Abbott CEO White on neuromod woes: ‘We did this to ourselves’

Abbott‘s (NYSE:ABT) neuromod division saw less than explosive growth during its second quarter due to “self-inflicted wounds”, CEO Miles White said during a quarterly earnings call.

“We did this to ourselves,” White said during the call while discussing the less-than-expected growth of the division, according to a SeekingAlpha transcript.

The company’s neuromod division reported growth of 6.9% compared with the same quarter during the previous year, which was smaller than the company saw in its diabetes care, structural heart and electrophysiology divisions.

While the numbers aren’t negative, they don’t compare to the nearly 50% growth the newly added division saw the previous year.

CEO White said the lowered growth was caused by the company not investing more in their sales force, which he said was essential to growing the neuromodulation division.

“This is a business where the business is very dependent on the involvement of the representative, the sales representative, et cetera, not only with the physician but also with the patients. And we did not expand our sales force in concert with the rate of explosive growth we experienced,” White said, according to SeekingAlpha.

The company did eventually expand its sales force, White said, but ended up causing more disruption through the sudden addition of new salespeople and the need to divide territories.

“So I think we have added to our comp issue here. So do I think it gets back to market growth? Yes, absolutely. I think this is a temporary condition created by us. It will fixed by us. And we will figure out how to successively expand our sales force in concert with our growth in, let’s just call it, a smoother fashion in the future,” White said, according to SeekingAlpha.

CRM

White commented on the company’s cardiac rhythm management business, which saw sales shrink 1.5% compared to the same quarter during the previous year, saying a comparison to last year was “tough” due to their launch of low voltage MRI compatible products during the second quarter.

Beyond the launch-comparison woes, White said the drop was partially due to timing of battery replacements from its previously acquired St. Jude business.

“There is also sort of an underlying battery replacement timing thing going on here because when St. Jude, prior to us, in 2015, 2016 had it’s battery issues, it pulled forward a lot of replacements to replace those batteries. So you see fewer replacements now because they were pulled forward, whereas in the de novo segment, we have got new patients, we are doing extremely well,” White said, according to SeekingAlpha.

White was optimistic that the division will “pick up in the future with a bit of a tailwind” once the company moves past the battery replacement issues, though he added that the rest of the year may be flat for CRM.

“We are not happy with what the growth rate looks like, but we think we understand why,” White said, according to the report.

Structural heart & MitraClip

The company saw large gains in its structural heart division, reporting growth of 17.5% for the quarter.

White was bullish on the company’s MitraClip device, which won FDA approval for a next-gen version earlier this month.

“I think MitraClip definitely opens up to more patients just because of the size changes and so forth that we have got more flexibility with that product. And any time you can do incremental improvements of products and enhance them further, you are extending their reach, extending their life, the competitiveness, et cetera. So I think all that’s good for our structural heart business and then we have got more things in our pipeline coming,” White said, according to SeekingAlpha.

Investor relations VP Scott Leinenweber said the MitraClip, and its associated business is “hitting on all cylinders,” and added that there’s a “lot of growth in front of it,” according to the transcript.

Heart Failure

The company’s heart failure division saw US sales shrink 5%, while international sales grew 27.6%, equaling out to overall growth of 2.4%

White was mostly quiet about the division, but noted that the company needs a destination therapy claim and that when it receives it, he thinks “we are going to be in great shape.”

M&A

White commented that the company isn’t looking to make waves with any big M&A deals in the immediate future, and that the company is making paying down its debt a priority.

“I don’t have big M&A on the radar screen or big transactions on the radar screen. I would say from a capital or cash allocation standpoint, I am going to keep paying down debt because I think that’s a prudent path for now. I always like having maximum strategic flexibility for the company. I think our path here is clear,” White said, according to SeekingAlpha.

While M&A may not be the immediate focus, White said that it was still something the company would be willing to consider if the opportunity is a good fit for Abbott.

“We like the hand we are holding and that means you have got to make sure that as a baseline can deliver your company’s strategic goals and in our case, it does. So that means any transaction for us becomes opportunistic and does that opportunity fit us strategically? Is it something we are prepared to react or respond to? We would like to be in a position where it’s a choice, not a necessity per se. And I think that’s where we are. And right now, we have said for this period of time, because we took on a lot of debt to conclude the St. Jude and Alere acquisitions, we want to pay down that debt,” White said, according to the transcript.

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