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Abbott to Sell 2 Medical Device Businesses for St. Jude Buyout

Zacks Equity Research

Abbott Laboratories ABT has agreed to divest two medical device businesses in order to settle Federal Trade Commission (FTC) charges in relation to its proposed acquisition of St. Jude Medical STJ.

Shares of Abbott Labs underperformed the Zacks classified Large Cap Pharmaceuticals industry in the year-to-date period. In fact, the stock has lost 14.9% during this period, compared with a drop of 6.1% for the industry.

Coming back to the latest news, the divestment will ensure fair competition in the U.S. markets for medical devices used in cardiac and vascular catheterization.

Note that the FTC had alleged that the proposed acquisition would impact the competitive scenario in the U.S. markets for vascular closure devices if the company proceeds without a remedy.

The merged entity would control more than 70% of the vascular closure device market. St. Jude has been a pioneer in the steerable sheath market for more than a decade and Abbott is looking to foray into the space. The merger would thus eliminate substantial price competition between the competitors.

Under the consent order, the companies are required to divest all rights and assets related to St. Jude’s vascular closure device business and Abbott Labs’ steerable sheath unit to Tokyo-based medical device maker Terumo Corporation.

Meanwhile, Abbott Labs is required to notify the FTC if it intends to acquire lesion-assessing ablation catheter assets from Advanced Cardiac Therapeutics. We note that Abbott Labs and Advanced Cardiac Therapeutics have a partnership for developing these catheters. However, following the St. Jude acquisition, if Abbott acquires the lesion-assessing ablation catheter assets from Advanced Cardiac Therapeutics, it could eliminate additional competition that would have resulted if Advanced Cardiac Therapeutics was independent.

Abbott has been facing issues related to its recent acquisitions. Earlier this month, the company filed a complaint to terminate its proposed acquisition of Alere based on a substantial deterioration in the latter’s value following the merger agreement.

ABBOTT LABS Price and Consensus


ABBOTT LABS Price and Consensus | ABBOTT LABS Quote

Abbott Labs currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

A couple of better-ranked stocks in the health care sector include Heska Corp. HSKA and Vanda Pharmaceuticals VNDA. Both of them sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Heska’s earnings estimates increased from $1.13 to $1.35 for 2016 and from $1.38 to $1.53 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 301.64%. Its share price has increased 87.6% year to date.

Vanda’s loss estimates for 2016 narrowed from 62 cents to 45 cents, while its earnings estimates for 2017 decreased from 13 cents to 9 cents over the last 60 days. The company posted a positive earnings surprise in three of the four trailing quarters with an average beat of 56.65%. Its share price has surged almost 72.4% year to date.

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