The effects of Abbott Laboratories’ decision to split its business in two doesn’t appear set to bring major changes to Santa Ana-based eye unit Abbott Medical Optics Inc.
The Abbott Park, Ill.-based parent company said last week that it plans to spin its branded drug business into a separate, publicly traded company to increase investors’ focus on its medical device business.
“Investors who are looking for a large-cap, diverse, double-digit grower aren’t necessarily looking for the same type of investment identity as pharma,” Miles White, Abbott’s chief executive, said during a conference call with investors and analysts.
White will remain the head of what will stay under the Abbott Laboratories name: medical devices, diagnostic and nutritional products, and “branded generic” drugs, which are basically off-patent drugs sold under a brand name.
Abbott Medical sells devices and products used in cataract surgery, laser eye surgery and contact lens-care products. It came about in 2009, when Abbott paid $2.8 billion for Advanced Medical Optics Inc. of Santa Ana, which gave it entrée into the eye device market.
Advanced Medical itself came out of a split. Irvine drug maker Allergan Inc. spun off Advanced Medical nine years ago.
James Mazzo, president of Abbott Medical Optics, wasn’t available for comment on the spin-off plans last week.
· Headquarters: Abbott Park, Ill.
· Business: medical products, devices
· Founded: 1888
· Ticker symbol: ABT(NYSE)
· Market value: about $82.9 billion
· Notable: parent of Santa Ana-based Abbott Medical Optics announced plans to spin-off branded drug business
Split’s Effects
The split is likely to free Abbott Laboratories’ risks relating to developing drugs. It also will leave it with a more predictable business for eye devices, heart stents and the other units that will remain under the name.
The new, as-yet unnamed company will include patented and branded drugs such as Humira for arthritis and immune disorders, and Niaspan for cholesterol control.
Richard Gonzalez, a 30-year Abbott veteran, will be chief executive of the new business.
Humira, which accounted for $6.5 billion in sales, or nearly a fifth of the company’s total sales of $35.1 billion in 2010, has helped drive double-digit sales growth at Abbott.
Some investors worry that the company is over-dependent on Humira. The drug will lose its patent protection in 2016, and there’s nothing that looks like the next blockbuster in the development pipeline, according to recent reports. Those concerns have kept Abbott’s shares basically flat over the past year.
Wall Street likes the move.
“We expect that, while Abbott will lose the growth provided by Humira, that the benefit of excising the generic risk in 2016 and moving focus back to other drivers will ultimately benefit the remaining business while retaining the strong and stable platform of branded generics,” said Jan Wald, an analyst who follows Abbott for Memphis, Tenn., investment bank Morgan Keegan & Co.
Abbott said that sales for its “innovation-driven device” unit, which includes Abbott Medical, came in at about $1.2 billion for the third quarter.
Wald said he expects Abbott’s decision to separate the branded drugs from the rest of its business “will unlock value” for the other business lines because “Humira has served as an overhang.”
Value should increase for what Wald called “New Abbott” because investors who are looking for exposure in emerging markets “may not be particularly keen on placing a large bet on first-world branded biotech and pharma products and pipelines.”
Abbott officials briefly touched on expectations for Abbott Medical during the call.
Expectations
“We expect to launch numerous new products and technology advancements over the next several years,” White said on the call.
White also noted that the new Abbott would have “a good mix” of businesses in terms of customers with government-subsidized healthcare and others who pay out of pocket. He singled out Abbott Medical as an example.
“One of the things that was attractive to me about the ophthalmology business was that a big chunk of that business is consumer discretion business, the lasik business,” he said. “And while that business has been pressured by the economy in the last few years, I like the fact that we’re not just dependent on government reimbursement in a lot of cases for payment for our products.”
