Abbott Laboratories (ABT) is currently one of the most appealing investments in the Big Pharma sector. Abbott continues to increase applications for its industry leading rheumatoid arthritis drug, Humira; its patent doesn't expire until December 2016. Abbott Laboratories recently put Depakote misbranding litigation to rest by settling with all concerned parties. Abbott has also unveiled a promising product for CAD, and remains focused on developing treatments for hepatitis C.
Pfizer (PFE), Johnson & Johnson (JNJ), Novartis (NVS), and Gilead Sciences (GILD) are the firms most comparable to Abbott Laboratories. Pfizer and Abbott are around 22 times earnings, while Johnson & Johnson and Gilead are closer to 21 times earnings. Novartis' $3.53 EPS is the highest, while Gilead's EPS is around $3.30 and Abbott's EPS is around $3.09. Abbott's EPS growth has been around 1.5% in 2012, and is projected to increase about 6.3% for 2013. Abbott's ROE is 19.2%; its operating margin is around 16.1%, and its profit margin is around 12.3%. Abbott's current ratio is about 1.53, and its debt-equity ratio is around 0.74. All of the major pharmaceutical companies' price-to-sales ratios are around 2.9.
Abbott has the lowest beta score among these firms; its average volume is around 5.6 million, and its relative volume is around 1.1. Abbott's 29.2% year-to-date stock increase and 5.5% increase in the past month is the highest among the four major pharmaceutical firms. Gilead is a stronger growth stock in the sector; its stock increase has been 68% year to date and 15.2% in the past month. But Abbott's 2.5 short ratio and 0.9% float ratio are both lower than Gilead's corresponding ratios. Abbott's annualized dividend is about $2.04 per share; its stock has increased around 7% since the last earnings release.
In Abbott's recent earnings release, second-quarter net sales totaled $9.8 billion, increasing 2% year over year; total costs decreased to $7.7 billion from $7.84 billion year over year. Abbott's second-quarter operating earnings increased to $2.86 billion from $2.59 billion year over year; net earnings decreased to $1.72 billion from $1.94 billion year over year. Long-term debt increased to $17.12 billion from $15.48 billion year over year; cash and cash equivalents on hand at the end of the first half increased to $7.05 billion from $4.07 billion year over year. Abbott's first half 2012 U.S. sales totaled $7.9 billion, increasing 6% year over year; international sales totaled $11.36 billion, increasing 1.4% year over year. The stronger U.S. dollar decreased international sales by 5.1% year over year.
First-half 2012 Proprietary Pharmaceutical Products totaled $8.45 billion, increasing 6% year over year; operating earnings increased to $3.48 billion. First-half U.S. Proprietary sales totaled $4.53 billion, increasing 7% year over year; Humira sales totaled $1.82 billion, increasing 26% year over year; and AndroGel sales totaled $508 million, increasing 20% year over year. First-half International Proprietary totaled $3.91 billion, increasing 4% year over year; excluding negative currency impact, these sales increased 10.6% year over year. These Humira sales totaled $2.43 billion, increasing 11% year over year. U.S. Pediatric sales totaled $731 million, increasing 20% year over year. Excluding impairment charges, R&D expenses increased 9.4% in the first half 2012; Abbott allocated $1.1 billion to Proprietary Pharmaceuticals, focusing on developments in biologics, hepatitis C, diagnostics, and chronic kidney disease.
Abbott recently announced that the FDA approved Humira's use for an additional indication. When other treatments have already failed, Humira is now approved for inducing and sustaining clinical remission for patients who suffer from moderate-to-severe ulcerative colitis; the EC approved Humira for this use in April 2012. This is the seventh approved indication for Humira in the U.S.; it's the first self-administered biologic for ulcerative colitis in the last seven years. A few weeks ago, the EC also approved Humira for patients who suffer from moderate Crohn's disease but have not responded to conventional treatment.
A few weeks ago, Abbott unveiled Absorb, a drug-eluting bioresorbable vascular scaffold. This device is used to treat coronary artery disease. It is an alternative to the metallic stint used to restore blood flow back to the heart. As opposed to a stint, the scaffold eventually dissolves, naturally, once the vessel is open or unblocked and the artery can sustain adequate blood flow to the heart. This device is available in certain regions in Asia-Pacific, Latin America, the Middle East, and Europe; it's currently under development for the U.S. This device is revolutionary in coronary artery disease treatment and should significantly increase sales in Abbott's Vascular Products segment.
Gilead is currently the leader in the hepatitis C market; Abbott is a close a second. Bristol Myers recently discontinued its candidate after a death in the clinical trials, causing the FDA to put two similar products from Idenix Pharmaceuticals (IDIX) on hold. The CDC projects that there are 2.7 million to 3.9 million people in the U.S. living with the hepatitis C virus. Gilead Sciences acquired Pharmasset for $11 billion to bolster its hepatitis C pipeline; Abbott has developed two candidates of its own, internally, without any massive acquisitions. Gilead, Abbott, and Idenix will also present data from recent studies at the November Liver Meeting.
Abbott recently reached a settlement with the DOJ to pay $700 million in fines for the illegal marketing of Depakote for non-approved uses. In May, Abbott agreed it would plead guilty to the misbranding misdemeanor and pay $1.6 billion to federal and state authorities. The settlement consists of $500 million in criminal fines, $198.5 in lost profit, and $1.5 million to Virginia state officials. Abbott also paid $800 million for civil settlements with state and federal officials and $100 million for states to resolve consumer protection claims. Abbott will be on probation for five years, but the bad publicity surrounding this situation is now behind the firm.
Despite the headlines for flubbed credentials and not having college a degree, Abbott and analysts are more than confident in Richard Gonzalez's ability to head AbbVie, the impending spin-off of the pharmaceutical division. Gonzalez has been with Abbott for 30 years and was an integral proponent and catalyst in the firm's consistent earnings and sales volume growth. Upon regulatory approval, Abbott's scheduled split into two firms at the end of 2012 should enable each entity to increase its focus on their respective niche functions.
The prominence and horizontal expansion of Humira bodes well for AbbVie, and products like Absorb will help Abbott continue to lead the medical devices industry. The split will allow each firm to focus on their niche, in turn bolstering their portfolios and individual pipelines. Current shareholders should hold the stock long term, while interested investors should initiate a position by mid-October.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.