 million of contribution in 2018 (management is confident in achieving $100 million by 2018). In 2019, consensus expectations are for the device to grow to over $300 million in sales, with some brokers discussing the potential to generate up to $500 million in revenue.
Libre has a few other growth drivers for the remainder of the year. First, in late July, Abbott received FDA approval for extending the sensor wear period from 10 days to 14 days, a material increase that should further improve patient convenience. Additionally, Abbott is seeking a pediatric indication and a smartphone app. These three enhancements, combined with the device’s near-term momentum and the longer-term expansion of the market, should drive sustained revenue growth towards the numbers mentioned above.
Libre Continuing to Outperform, Watch MitraClip COAPT Results on 9/23
Abbott is seeing solid growth across its business lines after strong 2Q results, with Libre continuing to outperform and drive revenue growth. One of the company's other key growth drivers, MitraClip, saw a potential near-term setback with results from the MITRA-FR trial missing its primary endpoint. However, there is a compelling argument still for potential FMR approval in the US, and investors will have a more complete picture when COAPT results are presented on 9/23.