QUOTE AND NEWS
Market Intelligence Center  2 hrs ago  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithms on Abbott Laboratories (ABT) could yield about 3.61% (15.52% annualized, for comparison purposes only) in 85 days. Pair a long position in the stock with the Nov. '14...
SeekingAlpha  Aug 28  Comment 
By Sure Dividend: AbbVie (NYSE:ABBV) is a global biopharmaceutical company, with over 25,000 employees and products sold in over 170 countries. AbbVie split off from parent company Abbott Laboratories (NYSE:ABT) in January of 2013. The company...
Motley Fool  Aug 27  Comment 
A multi-billion dollar acquisition is in the works with huge potential tax savings. Is now the right time to buy AbbVie stock?
newratings.com  Aug 25  Comment 
NORTH CHICAGO (dpa-AFX) - Diversified healthcare company Abbott Laboratories (ABT) said Monday that its wholly-owned subsidiary, Abbott Laboratories (Chile) Holdco (Dos) SpA, a Chilean corporation or "ALH, has commenced a tender offer or the "U.S....
Jutia Group  Aug 25  Comment 
[PR Newswire] - ABBOTT PARK, Ill., Aug. 25, 2014 /PRNewswire/ -- Abbott (ABT) today announced that its wholly-owned subsidiary, Abbott Laboratories (Chile) Holdco (Dos) SpA, a Chilean corporation ("ALH"), has commenced a tender offer (the "U.S....
The Hindu Business Line  Aug 25  Comment 
ABT Industries, part of the city—based Industrial Conglomerate Sakthi Group, forayed into the Ready to Cook (RTC) products category under the brand name ABT Foods, offering seven new instant mixes...
TheStreet.com  Aug 22  Comment 
NEW YORK (TheStreet) -- Emerging market pharmaceuticals are booming. So out of Johnson & Johnson and Abbott Laboratories , which one is best positioned to take advantage of it?a Emerging markets spend major money on pharmaceuticals. In 2010,...
SeekingAlpha  Aug 22  Comment 
By Zoltan Ban: As I pointed out in my article on Abbott (NYSE:ABT), I like the idea of point of care systems very much. I think companies engaged in developing and marketing this technology stand to benefit from what I believe will be an eventual...
Forbes  Aug 21  Comment 
Looking at units outstanding versus one week prior within the universe of ETFs covered at ETF Channel, the biggest outflow was seen in the Proshares Ultra S&P500 (SSO), where 3,825,000 units were destroyed, or a 15.5% decrease week over week. ...
SeekingAlpha  Aug 21  Comment 
By Andy Batts: Abbott (NYSE:ABT) just announced that it has joined forces with the United States Department of Defense for developing portable blood tests in order to evaluate potential concussions, also known as mild traumatic brain injuries...




 


Abbott Laboratories (NYSE: ABT) is the largest company in the nutritional products market and the second largest company in the worldwide market for diagnostic products. The company manufactures a number of nutritional and pharmaceutical products, laboratory diagnostics, pharmaceutical therapies and medical devices, including the arthritis medication Humira and the coronary stent Xience. In FY 2010, Abbott generated revenues of $35.17B and net earnings of $4.6B.[1]

Abbott and the rest of the pharmaceutical industry are continually under pressure from expiring patents. Patent expiration allows generic drug companies to lower prices for a certain medication by producing their own versions, increasing competition for that product's market.

Corporate Overview

Abbott Laboratories unlike most big pharmaceutical companies is highly diversified. The company sells everything from pharmaceuticals to medical devices to nutritional products, allowing it to have a wide customer base that can withstand volatility. In addition to the large customer base, the company's expansive global business helps make it a stable performer. Abbott has a larger international presence than most pharmaceutical companies with more than half of its pharmaceutical sales coming from outside of the US; international sales for its diagnostic tools are more than double domestic sales.[2] In FY 2010, Abbott generated revenues of $35.17B and net earnings of $4.6B.[3]

Recent Acquisitions

On May 21, 2010, Abbott announced that it would acquire the branded generics business from Indian drug manufacturer Piramel Healthcare for $3.7 billion. Piramel manufactures drugs and diagnostics in India, where it competes with top players Dr. Reddy's Labs, Cipla, and Ranbaxy Labs. Piramel posted 2009 profit of $109 million.[4] Abbott expects to have the leading market share in India for branded generics and forecasts sales in excess of $2.5 billion in India by 2020.[5]

Business Segments

Abbott Labs' products fall into three production divisions: medical, pharmaceutical, and nutritional. Pharmaceuticals has consistently been the highest earner, however medical products may eventually equal or surpass pharmaceuticals in importance and revenues --especially if demand for vascular stents remains high.

Pharmaceutical Products ($19.9 billion, 56.6% of 2010 revenues)[6]

Abbott's main revenue-generating pharmaceutical is Humira, a drug for rheumatoid arthritis, which makes up more than half of the pharmaceutical division's revenue. Depakote, which was previously a blockbuster epilepsy and bipolar drug treatment for Abbott, lost much of its revenue in 2008 when it first faced generic competition. Abbott also makes Niaspan, which is the only drug on the market capable of decreasing cardiovascular risk by increasing HDL, aka "good" cholesterol. Generic competition in Abbott's pharmaceutical division hurt US sales, however this has been partially offset by international growth.[7]

Nutritional Products ($5.5 billion, 15.7% of 2010 revenues)[8]

The nutritional products division has been a steady source of revenue for Abbott. Abbott's most well-known brands include Ensure, a meal replacement shake, ZonePerfect snack bars, Similac baby formula, and PediaSure for children with specific nutritional needs. beees

Diagnostics ($3.8 billion, 10.8% of 2010 revenues)[9]

Abbott's diagnostics division makes tests used in blood banks, hospitals, laboratories, and plasma protein therapeutic companies. The tests include immunoassay and chemistry systems used to screen for markers for infectious diseases, fertility, drug targets, and cancer, as well as genetic tests and hematology systems.

Vascular ($3.2 billion, 9.1% of 2010 revenues)[10]

The vascular division is largely dominated by stents, which open up clogged arteries in patients. Abbott's new drug-eluting stent Xience V is the best-selling stent of its kind in the U.S. market.[11] Clinical trials have shown Xience V to be safer and more reliable for treating clogged heart arteries than its competition. In particular, one clinical trial demonstrated Xience V to be clinically superior to its competitor Boston Scientific's Taxus stent.

Research and Development ($3.7B, 10.5% of 2010 revenues)[12]

Researching and developing new drugs is the single most important consideration when identifying the prospects of any pharmaceutical company. A successful drug pipeline is critical because former blockbusters losing patent protection must be constantly replaced by new viable drugs.

Abbott is constantly researching potential new uses for its major drugs, such as Humira. The company has a robust, but young pipeline, with only a few drugs prepared for Phase III clinical trials.

Trends and Forces

Government regulation challenge

Abbott Labs and its competitors are all heavily affected by government regulation. This includes both long-term challenges like required FDA approval and patent expiration, and acute sudden changes like Medicare reform. These regulations are primarily affected by political factors.

Tightening FDA Regulations

Beginning in 2009, the FDA implemented a series of reforms that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, more scientific expertise within the agency, more transparency. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, companies will have to adjust to the stricter standards and stronger enforcement.[13]

Expiring patents threat

Expiring patents are inevitable and a threat to all companies in the pharmaceutical market. More than half of Abbott's revenues are generated by the pharmaceutical division. With expiring patents and an extremely competitive generic drug market, Abbott's pharmaceutical revenues could experience a drop in sales.

Strong pipeline; diverse businesses

Expiring patents will have the greatest effect on Abbott's pharmaceutical division. If Abbott can successfully maintain a diverse business spread beyond pharmaceuticals in nutritional, and medical devices as well, it can insulate itself from the drop in profit caused by patent expirations or drug approval troubles. Abbott's nutritionals division generates a significant portion of its revenue, but that still might not be enough to offset a heavy loss of pharmaceutical revenue due to expired patents and generic competitors. The performance of Abbott's Xience V drug-eluting stent will be important for boosting profits in Abbott's medical division.

Generic pharmaceuticals: direct competition

Although Abbott has a diverse product line spread throughout the pharmaceutical, nutritional and medical products industries, Abbott's main focus has shifted onto the pharmaceutical industry in recent years. The threat of FDA approval of generic drugs has put a lot of pressure on the pharmaceutical industry. After losing two major products in 2006 and 2008, Abbott doesn't have any significant patent expirations until at least 2013.

Further, major pharmaceuticals are constantly vulnerable to patent infringement from generic competitors. The litigation involved in preventing such patent violations can be drawn out and costly, though successful defenses of patents can sometimes offset these losses. In July 2009, for example, Abbott sued Medtronic (MDT) to defend its coronary stent technology and successfully settled for $400 million. [14]

Medicare coverage patterns

Health coverage is an important determining factor when patients and doctors choose among various treatment options, and Medicare coverage is particularly significant in that it directly affects the drug choices of about 20% of the US population.

Recent Medicare reform resulted in expanded coverage for two treatments for rheumatoid arthritis: Abbott's Humira and Amgen's Enbrel (previously Medicare only covered Johnson & Johnson’s Remicade). Now that Humira can be reimbursed under Medicare, its market share (and that of rival Enbrel) are expected to increase. However, as Medicare coverage extends over time to cover other rheumatoid arthritis medications, competition may force Abbott to lower prices.

Effect of US politics

Under the Medicare Modernization Act (MMA), drug prices are negotiated between private drug manufacturers and private drug plans which prohibit government interference from participating in negotiations and setting up a price structure. The White House and congress are exploring new ways to lower drug prices, which could decrease revenue throughout the pharmaceutical industry. If Abbott is forced to lower their drug prices, they will be hard hit -- more than half of their total sales come from pharmaceuticals.


Competition

For a company in the high-speed and constantly changing health care industry, capturing market share must be the primary focus. Market share can be spiked up either by introducing new drugs or by obtaining new indications for existing drugs, increasing demand for the medications.

Humira faces competition for the treatment of rheumatoid arthritis from Johnson & Johnson (JNJ) and Amgen (AMGN). Abbott currently faces a legal battle with J&J over the exclusivity rights to Humira. In February of 2011, Abbott won an appeal in which a $1.67 billion ruling was overturned.[15]

Abbott's Xience V is being pushed to seize market share in the lucrative drug-eluting stent market--currently populated by only two main players, Boston Scientific's Taxus and Johnson and Johnson's Cypher. Combined, these two companies hold more than 90% of drug-eluting stent market. Johnson & Johnson's recent acquisition of Conor Medsystems may benefit Abbott if the Xience V is approved in time to pick up some of the lost market share from Conor. Abbott competes with St. Jude Medical (STJ) in the vascular closure device market.

Abbott's toughest competition however may still be generic drug manufacturers.

Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Abbott's competitors by each drug market.



References

  1. ABT 2010 10-K, Item 6: Selected Financial Data, p. 27
  2. Why Abbott Is More Than a Dividend Stock
  3. ABT 2010 10-K, Item 6: Selected Financial Data, p. 27
  4. Abbott Buys Drug Maker in India for $3.7 Billion
  5. Abbott to pay $3.7 bln for unit of India's Piramal
  6. ABT 2010 10-K, Note 6: Segment and Geographic Area Information, p. 72
  7. ABT 2010 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations and p. 27
  8. ABT 2010 10-K, Note 6: Segment and Geographic Area Information, p. 72
  9. ABT 2010 10-K, Note 6: Segment and Geographic Area Information, p. 72
  10. ABT 2010 10-K, Note 6: Segment and Geographic Area Information, p. 72
  11. ABT 2010 10-K, Note 6: Segment and Geographic Area Information, p. 72
  12. The FDA: A tough tonic
  13. Reuters. "Medtronic to pay Abbott $400 mln to end stent suit." 27 July, 2009
  14. US appeals court rules against J&J in Humira case
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