Abbott Laboratories (US) is to split its businesses, focusing on an innovative drugs-generics and medical devices divide.
IHS Global Insight Perspective | |
Significance | Abbott Laboratories (US)'s is to divide into two new firms, consisting of its proprietary pharma business—with revenues of USD18 billion—and its diversified products business—containing generics, medical devices and nutritionals with revenues of USD22 billion. |
Implications | The two firms are more or less evenly balanced in terms of revenue split. Emerging markets and expanding the generics business is expected to gain prominence in the short-to-medium term. |
Outlook | Taking their cue from Abbott Laboratories, other Big Pharma firms are expected to follow suit, including potentially Pfizer. |
The US pharma major Abbott Laboratories has announced a strategic change in the way its businesses will be established. The firm is to separate into two publicly traded companies, creating a research-based pharmaceuticals company and a diversified one with generics, medical devices and its nutritional business in the other. Providing details on the two firms, Abbott said that the decision would provide investment and business opportunities.
Proprietary Pharma Business
The business will have an annual revenue of USD18 billion. Product portfolio is rich with brands such as Humira (adalimumab), Lupron (leuprolide), Synagis (palivizumab), Kaletra (lopinavir/ritonavir), Creon (pancrelipase) and Synthroid (levothyroxine sodium). Assets of this new firm will include innovative drug research programmes in therapeutic areas such as hepatitis C, immunology, chronic kidney disease, women's health, oncology and neuroscience. Currently, the firm has added close to a dozen new compounds in the past two years alone. The firm has indicated that the pipeline includes advanced compounds with a commercial potential of USD1 billion. Of the USD18 billion in sales, primary care will account for 25% while 75% will be speciality products. This firm will, however, not adopt the Abbott brand name and will be named at a future date.
Pipeline Update |
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Source: Abbott Presentation |
Abbott: Diversified Medical Products
This firm will include the following four divisions or business units of the current Abbott Laboratories:
- Established Pharmaceuticals (comprising of generics business)
- Nutritionals
- Diagnostics (Core Lab, Point-of-Care, Molecular)
- Medical Devices (Vascular Medical Optics, Diabetes Care)
With overall annual revenues of USD22 billion, this firm does retain the Abbott brand name. Of the revenue split, nutritionals comprise 28%, medical devices 27%, established pharma 25% and diagnostics 20% of overall revenue. In terms of geographic sales split, emerging markets take the largest slice of the pie, accounting for 39%, followed by developed markets outside the US at 34% and the US itself at 27%. The firm anticipates established pharmaceuticals contributing USD5 billion in 2011 sales with 50% coming from emerging markets operations.
Outlook and Implications
The announcement to divide the firm into two distinct entities is no surprise, and is aimed at providing a better focus for its innovative and generics businesses. The move will potentially trigger similar measures from other peer firms, such as Pfizer and Johnson & Johnson (both US), which have a diversified mix of businesses and have recently come under pressure from the investor community to improve shareholder value.
The rationale behind the decision takes into account three critical areas of business prospects for Abbott in the short, medium and long term. First is the increasing pressure in terms of costs and reimbursement opportunities towards proprietary pharmaceuticals. This move will provide a better focus for innovation research. It may also encourage the firm to look at acquisition opportunities. Second, is the growing generics market that Big Pharma will need to address given the recent encouragement from US and European governments. The fact that emerging markets are a growing area of interest for Big Pharma and Abbott specifically also adds significance. These markets not only offer domestic sales opportunities but also low-cost manufacturing, which pharma majors are increasingly investing in. For example, in August this year Abbott announced a nutritionals production facility in China. Furthermore, the firm bought the generics business of one of the top five Indian pharma firms—Nicholas Piramal—recently, bolstering its branded generics business.
The third aspect is that of the investment community and creating better value for its businesses. IHS Global Insight believes that the pharmaceutical industry at the top tier is undergoing a dynamic shift in terms of operations, with smaller, leaner set-ups becoming far more prominent in the short term.