Every global company wants the winning trifecta of selling in the right markets with the right products at the right time. It’s a formula Wall Street rewards because it primes a company for faster growth.
But finding that ideal mix requires intuitive planning, keen anticipation of changing demographics and economies and a laser focus on the long term. Leadership, foresight and financial discipline are requisites to move a large company toward reliable growth.
Abbott, the global health technology company, has refined the right combination of markets, products and timing. Its investors have grown accustomed to decades of solid returns. And thanks to a promising product pipeline and a presence in key markets around the world, Abbott is focused on long-term sustainable growth on the top and bottom lines.
“We’re in the early innings of a very promising new product cycle, and that comes from our longstanding commitment to R&D across our businesses, which has been enhanced by our recent acquisitions,” says Brian Yoor, executive vice president, finance and chief financial officer. “There simply aren’t a lot of global players with market capitalizations above $100 billion that are also growing the topline as quickly as Abbott.”
As a result, Abbott has posted three consecutive quarters with organic growth at about 7 percent or above, with a forecast of 6.5 to 7.5 percent growth for 2018. That stands out for a company with approximately $30 billion in annual sales.
“Over the past several years, we’ve executed a very deliberate strategy of shaping our portfolio while also investing organically in growth areas that have resulted in an impressive product pipeline,” says Miles D. White, Abbott’s chairman and CEO. “We now have leadership positions in the most attractive areas of healthcare — where innovation makes a big difference for patients and customers.”
Abbott’s Richest Product Pipeline
Strong returns from Abbott’s consistent investments in research and development plus the promise of more products to come have put the company in a “sweet spot” in its product pipeline, with plenty of high-profile results.
For example, Abbott’s FreeStyle Libre glucose monitoring system is a game-changing technology for people with diabetes worldwide. A convenient, painless solution for measuring blood glucose that doesn’t require routine fingersticks, the product has added more than 200,000 new users through the first half of this year.
Now that FreeStyle Libre is available in the United States, more than 1 million people worldwide are expected to adopt the device by the end of 2018, according to company projections, with FreeStyle Libre approved in 42 countries and reimbursable by insurance in 30.
With about 425 million diabetics worldwide, the opportunity for sustained growth is substantial, and U.S. regulators just approved a version with a sensor that lasts 14 days, the longest of any sensor on the market.
“Libre is a blockbuster medical-device product, and we think it’s going to be a $2 to $3 billion product over the next couple of years,” says analyst Glenn Novarro, managing director at RBC Capital Markets, who covers the sector. “We’re talking about a major mass-consumer product that’s going into a massively underserved market on a global basis, and investors understand this”
Abbott’s Diagnostics business produces another example of innovative technologies that are pushing results higher. The Alinity family of testing instruments evolved from intensive customer-focused research and feedback. The resulting system enables hospitals and laboratories to get more accurate patient diagnostic results easier and faster while seeing enhanced synchronization among all areas of care.
“Seventy percent of all healthcare decisions usually start or end with a diagnostics test, and we’ve designed Alinity to help solve our customers’ space limitations by giving them instruments that have the best throughput per square meter,” Yoor told analysts this year, noting Alinity’s strong European launch and ongoing rollout in the U.S. market. “It’s easier to operate, it’s more intuitive and it’s going to set the new standard for the industry.”
And in medical devices, Abbott has become a leader in the segment through innovative product development and key acquisitions. Recent additions to its portfolio include Confirm Rx, the only smartphone-compatible cardiac monitor, and the Proclaim Elite spinal cord stimulation system to treat chronic pain, which uses the proprietary “BurstDR” algorithm to mimic natural nerve impulse patterns, increasing its effectiveness. Neuromodulation and chronic pain devices like Abbott’s are getting increased attention as treatment alternatives to doctor-prescribed opioids.
Stability Through Market Diversity
Along with its promising pipeline of new products, Abbott continues to drive higher revenue and margins in existing markets for its four major businesses (medical devices, diagnostics, nutrition and medicines). Abbott operates across 150 countries in both emerging and developed countries, often in regions with demographics such as an aging population and a rise in chronic diseases, which will drive healthcare product uptake.
Abbott’s fast-growing rapid diagnostic testing portfolio allows for testing in remote communities, while its nutrition business customizes healthy products and flavors for all types of markets. Abbott’s medicines business — solely in emerging markets — positions it for long-term growth as people in those countries are gaining greater access to medicines.
With the strength of its businesses, Abbott has achieved the No. 1 or No. 2 positions in nearly all its markets, boosting margins and establishing a strong sales infrastructure that gives its newly launched products a head start. By carefully managing its portfolio of businesses, Abbott has more opportunities to excel while not finding itself overly dependent on one or two products.
“Strength in different areas of the portfolio can provide balance overall, and it gives Abbott a resilience that we’ll have going forward,” Yoor says.
The Right Growth Strategy
Abbott’s performance track record validates its successful strategy, with shares rising nearly 50 percent in 2017 and total shareholder return ranking best in the company’s fundamental peer group. With the annual dividend increase streak now at 46 years, the consistent performance has investors watching for what’s next.
Abbott’s leadership team considers the company a “130-year-old startup” that is constantly re-inventing itself, searching for the next markets and products. Wall Street’s analysts credit the deep leadership team for delivering on promises.
“I often tell investors that when you’re going to make any investment in a stock, essentially you’re making an investment in leadership, because we can do all the analysis in the world but it’s up to leadership to make the right investment decisions,” Novarro said.
With a combination of new products and shrewd additions, Abbott has laid the groundwork for sustainable, organic growth for the foreseeable future.
*Editor's note: After a remarkable 21-year tenure, Miles White stepped down as Abbott's CEO on March 31, 2020. At that time, Robert Ford became the CEO of Abbott. Mr. White remains Abbott's Executive Chairman, serving on Abbott's Board of Directors.