The Medical Technology Blog

Abbott’s plan to break itself up into two businesses – one for medical products and one for research pharmaceuticals – has suddenly got the analysts’ thinking caps on.

Barely a moment after the surprise news went public, the talk was on the future of both businesses and their chances of survival. Overall, the changes have been welcomed and represent a key moment in the 123 year old company’s history. It’s been there before, on a smaller scale of course, with the formation and successful spin-off of its hospital products business into Hospira in 2007, which has since enjoyed strong growth.

Both of Abbott’s divisions have grown in stature and offer contrasting demands in terms of resources so the split into two businesses is bound to improve clarity amongst the investment community. The medical products business will have 2011 revenues of approximately US$22 billion and the research-based pharma unit will have an estimated US$18 billion sales turnover. However, without the protection of the other, both companies could swiftly find themselves the target of deal makers.

With clarity comes opportunity. Abbott’s upstart research business finds itself just outside of the biggest players of the pharmaceutical market, but with a hot drug on its hands in the form of Humira – an anti-inflammatory drug that posted sales of US$6.5 million in 2010. In a market where the focus is on product pipelines, particularly blockbuster ones, the unnamed Abbott business has a relatively strong pipeline.

Whilst the spin-off is impressively detailed, there’s the nagging doubt that the company, like Johnson & Johnson, continues to find it hard to break up the relationship of medical devices and pharmaceuticals, a model long since ditched by the likes of Bristol-Myers Squibb, Allergan and Pfizer. The medical device business, which is particularly strong in cardiovascular devices and ophthalmic products, sits uneasily amongst the slightly larger divisions of generics, and nutritional products. Whilst Generics enjoys double-digit sales growth, such targets remain elusive in the medical device field for Abbott.

Still, Rome wasn’t built in a day and the spin-off plan is likely to keep investors happy for the moment at least. The company has shown in recent times that it isn’t afraid of ditching certain markets if it feels warranted. The company’s ruthless and swift exit from the spine market when the going got too tough being a classic case in mind.

Whilst this blog is not saying that Abbott’s commitment to medical devices is likely to wane in the short-term – the current spin-off alone will take at least a year to complete at least, but one wonders how long it will take before investors start questioning to rationale of keeping a medical device/pharma mix over the long term. Would an opportunistic offer from Medtronic or an attractive offer from a private equity group change things? One suspects that all the time the company keeps posting sales growth and delivers the financial numbers, Abbott’s investors won’t mind a bit either way.

Thanks to Lawrence Miller for providing this article, Lawrence is Espicom’s medical newsletter team leader and editor of Medical Industry Week

Espicom Business Intelligence

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