Abbott has lots of dry powder for medtech M&A

Abbott (NYSE:ABT) CEO Miles White yesterday said the company has a few irons in the fire when it comes to bolstering its flagging medical device business, which was down -6.1% during the 2nd quarter.

Despite an attempt to be “studiously evasive” when asked about mergers & acquisitions in general, White spent a good portion of the 2nd-quarter earnings call discussing Abbott’s M&A rationale and prospects.

Sales for Abbott’s medical device division slid -6.1% to $1.29 billion compared with Q2 2014. U.S. medical device sales were rose 3.0% to $505 million, Abbott said, with international sales for the unit down -11.2%% to $784 million.

Asked about the company’s weak position relative to its peers in the cardiovascular device space, White said Abbott has “a clear focus on expanding and broadening the whole device business,” especially in the cardiovascular space.

“I do think it needs more breadth, but I also think it needs pretty solid performance in the pieces it has. I think we can do better on the stent front than we’re doing, and I think we can do better in the endovascular space than we’re doing,” White said. “Structural heart, for us, really, right now, is a product, but we think there’s a lot more breadth there that we should be participating in.”

Abbott is also looking beyond outright acquisition to build up its device business, he added.

“We created a different structure in our organization where we’ll incubate ventures. Ventures can take on a lot of different sizes, and there’s a lot of activity there right now,” White said. “We’re just not in a position to tell you much about it yet, and it ranges from equity investments to outright ownership or assembly of businesses there. And we announced early in this quarter, the 2nd quarter, that we were making a change there to not just be a venture funder, but actually builder of business. And it’s surprising to me how much opportunity kind of exploded in that space for us.”

Although valuations are high, White said there’s “a fairly robust set of opportunities” that fit Abbott’s strategic needs and plenty of cash to do it with while maintaining share buybacks and dividends. Abbott reported more than $4.06 billion in cash and equivalents as of Dec. 31, 2014.

“I’m not sitting here on a pile of cash thinking there’s nothing out there of interests that fits us. Quite the contrary. I think there’s quite a lot out there that fits us well,” White said. “[W]e’ve got a lot of opportunities, I think, to support our branded generic pharma business, and we’ve got a lot of opportunities in the device space. And that’s where a lot of our interest is right now. We’ll make a lot of progress there. It will become more apparent by the end of the 3rd quarter, I feel confident. Apparent doesn’t mean there’s some great blockbuster coming here.”

During the 2nd quarter, U.S. medical device sales rose 3.0% to $505 million, Abbott said, with international sales for the unit down -11.2%% to $784 million. Overall vascular device sales dipped -5.6% to $722 million, but rose 3.0% to $ 298 million in the U.S. to offset a -12.4% slide overseas to $424 million.

The MitraClip device for treating a heart valve disorder was a bright spot for the vascular business during the quarter, growing at a double-digit clip, Abbott said. Diabetes sales slid -5.3% to $278 million and medical optics sales were off -8.0% to $289 million, the company said.

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