Abbott Laboratories announced plans this morning to split into two companies. The separation is not a bitter one, however; it’s simply a smart way to give the Chicago–based company — the eighth-largest drugmaker in the world, with global sales of around $40 billion in 2010 — a valuation bump in the eyes of investors, analysts say.
The two new companies will have distinct product profiles. The first, as yet unnamed, will be a research-based pharmaceuticals company with Abbott’s trademark brand-name medicines, including the rheumatoid arthritis drug Humira (adalimumab), prostate cancer drug Lupron (leuprolide) and Synagis (palivizumab), a monoclonal antibody targeted at the respiratory syncitial virus. The second company, which will keep the Abbott moniker, will be a diversified medical products business including lab diagnostics, generic drugs, nutrition products and medical devices.
The problem with the status quo, according to Abbott spokesperson Adelle Infante, is that Humira has overshadowed all the company’s other offerings. “I believe this one product alone represents about 20% of the company’s profits,” Infante told Nature Medicine. Consequently, for example, the medical products arm does not get as much attention from healthcare investors, she explains.
Humira’s future also remains uncertain. The blockbuster antibody is due to go off-patent in 2016, and many shareholders are concerned the company is too dependent on Humira sales. This is especially worrisome for the company given that Pfizer looks poised to file for regulatory approval before the end of the year for its own rheumatoid arthritis pill, tofacitinib.
The looming competitor “is compressing valuation of the whole group,” says Jeffrey Holford, a pharmaceutical analyst with Jefferies in New York. “So Abbott management is trying to alleviate that by breaking [Humira] into a separate company.”
Holford believes the separation is positive, showing that Abbott — which was historically a diversified healthcare company — is going back to its roots. Healthcare investors are much more comfortable with a diverse product portfolio, and the new medical products business gives them many attractive options other than pharmaceuticals, he says.
Damien Conover, an analyst with Morningstar in Chicago, is not quite so sure. “It’s a good move, but it’s not exactly a game-changer,” he says. According to Conover, the separate companies offer shareholders more clarity about their specific products, but the overall valuation will not be dramatically different. “We see the two pieces being the same as the one piece,” he says.
The transaction will not be complete until the end of 2012. Until then, Infante says, “it’s business as usual.”
Image Credit: Abbott Laboratories