People are increasingly putting their money into health and well being, with the focus on living longer through the use of medicines and other artificial means. That means companies like Abbott (NYSE:ABT) have a really good chance of staying on top of the heap for a long time, since their healthcare products are in high demand.
Companies like Merck (NYSE:MRK) have some concerns with the development of generic medicines curtailing its sales. It is easy to see the problems with a market where products are in such high demand. Competitors undercut you simply by developing cheaper substitutes. Yet, should this be a lingering concern for big, established companies? No. This is really only a temporary concern. These are generic medicines with no brand loyalty. Even though generics are a setback for now, they shouldn't cut too far into the earnings of the big pharmaceuticals.
Conversely, Abbott's $1.6 billion settlement is definitely something to watch closely. This is even more concerning since the settlement was for the promotion of "off label" usage. This is the second biggest settlement by a healthcare company since Pfizer (NYSE:PFE) paid $2.3 billion in a settlement way back in 2009. This can be very dangerous for the company's perception. Yet, this shouldn't be too much of a problem, as one report indicates. There are still many good reasons to buy Abbott - it has a good dividend policy and stable financials which would allow the company to bounce back.
One should also consider Pfizer's foray into nutritional supplements for children. The company is trying to reach more markets and latching onto global trends. Pfizer is proactively trying to show people that it has what it takes to maintain its growth.
When you factor in Abbott's recent purchase of a hormone in the effort to separate itself from the dependence on its most popular product, Humira, you see that it is a company looking forward. Abbott Labs is seeking to expand its use of Humira to treat ulcerative colitis aside from its original use as an anti-inflammatory drug. The FDA is still investigating this. The delay might not be in Abbott's favor, especially when you consider the fact that they are planning to cut their companies in two.
Lets take a look at the rest of the market to see how the competition stacks up. Pfizer was already mentioned above and the other big news for the company is that Oliver Brandicourt, head of the primary care unit of Pfizer, will handle the emerging markets department to replace David Simmons, who was at the head of the department since its inception. All eyes will be on him to see if he can recreate the success of Simmons, and that will have a direct effect on the company's stock. So, good luck to him.
Meanwhile, GlaxoSmithKline (NYSE:GSK) is pursuing a creative, if not expensive, strategy when it comes to collaborators. Instead of having a problem where you may face competition, just acquire them outright. This is really smart on its part, since it gets access to all of the research that the company is doing and it can see which ones will profit, either by developing on its own or selling to other pharmacy companies looking for a new product in the market.
Now let's focus on Abbott's upcoming split. Yes, it is planning to cut its company in two: Abbott Labs and a new company that focuses on the pharmaceutical side, AbbVie. It might be a good time to mention that AbbVie's flagship product will be Humira, hence the bad timing of the FDA delay. People have so many questions about how this split will work. Some people speculate that it might damage the stock perception, since the prospect is very risky. Others say that AbbVie might be a good buy in the short term until Humira falls out of patent in 2016. In fact, the perception is so bad that Fitch & Moody has dropped its rating because of it. Is this a valid concern? Not really. Maybe people are just worried about it.
So, what position should an investor take? If you have a position in Abbott, hold on to it. If you don't, try to acquire it for a lower price. This is not a company that you can feel comfortable buying into if only because the sentiment is that the split will be bad for it in this case, and that is what matters.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.