So Abbott (NYSE:ABT) is spinning off the pharma business into a separate company - did anyone see that coming? (I take a day away from the computer, attending a meeting, and this happens). Let's look at this plan and try to figure it out.
First off, this is obviously a reaction to worries about prospects for the pharma side of Abbott's business. The medical devices side is doing fine; it's not like the high-flying pharma organization is trying to toss out a sandbag or something. A lot of that worry is probably centered around the long-term prospects for Humira, which is operating in an increasingly crowded space and accounts for a rather large share of revenues all by itself.
So in that sense, this is a move peculiar to Abbott. But the thinking behind it is common to all the large drug companies, as this Wall Street Journal story details. It's just that various companies are running off in various directions in response. You have some saying "Gosh, we've just got to get back to our core business and do pharma better", while others say "Gosh, we've got to diversify - let's get some consumer products in here, some medical devices, animal health, anything less crazy than drug discovery". And even allowing for the fact that these companies are starting off from different places, with different levels of difficulty, it seems clear that no one really has a strategy that's convincing enough even to themselves. Something Has to Be Done, so everyone's doing Something, and hoping for the best.
But in this case, you have to worry that the (so far unnamed) drug company that Abbott's spinning off will have its work cut out for it. The new company will be getting, what, three quarters of its revenue from Humira? That's a rough situation for any company with any drug, much less a drug that's heading into white water. And how much of the rest of the revenues are from TriCor and Niaspan, both of which face patent expirations? I know that they have things in the clinic, sure, but it's hard to see how this new company doesn't shed jobs at some point. I had a series of worried e-mails waiting for me last night from Abbott pharma people, and I think that they're right to be worried. I'd be very glad to hear counterarguments, let me tell you.
No, when you look at it, the company seems to have decided that amputation is just the cure that they needed. The fact that the Abbott name is staying with the medical devices company is all you need to know.