Abbott Could Reach New Highs On Xience Prime

Apr.23.12 | About: Abbott Laboratories (ABT)

When a company like Abbott Laboratories (NYSE:ABT) frequently makes the news, it is not necessarily a good thing. Breakthrough pharmaceuticals take a long time to develop, so it is not uncommon to have long periods without any news. Abbott Laboratories is not in this rut currently, as it is making a lot of news thanks to a streak of breakthrough developments. This should be welcomed news for both investors and patients alike.

First and foremost, Abbott Laboratories just unveiled the results of a trial evaluating a treatment in development for advanced Parkinson's disease and the results were positive. This drug lowers the "off" time of those suffering from Parkinson's, which means that they experience fewer periods of poor mobility, slowness and stiffness. This is a great breakthrough for those who suffer from Parkinson's and it will solidify Abbott's spot among the pharmaceutical elite. Expect its stock price to respond accordingly.

In fact, its stock price is about $1 higher since the news of this trial broke, now hovering around $60. Being that the news broke very recently, I doubt that we have seen the total effect of this trial and announcement. I expect more information to come on in the upcoming weeks, and if the news is positive, stock holders will notice the difference.

I'm happy to say there is more good news, as recently Abbott also announced it received approval for its coronary artery disease drug XIENCE PRIME in Japan. With this approval, XIENCE PRIME is now available in all major international markets. In essence, this drug is part of one of the thinnest stent systems that will make vessels stronger. It is a step forward in treating coronary artery disease.

Once more it is good to report a breakthrough that will help both patients and investors. With the inclusion in the Japanese market, XIENCE PRIME is now a worldwide treatment. An increase in adoption of this new drug can only strengthen Abbott's position in the market.

But Abbott has had an even busier month, and perhaps the most important news is the breakthrough new Hepatitis-C treatment. This drug is so much more effective than those of its competitors that after Abbott announced the reports, each competitor's stock price dropped at least 1% with Idenix Pharmaceuticals (NASDAQ:IDIX) being the worst loser, dropping over 14%. As if this were not enough, this highly effective treatment is one of two highly effective Hepatitis-C treatments currently in development by Abbott.

I believe that Abbott is a smart long term investment. Its first quarter profits beat estimates and it has now raised its forecast for 2012 earnings. This is without either the Hepatitis-C drugs or the Parkinson's treatment on the market. Adding these treatments to its business will strengthen the growth trajectory that Abbott is currently on.

Of course, being part of the pharmaceutical industry means Abbott is subject to a lot of criticism and bad press, some of which is deserved. One of the biggest threats to Abbott Laboratories is Abbott itself. There is talk about tweaking FDA rules to prevent anti-competitive behavior by pharmaceutical companies. Notably, Abbott repeatedly tweaked its drug formulas so no competitors would be able to enter the market, and if any did, Abbott could sue for patent infringement. These acts cost the United States health care system huge amounts of money. Congress was not happy, to say the least.

Also, the pharmaceutical industry is heavily regulated, and there is talk of more regulation. The FDA is considering forcing pharmaceutical companies to develop diagnostics for drugs which would indicate exactly who could benefit from taking them. This would benefit patients greatly, as they would not have to waste their time and body on a drug that has very little chance of affecting them.

However, diagnostics are very costly to develop. If Abbott is forced to develop these diagnostic tests, you can expect its bottom line to be hurt. Drugs already take a long time to develop and test before being allowed on the market. Adding more diagnostics would bring this already slow process to a crawl. Luckily for Abbott, there will a tremendous amount of discussion before a regulation this size would be implemented.

Of course, these regulations would affect Abbott's competitors as well. And the sunken costs that diagnostics would bring on would hurt struggling companies more than profiting ones. Competitors like Eli Lilly (NYSE:LLY), a company closer to the brink of collapse, would have a harder time coughing up the extra capital than Abbott.

On the other end of the performance spectrum we have Pfizer (NYSE:PFE). Recently, analysts lowered Pfizer's earning per share estimates and downgraded its stock. It's easy to see why. Pfizer was just hit with news regarding the wrongdoing of a bankrupt company it acquired. This company is being sued due to asbestos, and Pfizer recently learned that it is not shielded from all asbestos claims brought the former company. These claims could go as high as $4.45 billion dollars. I expect this case will take a toll on Pfizer's reputation. I would be very surprised if Pfizer's investors don't start fleeing once this case gets fully underway. Conversely, watch for Pfizer to make a big move to counteract this case.

Another competitor, GlaxoSmithKline (NYSE:GSK) is somewhere between Pfizer and Abbott. So in between, in fact, that there is not much I can even say about GlaxoSmithKline. I think investors agree, as its stock price has been very erratic of the post three to four months. It is currently trading at about $46. Other than signing a strategic drug discovery alliance with biotech company Five Prime Therapeutics, GlaxoSmithKline is nonexistent. I would be very cautious about buying its stock, especially since other pharmaceutical companies like Abbott are churning out relevant new drugs at a breakneck pace.

Abbott may have found itself a high road to success already in 2012. My advice is to jump on board and enjoy the ride.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.