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Strategies & Market Trends : Speculating in Takeover Targets
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To: Glenn Petersen who wrote (2761)10/19/2011 10:14:26 AM
From: richardred  Read Replies (1) of 6517
Abbott Labs plans to split into 2 companiesAbbott Laboratories splits in 2; branded drug business to become separate company

On Wednesday October 19, 2011, 8:59 am EDT
NORTH CHICAGO, Ill. (AP) -- Abbott Laboratories plans to spin off its branded drug business and become two separate companies, the drug and medical device maker said Wednesday.

The split-up marks a dramatic change in strategy for the 123-year old company, which has long been noted for its diversified mix of medical products. As many pure pharmaceutical companies weathered losses as the patents on their blockbuster drugs expired, Abbott has continued to post double-digit earnings growth quarter after quarter, performance that many analysts credited to the company's structure.

But Wednesday's announcement indicates Abbott's management increasingly views the company as two separate businesses.

"It makes sense for stockholders because it's a company with two very different risk profiles and investment propositions: high-risk drug discovery and lower-risk generics and nutritional products," said Erik Gordon, a professor and analyst at the University of Michigan's business school. "Investors will be able to pick the one they like or, if they like the old Abbott, keep both."

Abbott, based in North Chicago, Ill., also reported a 66 percent decline in third-quarter net income as it set aside $1.5 billion for legal reserve related to an investigation into its marketing of the drug Depakote.

The new spinoff will sell Abbott's branded pharmaceuticals, including the blockbuster arthritis and immune-disorder drug Humira and the cholesterol drug Niapan. The business, which has not yet been named, will be led by Abbott's Richard Gonzalez who currently heads the company's pharmaceutical business.

The new drug company would have annual revenue of about $18 billion, Abbott said, based on 2011 estimates.

Abbott CEO Miles White will continue to lead the rest of the medical products company, which sells generics drugs, medical implants, diagnostic tests drugs and baby formula. This company will retain the Abbott name and would have annual revenue of about $22 billion.

The company said the split would allow investors to value the companies on their distinct characteristics. Shares of the new company will be distributed to Abbott shareholders in a tax-free transaction, Abbott said.

Abbott is the latest in a series of companies to announce such split-ups in the past year, including Kraft Foods Inc., the former Fortune Brands Inc. and Sara Lee Corp.

Also Wednesday, Abbott reported net income of $303 million, or 19 cents per share, down from $891 million, or 57 cents per share, in the same quarter last year.

Excluding a big charge to set aside a $1.5 billion pretax legal reserve related to the Depakote investigation, earnings were $1.18 per share, which beat analyst expectations by a penny.

Revenue rose 13.2 percent to $9.82 billion. Analysts expected $9.63 billion.

Shares of Abbott rose $5.07, or 9.7 percent, to $57.51 in premarket trading.

Abbott has been one of the pharmaceutical industry's rare success stories in recent years, largely thanks to double-digit growth of anti-inflammatory drug Humira, which posted sales of $6.5 billion last year. And while the injectable biotech drug continued to deliver double-digit growth last year, Abbott has been mostly unsuccessful in efforts to find new therapies to replace the drug.

Early this year the company withdrew the application for a next-generation psoriasis drug after the FDA indicated additional work would be needed to win approval. Humira, which treats rheumatoid arthritis and other inflammatory disease, is scheduled to lose patent protection in 2016.

In May, Abbott's best-selling cholesterol-lowering drugs were hit by back-to-back negative reviews by the federal government.

Federal scientists halted a study of Abbott's drug Niaspan, a prescription form of niacin, after preliminary results showed the pill failed to prevent heart attacks or strokes. Niacin is a form of vitamin B that boosts good cholesterol, which has been shown to fight artery buildup.

Also in May, a panel of health advisers said another Abbott drug, Trilipix, should be re-labeled to indicate that it failed to lower heart attacks in a study of diabetics. Trilipix is a fibrate, a drug that lowers blood fats called triglycerides while boosting "good cholesterol."

Sales of those drugs are expected to decline in coming quarters.
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