Last October, we were greeted with the news that pharmaceutical and healthcare giant Abbott Laboratories (ABT) would be splitting into two partner companies. One company, that will retain the traditional Abbott name, will become responsible for the company's extensive range of nutritional drinks and healthcare drugs along with other related products. The new "spinoff" company, AbbVie, will focus on pharmaceuticals, in particular Abbott Laboratories' success story Humira, a drug that treats a number of types of arthritis, as well as other conditions such as Crohn's Disease (and generated sales of almost eight billion U.S. dollars last year). It is expected Abbott Laboratories will complete the company split towards the end of this year.
News that plans for Abbott Laboratories to revolutionize its company structure are going full steam ahead are sure to be of great interest to investors; the stock is currently trading at just above $61 U.S. dollars. With prospects looking so good for the company, in both its pharmaceutical and healthcare divisions, is now the right time to invest? It seems incredibly unlikely that Abbott Laboratories would back out on its plans at this stage (a movement that would no doubt see its stock price plummet.) Even the most risk averse of investors can see little motive in not buying shares in the company, which should go from strength to strength over the next few years.
Abbott Laboratories closest rival in healthcare is Merck (MRK), the world's second largest company in the industry, and it now seems very much certain that Merck will soon be competing with a far more specialized Abbott Laboratories. Although shares in Abbott Laboratories are at the moment valued at around $61, when the company splits this won't be the case -- some stock value will go to new company AbbVie, meaning the share price of Abbott Laboratories will fall (investors will be given shares in both companies, so no real value will be lost).
How this affects Merck depends on whether investors in Abbott Laboratories prefer to keep shares in both parts of the split company. I think that although prospects are positive for the divisions either side of the split, some investors will be tempted to put all of their money in the new AbbVie company. The reason behind this speculation is that AbbVie will gain ownership of Humira, which as a lone drug is pulling in a vast proportion of the company's current revenue. Particularly as new uses for the drug are still being discovered, Humira could indeed be the fire behind the rising stock price of Abbott Laboratories, and after the split this fire will solely be behind AbbVie. A shrinking Abbott Laboratories could see Merck take over part of this market share -- but this eventuality does remain unlikely, as it is more probable the healthcare industry on the whole will take a slight hit. Merck should probably be more concerned at the moment about a new HIV drug in the final testing stages by rival GlaxoSmithKline (GSK). The new drug seems to be as effective as Merck's alternative, but has the advantage of having a daily rather than a twice-daily dosage.
While GlaxoSmithKline and Abbott Laboratories have plenty of exciting prospects in the pipeline, spare a thought for embattled Johnson & Johnson (JNJ). The company has had to stem research and production costs in order to preserve bottom-line profits, and has been plagued by product recalls and court cases. One of the latest took Johnson & Johnson head to head with the state of Arkansas, where the local government won a landmark battle and received $1.1 billion in damages. This related to the promotion of the firm's drug Risperdal, and a judge has ruled that Johnson & Johnson downplayed the side-effects which this pharmaceutical product caused. Although the financial hit will be taken by a subsidiary, Janssen Pharmaceuticals, the news will still hit investors hard and affect confidence. I believe that with the U.S. government currently breathing down the backs of this company's activities, it's going to take a lot for Johnson & Johnson to earn back a relatively decent reputation in the corporate world.
Bristol-Myers Squibb (BMY), a pharmaceutical company based in New York, produces a number of drugs that closely rival those supplied by Abbott Laboratories. As transformation into AbbVie takes place, Bristol-Myers Squibb will no doubt be doing all it can to stay in and ahead of the game. The company is currently facing the impending loss of monopoly over product Avapro, the patent for which runs out this year. It will likely dip into its $9 billion resources to secure new products from research companies in order the replace those lost (Plavix was also lost to generics last year).
I strongly believe that after Abbott Laboratories splits into two, both of its children companies will be worthy of investment. AbbVie has Humira to carry it into its new era, and no doubt high levels of R&D funding will bring with it new products along with drug improvements. The healthcare company will focus on growing across the globe, with groundwork already established in the popular nutritional product lines Abbott Laboratories currently supplies. I would recommend investment in the Abbott Laboratories stock, although with its recent strong performance I would predict a slight dip in share value prior to the company split. At the moment, I predict Abbott follow an upward trend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
