Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
A Troubling Lab Report by Jacqueline Doherty
Summary: Shares of Abbott Laboratories (NYSE:ABT) closed Friday at $56.30. They're up 50% over the past 18 months, giving them a P/E multiple of 17.4x 2008e earnings -- well ahead Big Pharma's average of 15.1. Bulls are focused on the launch of a drug-coated cardiac stent, which they say will outdo similar products from competitors. Even so, if Abbott were to fetch an industry average 16.6x on its 2007e pharma profits, and a medical-device average 23x multiple on its stents and other assets -- shares are still only worth $51. There are also potential concerns over its #4-selling TriCor fat-reducing drug: A March study by Dr. Steven Nissen showed that 19 patients (38%) in a control group that took fenofibrate (its generic name) saw their creatinine levels rise above the upper limits of normal, which could reduce kidney function and increase cardiac events. Nissen, who previously raised concerns over Glaxo's (NYSE:GSK) Avandia Merck's (NYSE:MRK) painkiller Vioxx, says he will not prescribe the drug. The company says there's no indication adverse kidney events are being increased due to TriCor use. Considering the drug's 7% bottom-line contribution, shares could fall to $48 if they're wrong.