Abbott does the two-step
Abbott Laboratories announces plan to split its business into two companies in a decision analysts welcome as a strong move
"Today's news is a significant event for Abbott, andreflects another dynamic change in our company's 123-year history,strengthening our outlook for strong and sustainable growth and shareholderreturns," Miles D. White, chairman and CEO at Abbott,said in a press release.
The diversified medical products company will retain theAbbott name and will be made up of Abbott's existing diversified medicalproducts portfolio, including its branded generic pharmaceutical, devices,diagnostic and nutritional businesses. The research-based pharmaceuticalcompany will consist of Abbott's current portfolio of proprietarypharmaceuticals and biologics and will be named at a later date. Thetransaction is expected to be completed by the end of 2012.
White will remain chairman and CEO of the diversifiedmedical products company, and Richard A. Gonzalez, who is currently executivevice president of Global Pharmaceuticals and used to be president and chiefoperating officer of Abbott, will become the chairman and CEO of theresearch-based pharmaceutical company.
"The research-based pharmaceutical company will be aleader in its industry with a strong and sustainable portfolio of specialtymedicines and a promising pipeline of future products," Gonzalez said in apress release. "This business has been delivering market-leadingperformance and is well positioned for future success."
The research-based pharmaceutical company currently boastsannual sales of almost $18 billion, based on 2011 estimates, with a portfolioof leading medicines such as Humira, Synagis, Lupron, Zemplar and Androgel,among others. The pipeline consists of a wide variety of medicines andformulations, among which are more than 20 compounds or indications in eitherPhase II or Phase III development as treatments for diseases such as HepatitisC, chronic kidney disease, immunology, women's health, oncology andneuroscience, including Parkinson's disease, Alzheimer's disease and multiplesclerosis.
According to Bloomberg, Jeffrey Holford, a Jeffries GroupInc. analyst, called the drug spin-off company "a fairly clean, stand-aloneunit, the type that gets picked up."
Given the presence of Humira in its portfolio, thepharmaceutical company stands to become a potential target, according to someanalysts.
Humira rakes in an annual $6.5 billion in sales, and JamiRubin, an analyst for Goldman Sachs Group Inc. in New York, forecasts that itcould see sales of $11 billion by 2016. The drug, which treats Crohn's disease,plaque psoriasis and rheumatoid arthritis, is free from generic competitionuntil 2017.
Holford estimates that the prescription business could beworth up to $29 per share, giving it a value of $45 billion, based on 1.55billion shares of Abbott stock outstanding. Rubin sets the company's price at$54 billion. With that price tag and the strength of Humira behind it, analystssuggest that companies such as Roche, Bayer, Merck or AstraZeneca might bepossible suitors for Abbott's pharmaceutical business.
Abbott's diversified medical products company weighs in withannual sales of approximately $22 billion, based on 2011 estimates, andmaintains market-leading positions in adult and pediatric nutritionals, corelaboratory diagnostics, point of care and molecular diagnostics and establishedpharmaceuticals, as well as medical devices that include vascular devices,diabetes care and vision care. The company is the leading pharmaceuticalcompany in India and has products in more than 130 countries, with nearly 40percent of its sales coming from emerging markets.
"Abbott will be one of the largest and fastest-growingglobal diversified medical products companies, with a compelling portfolio ofdurable growth businesses in medical technology, branded genericpharmaceuticals and nutritionals," said White. "We will continue togrow our product lines, market share and global presence, especially inemerging markets."
Still, while Humira makes the pharmaceutical company anattractive target for at least the next six years, it must be consideredwhether or not Abbott's pipeline will have another strong contender to take theplace of Humira when its patent protection runs out. By and large, though,analysts seem unanimous on the strength of this split.
"You'll start to see more people interested in the stock,which has languished for years," said Jan David Wald, an analyst at MorganKeegan & Co., in a Bloomberg article. "The two companies each will be morevaluable than they are together."