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It's tough times these days for the pharmaceutical companies, and the evidence of struggle is all around. Abbott Laboratories (ABT) is a case in point, as the days count down to the company's split into two separate companies. However, these changes in the makeup of the drug manufacturing industry are not necessarily a bad thing, for investors as well as for the world at large.

In spite of what looks like a steady upward trend in share price since the announcement of the company's split in October of last year, Abbott has failed to meet industry and consumer expectations on a number of fronts. Its infant formula produced for Hong Kong markets falls below Chinese safety standards, according to a report from CER Research, an independent corporate research and investigative company based in that country.

Beyond the obvious ethical questions that arise for potential and current shareholders from this situation, this type of failure shows that the company does not know how to control costs in efficient and reasonable ways, in my opinion. Although investors usually like it when their stock creates profit, harming children in another country is probably not an acceptable way of doing this. In my view, the company needs to consider its shareholders' opinions when deciding what sorts of risks are worth it when it comes to generating more revenue. Also, failing to pass safety tests means no income whatsoever from that source, so I think that Abbott and others would be better off focusing on manufacturing high-quality products in the first place, so that they can avoid this sort of embarrassment and waste of money.

Meanwhile, Abbott sued Watson Pharmaceuticals (WPI) for an alleged patent infringement on Niaspan. To me, this lawsuit indicates that Abbott is behaving in panicky ways, and therefore, is trying to get a bit of spare cash wherever it can, although it may be within its legal rights to complain about Watson's attempt to sell a generic version of the cholesterol drug before Abbott's patent expires. The lawsuit is ongoing at the time of writing.

What this also shows me is that Watson is equally troubled. Since this company has decided to create a generic version of Niaspan for sale so quickly, it looks to me like Watson is running out of ideas of its own. Thus, instead of creating its drugs on schedule, this company has decided to co-opt Abbott's product, which raked in about $1.2 billion in U.S. sales from February 1st, 2011 to January 31st, 2012. Luckily for Watson shareholders, though, stock value jumped about $8 per share in the past few days, so confidence in the company could be on the rise.

Meanwhile, Abbott is showing other signs of despair, including the urge to collaborate with every other company on the planet, from Genetics Laboratory (GenLab) to the University of North Texas to Galapagos [GLPG] to Merck (MRK). To me, this flurry of cooperation seems like an attempt on Abbott's part to bolster its own coffers without having to invest too much of its own resources. In other words, the company looks to be floundering, in my opinion.

Like Abbott, Merck is also producing sub-par drugs. Its blood clot preventative medication has been tested with unsatisfactory results, including a high level of bleeding as a side effect. Unsurprisingly, representatives from the company have not issued a statement or spoken to reporters about this problem, which tells me that they do not have a response that will encourage investors. In turn, I believe that this means both that this stock is not the best choice for investment at this time, and that the people in charge are not always completely honest with their shareholders or the public.

In what appears to me to be a bid for apparent cash flow, Merck has invested $40 billion in funds that will assist life science research by other companies. In my opinion, this move begs the question as to why the company could not have put that money into its own research, especially right now when its blood clot drug still needs more work.

Abbott and Merck both look to be in crisis, although they are hiding it well enough for the moment. Merck seems to be doing especially well at pretending that things are under control, but I feel that if you read between the lines, you can see that this pharmaceutical giant's foundation is cracking. As for Abbott, it will be more interesting to see how its new proprietary pharmaceutical spinoff, AbbVie, will do once the company is divided at the end of 2012. Investors seem to be happy about this split, as evidenced by the stock's upward swing in the past few months, but to me, this indicates that they have been previously unhappy with the stock's performance.

3SBio (SSRX) has been performing almost parallel to Abbott recently. This company has also started working on a collaboration in China, and so far, it appears to be much more successful than Abbott in that area. However, it might be too soon to tell how the partnership will go. 3SBio looks to me to be relatively stable compared to the others mentioned in this article, but the entire industry is facing hard times as more and more people turn to alternative sources for health care, including nutrition and generic medication.

In this way, Watson is in the best position for the long run, in my opinion, and in spite of its immediate challenges, I believe that investors might want to get into this company as soon as possible. I anticipate that the social trends will treat this stock better than many others in its sector, especially Abbott and Merck, unless they can learn to become more transparently ethical and present their consumers around the world with the high-quality drugs that their investors expect of them.

Source: Pharma's 4 Biggest Losers