Abbott Laboratories: The Choice Within Big Pharma

So Big Pharma is hurting? Well, Standard & Poor’s does estimate that patent expiration losses in 2008 will exceed $20 billion. I cannot even remember the last time Merck (MRK) got something approved or did not report poor results from a clinical trial. Does Pfizer (PFE) have a strategy going forward to make up for the loss of Lipitor?

The outlook for Big Pharma is very disheartening through 2012. Are there any companies that have slipped through the cracks and emerged as a great Large Cap Pharma player? I can say confidently that Abbott Laboratories (ABT) [56.21, 0.00 (0.00%)] is a fundamentally sound company, strategically broken down into five segments, and has a bright future.

Abbott Breakdown

Abbott is broken down into Five Segments:

• Pharmaceutical
• Nutritional
• Diagnostics
• Medical Devices
• Animal Health

When brushing the surface of the Pharmaceutical division, immediately you key in on HUMIRA.

It is hard to sum up the success and future potential that HUMIRA has in one article, but I will provide some insight on how one drug will be extremely beneficial towards revenue growth.

Allow me to point out some key statistics:

• Worldwide HUMIRA sales for the most recent quarter rose nearly 50% to $1.1 billion (including upwards of 70% international growth)
• In early 2008 Abbott launched HUMIRA for the use of psoriasis, THE 6TH USE FOR HUMIRA, and the U.S. new prescriptions share in dermatology doubled since approval, reaching roughly 30%. On their conference call they noted that more than 3,700 dermatologists have written prescriptions for HUMIRA with nearly 1,000 dermatologists writing HUMIRA prescriptions for the first time since the psoriasis approval in January
• Lastly, due to the unmatched strength of HUMIRA sales YTD and Abbott’s outlook for the remainder of 2008 , they raised the forecast for full-year global HUMIRA sales to more than $4.3 billion. I would hate to forget that some analysts have predicted that HUMIRA will grow to over $6.1 billion in 2010 and contribute $2.12 to EPS. Oh yea, the patent does not run out until 2016

HUMIRA and…..

Diagnostics, the future of healthcare. As we push for more personalized medicine in order to avoid failed clinical trials and lawsuits coming from side-effects, diagnostics are in dire need. ABT’s Diagnostic division saw significant growth during the recent quarter in which sales grew more than 17% with increasing flows coming internationally. ABT saw 16% growth in the Core Diagnostic segment this quarter. This included double-digit growth in the U.S. and internationally. Important to note about the international break-up, the emerging markets represents a promising opportunity for future growth in the Core Diagnostic business, as double-digit growth was seen this quarter in both Latin America and China.

Aside from Pharmaceuticals and Diagnostics, ABT saw quite an increase in revenue coming from the Medical Products division where sales increased 14.7%. More notably the Vascular segment global sales were driven by 35% growth internationally with the immediate success of recently approved XIENCE V. Abbott and the whole healthcare market reacted extremely favorably to the recent approval of XIENCE, and it truly is a next generation drug-eluting stent showing superior performance and durable clinical benefits often spoken about by physicians and patients. On their conference call, ABT said demand is better then expected.

Fundamentals

• Market Cap: $87.95 billion
• Trailing P/E: 21.25
• Forward P/E: 15.56
• Long-Term EPS Growth Rate: 11.20%

By just examining the LT EPS Growth rate we will take a look at some other Big Pharma players and see how Abbott comes out on top.

Long-Term EPS Growth Rates:

• Pfizer (PFE) [18.36, 0.00 (0.00%)]:3.50%
• Glaxosmithkline (GSK) [45.80, 0.00 (0.00%)]: 2.60%
• AstraZeneca (AZN) [45.08, 0.00 (0.00%)]: 5.00%
• Merck (MRK) [32.06, 0.00 (0.00%)]: 6.20%
• Sanofi Aventis (SNY) [36.42, 0.00 (0.00%)]: 2.30%

It is very important you do not get caught into the “value trap” within Healthcare. Some of these core holdings have been trading at multi-year lows and attractive valuations, but with key patent expirations, historically weak pipelines, and more strict FDA regulations the educated investor will easily notice that Abbott Laboratories is the choice within Big Pharma.

Disclaimer: The author does not have any positions in ABT

Comments

[Jason Rines...:]

I agree with his basic analysis about big pharma. I won't comment much further, two of my clients are Astra Zeneca and Merck. He is correct about diagnostics (ie Clinical Trials) are going to boom in emerging markets. U.S. labor has become a lot cheaper these days. It is a shame our political system skews toward Chronie Capatalism. My big pharma contacts want to keep there money here but the political situation is causing them to do what any good capatalist does, invest where it is safest.

2008 Jul 29 09:14 PM