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Abbott Laboratories

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Abbott Laboratories (ABT; Abbott Park, North Chicago, Illinois) is a pharmaceuticals health care company that was founded by Chicago physician, Dr. Wallace Calvin Abbott in 1888.  ABT employs 90,000 people, operates in over 130 countries, and had over $30B in revenue in 2009.  In their most recent quarter, ABT reported fourth quarter earnings of $0.92 per share which included an after-tax charge of 23 cents a share related primarily to restructuring costs and the acquisitions of Solvay Pharmaceuticals and Piramal Healthcare Solutions.  Excluding various items, Abbott would have reported adjusted earnings of $1.30 versus $1.18.  Fourth quarter revenues increased 13.4% to $9.97B. 

From Marketwatch, Abbott also issued a 2011 earnings forecast that fell below most estimates. The company said it sees 2011 adjusted earnings coming in between $4.54 and $4.64 a share. According to Factset, analysts had been looking for adjusted earnings of $4.64.  Reported earnings for 2011, which includes various accounting items, should be between $3.76 and $3.86 a share, Abbott added. 

Pharmaceutical sales for the quarter jumped 23% to $5.94B, helped by the inclusion of products from Solvay and Piramal. Abbott acquired Solvay last year for roughly $6B.  The lipid franchise posted sales of $0.9B during the quarter with TriCor/TriLipix sales increasing 19.2%. Meanwhile, Humira recorded sales growth in both the US (13.2%) and international markets (12.9%) during the quarter. Fourth quarter Humira sales increased 13% to $1.9B.  ABT leans heavily on Humira, which generates 33% of pharmaceutical sales and 19% of company revenue!  A few threats to Humira are noted below.  Humira is off patent in 2016, although it is harder to make generic bioequivolents.

  • Enbrel is perceived to have a slightly better risk benefit profile, and is also the market leader in rheumatology and dermatology
  • The anti-TNF mAb space is becoming increasingly competitive.  UCB has Cimzia for Crohn's disease, MRK/JNJ have a second-generation injectable anti-TNF antibodies Simponi (under litigation along with Remicade when SGP bought MRK)
  • Newer biologics that act against different targets (IL-12/23) and have potentially improved efficacy profiles, such as Stelara (JNJ; ABT also has a mAb in their pipeline against the same target – briakinumab)
  • Threat from true disease-modifying small-molecule drugs with advantages such as oral dosing, including Pfizer's tasocitinib (Janus kinase inhibitor), currently in phase III trials, and CF-101 (an A-3 adenosine receptor agonist). 

 

 

The Nutritional business remained flat at $1.43B. Sales were impacted by the September 2010 recall of an infant formula product. Pediatric nutritional sales were down 5.6% during the quarter. With production of the infant formula product resuming from October 2010, Nutritional business sales should pick up.

 

Abbott Diagnostics posted sales of $1B in the quarter, representing an increase of 4.1%. Meanwhile, the Vascular division continued to    perform well, with sales increasing 13.7% to $0.8B, thanks to strong growth in international markets. XIENCE V and XIENCE PRIME should continue performing well in Japan and Europe. The company reported coronary stent sales of $0.5B, up 19.5% year-over-year.

In early October, Abbott witdhrew its diet drug Meridia from the U.S., EU, Canadian and Australian markets over concerns that it could trigger a stroke or heart attack in some patients, especially those with underlying cardiovascular disease.

Other division sales totaled $0.8B, down 6.4%.

Table 1. 2009 Pharmaceutical Sales Reported by ABT.

 

Currently, investors can buy the stock ~10.9X 2011 consensus earnings ($4.64 from above) and receive a 3.87% dividend yield, twice that of the S&P 500 and many expect the company to make it 38 consecutive years of a dividend increase this spring. 

Upcoming Products in Late Stage Trials

  • Fluvoxamine (Luvox; Fevarin; Depromel) is a selective serotonin reuptake inhibitor (SSRI), developed and launched by Solvay (now Abbott Laboratories) and Meiji Seika Kaisha and now marketed in the US by Jazz Pharmaceuticals and comarketed in Japan with Astellas (previously Fujisawa). The product is indicated for the treatment of obsessive compulsive disorder (OCD) and social anxiety disorder (SAD); it is also indicated for the treatment of major depressive disorder (MDD) in Europe and Japan.  It remains to be seen what the sales of this are going to be with all the SSRIs being generic.  Forest and Lilly are facing a patent cliff with theirs as noted last year.
  • Influvac TC (Influvac TC 97; Seasonal TC), a trivalent sub-unit vaccine produced using Madin-Darby Canine Kidney (MDCK) cell culture.  Again a very competitive field.
  • ABT & Petrovax Pharm are presumed to have developed Grippol Plus, an egg-based adjuvanted vaccine for the potential prophylaxis of seasonal influenza. Grippol Plus is presumed to consist of antigens produced using Solvay's technology combined with Petrovax's adjuvant, polyoxidonium.
  • Using technology licensed from Elan Drug Technologies, Zolip (SLV-285) is an oral fixed dose combination of fenofibrate and simvastatin, for the potential treatment of hyperlipidemia. In November 2005, a phase III European trial was initiated. Phase III trials were ongoing in March 2010.  This will be competing with other generics coming out from Teva
  • Its experimental MitraClip valve-repair system will be in front of U.S. regulators in 2011, and a dissolving stent called ABSORB could reach the market by 2012.The dissolving stent could be a game changer.
  • Linifanib is a small-molecule, multi-targeted inhibitor of VEGF and PDGF family receptor tyrosine kinases, for the potential oral treatment of several types of cancer.  In late 2009, phase III trials in patients with hepatocellular carcinoma (HCC) began.  Several other trials were also underway inlcuding breast cancer, non-small-cell lung cancer, and colorectal cancer were underway.
  • Daclizumab is a therapeutic humanized monoclonal antibody to the alpha subunit of the IL-2 receptor of T cells. It is used to prevent rejection in organ transplantation, especially in kidney transplants.  Facet Biotech, a spin-off of PDL Biopharma and now a subsidiary of Abbott, is developing daclizumab in collaboration with Biogen Idec for multiple sclerosis (MS).

 Stock Price of ABT over 1 Year.

Like JnJ, ABT is a very diverse company with several income streams.  Their pharmaceutical wing generates well north of 50% of revenues, and any hiccup could drag the stock down further.  Citigroup downgraded the stock on Friday, but many investment firms had the company on their conviction buy list for 2011.  Being conservative after the most recent quarterly earnings report, legging into the stock is the way to go.  Knowing that the stock could fall more in the comings week or two with the Citi downgrade will surely cause others to follow, so selling a few January 2012 $45 puts for $4 or better would be a place to start a position.  The price chart above shows that the 1 yr low is $45, and the stock price is approaching that level. 

Position:  I do not currently own any ABT shares or options.

 


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  1. New post is up.  Updated spreadsheet is here.


  2.  Pharmboy, I think you mean the jan 12 $45 puts.


  3. Changed it.  Thanks Jeames.


  4. Pharrmboy; Nice work. You always do a super job. Do you have a preference beteen ABT and MRK?


  5. d – MRK.  Cheaper, better div., and pipeline.  Risk is that they are not as diversified.


  6.  Pharmboy, Nice writeup.  Of all the pharm companies that pay dividends, which ones do you like?


  7. GSK, MRK are my favorites.  PFE is not my Favorite, but the yield is hard to pass up as well, but they have a patent cliff coming.


  8. Thanks for the analysis.  I actually like PFE – strong pipeline. But, I am concerned its going to be great, but just not enough to avoid the cliff.
    Have you done a writeup on that previously?
    Nice job.
    Judy


  9. Judy:  PFE is here.  I am not enamored by their pipeline.  I realize it is 10 or so months old, but not much has changed besides a few failures…oops…. Sure they will survive….but I am not sure at what price.  Lipitor is a huge bread winner, and it is coming to an end.  Wyeth was not a great purchase IMHO.


  10. The first patent for Lipitor expired in March 2010. However, a generic version is not expected until November 2011. Pfizer and Ranbaxy (a generic manufacturer) have entered into a settlement agreement that will not allow Ranbaxy to make generic Lipitor until November 2011.

     
    Because Ranbaxy was the "first to file" and challenge a Lipitor patent, it is likely that no other generic manufacturers will be allowed to make a generic version until 180 days after Ranbaxy first starts selling its version.

  11. THanks pharmboy!