Abbott To Split: Two Pharma Are Better Than One?
October 19th, 2011 // 12:35 pm @ jmpickett
In a bid to unlock the perceived value in product line-up and geographic markets, Abbott Laboratories plans to separate into two publicly traded companies. The move is the latest gambit by a big drugmaker to reinvent itself on the premise that its growth potential is hampered by investors who have failed to appreciate a diverse line up of products and opportunities in so-called emerging markets.
And so, Abbott is creating what it calls a research-based pharma that will feature a portfolio of existing meds, such as Humira and Synthroid, along with a pipeline of some 20 compounds in Phase II or Phase III development to treat immunology, chronic kidney disease, Hepatitis C, oncology and neuroscience. Based on 2011 estimates, the operation would have nearly $18 billion in sales.
The other outfit would focus on ‘diversified medical products,’ including branded generics outside the US; nutritionals, lab diagnostics and medical devices, which Abbott execs believe can generate significant growth since these are sold in more than 130 countries and represent about 40 percent of sales in emerging markets. Based on 2011 estimates, this would have $22 billion in sales this year.
Basically, Abbott is taking a step that Pfizer had recently considered. You may recall that Pfizer was evaluating whether to spin off or sell its non-pharma units, including nutritionals, consumer health and animal health, and then divide the remaining pharma biz in two – an established entity consisting of older, off-patent meds, and core products, which would be home to newer drugs and R&D (see here).
In doing so, however, Abbott may prompt some of the same questions that gave Pfizer pause. For instance, the research-based pharma company, which will be renamed, will have to rely on growth from its core medications and the ensuing difficulties that come with relying on a pipeline – or deals with others – to replace big sellers. There may also be issues concerning manufacturing efficiencies.
In any event, the stock is up about 10 percent in before-hours trading, although some key details are still to be worked out. For instance, the expected stock distribution ratio will be determined at a future date. Meanwhile, Abbott ceo Miles White will remain chairman and ceo of the diversified medical products company, which will keep the Abbott name. Richard Gonzalez, who is currently executive vp of global pharmaceuticals, will become chairman and ceo of the research-based pharmal company.
Source: Pharmalot
