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Abbott's long-scheduled splitup creates two giants
Today (Dec. 10) is the first day that one type of stock shares (so-called “when issued” shares) for AbbVie, being spun out from Abbott Laboraties (Abbott Park, IL). Current Abbott shareholders will receive shares in the new company during a dividend distribution, and active trading for the new company will commence on Jan. 1. The unified company had revenues of about $39 billion in 2011, and employed 61,000. Of that, AbbVie represents $17.4 billion in revenue, and will have 30,000 employees initially. Abbott starts with about an equal number of employees (two layoffs, totaling around 1,200, were announced during this year), with business units of nutrition ($6.0 billion), medical devices ($5.9 billion), branded generics ($5.4 billion) and diagnostics ($4.2 billion).
Miles White, current Abbott CEO, will continue with the new Abbott; Rick Gonzalez, current head of global pharmaceutical products, will take the reins at AbbVie. “This decision is the logical outcome of changes that have taken place in our business environment,” Miles said last spring. While emphasizing that the two structures are not mutually exclusive, he noted that “The research-based pharmaceutical company is a higher margin business, with a more intense research focus, and more of its business concentrated in developed markets. The diversified medical products company will have a higher growth rate, because more of its business is in emerging markets, which are growing faster.”
AbbVie can be said to be “the company that Humira built.” That drug (adalimumab) is expected to gross $9 billion in sales in 2012; it is a leading treatment for rheumatoid arthritis, is approved for nine other indications, and is in late-stage approval for four others. In addition, AbbVie will have extensive development programs for hepatitis C, multiple sclerosis, immunology and central nervous system (CNS) conditions.
In road shows for the two companies that Abbott conducted during November, executives stressed that Abbvie is a large-capitalization biopharma company like others, “but with a robust, durable cash flow.” The new Abbott is positioned as a “balanced” company with significant operations worldwide and across a range of healthcare needs. Management is looking to improve its operating margins through better efficiencies in manufacturing and distribution; diagnostics alone is expected to go from around 13% operating margin to 20%.
De-mergers like this are nearly always driven by the investment community’s sense that the parts are worth more than the sum of the whole. What’s noteworthy, however, is how the realignment illustrates the shape of 21st-century life sciences companies: a fast-growing, high-risk specialty-pharmaceutical business; or a broad-based healthcare products supplier that emphasizes breadth of products and efficiencies of scale.