Health care conglomerate Abbott Labs (ABT) certainly knows how to bury a lede. With the tumult in the wake of the company's announced split in two, the company's quarterly earnings went by almost unnoticed. Perhaps that's just as well – too much is made of quarter-by-quarter performance, anyway. When it comes to this transformative move, though, investors might want to ask if this is really the right strategic move at this point in time.
Abbott To Humira – Thanks For The Cash, Now Get Out
Abbott will be splitting into two companies in a tax-free spin-off transaction. One company will continue Abbott's branded pharmaceutical business, while the other company (the one that will continue on as “Abbott”) will take everything else, including the branded generics business.
The branded drug business currently represents about 45% of the company's total sales, but over 60% of pre-tax profits. Of that, Humira (Abbott's incredibly successful monoclonal antibody for autoimmune diseases) is fully half. Unfortunately, Humira is getting a little long in the tooth and analysts have been incessantly worried about its future growth in the face of potential competition from compounds from Pfizer (PFE), Johnson & Johnson (JNJ), and Roche (RHHBY.PK), as well as threat of biosimilars (basically generic forms of biologic drugs).
Read the full piece at Seeking Alpha:
Abbott May Be Doing The Right Thing At The Wrong Time
2 comments:
I have to agree about the spinoffs. It was kind of a fad in the 90s for big pharma companies to spin off or sell "low growth" businesses so they could focus on branded drugs. For example, Bristol Myers Squibb sold their Dracket consumer products division and spun off Zimmer Othropedics. These companies helped to smooth the bumps for BMY but without them, cash flow got lumpy when their branded drugs lost patent exclusivity.
ABT seems to be going the opposite way, spinning off the branded drugs and keeping the lower-growth steady-eddie businesses. Maybe they feels generics and devices are the future and branded drugs will become a much tougher business due to healthcare "reform". But I tend to agree with you, having these multiple business lines would seem to make for a steady, predictable, albeit perhaps at times slower, growing company.
Wow ... Dracket. I almost forgot about that one! Yeah, I got into the business just as that wave of spin-offs and sales was mostly ending (DePuy, Zimmer, Guidant, etc.). So, it feels a little odd to me to see a company going the other route.
But then, I think Covidien is talking about doing something similar w/ its drug business - while ENDP went out and bought a device business!
All in all, I think ABT is going to rue this unless they really internally believe that Humira is in trouble and the rest of the pipeline is junk.
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