UPDATE: Abbott Continues Acquisition Streak With Solvay Deal
September 28 2009 - 2:25PM
Dow Jones News
Abbott Laboratories' (ABT) $6.6 billion purchase of Solvay SA's
(SVYSY) drug business continues a busy stretch of acquisitions for
Abbott and bolsters the company's reputation of looking outside the
company for growth.
Under the decade-long tenure of Chairman and Chief Executive
Miles D. White, some of Abbott's biggest products - including its
top seller, the drug Humira - were purchased rather than developed
in-house from scratch. The Solvay deal, which comes as Abbott fends
off concerns over slowing growth for Humira, is one of several
Abbott has made recently to diversify its business and add
potentially promising products.
White indicated Monday that his company won't stop here. The
cash-backed Solvay deal doesn't leave Abbott financially or
strategically constrained, he said.
"We continue to be in the hunt for a number of smaller assets,"
White said.
Moody's Investors Service expressed concern that Abbott "may
continue its more aggressive acquisition strategy," and that the
Solvay deal could reduce Abbott's financial flexibility. Moody's
affirmed its long- and short-term ratings for Abbott, but lowered
Abbott's ratings outlook to negative from stable.
Standard & Poor's, on the other hand, said the deal doesn't
change its ratings or outlook for Abbott, which it said has a
"disciplined financial policy."
Abbott shares rose 3% Monday to $48.76 amid a surge for the
broader market and on forecasts that the Solvay deal, expected to
close in the first quarter next year, will immediately add to
Abbott's earnings.
The Solvay news follows Abbott's Sept. 10 announcement that it
plans to spend up to $410 million to buy privately held Evalve,
which makes a system to repair damaged heart valves without major
surgery. It is a tiny business and only outside the U.S. thus far,
but Abbott believes the market could eventually be worth several
billion dollars.
Other recent deals include the purchase of Indian nutrition
business Wockhardt Ltd. (532300.BY) and a $400 million deal to buy
Visiogen Inc., which makes replacement lenses for cataract
patients. Those followed the $1.36 billion acquisition of
vision-care company Advanced Medical Optics Inc. in February.
These moves represent a mix of quick boosts to sales and
earnings, and fliers on small but potentially lucrative products.
Matthew Loucks, a portfolio manager with Abbott shareholder Sit
Investment Associates in Minneapolis, isn't a fan of the bigger
Solvay and Advanced Medical purchases, but he likes smaller
transactions that beef up Abbott's pipeline.
That is particularly important for the company, which Loucks
said hasn't "been overly successful in developing their own
products."
But Abbott has had success when it comes to acquiring and then
further developing key products. The top example is Humira, a drug
used for various types of arthritis and inflammatory diseases that
came from the $6.9 billion Knoll Pharmaceuticals purchase in 2001.
Humira, which has continued to gain access to new markets under
Abbott, posted $2.33 billion in 2009 sales through June.
Abbott's purchase of Guidant Corp.'s vascular business in 2006,
for $4.1 billion plus various payments and a loan to Boston
Scientific Corp. (BSX), proved to be another winner. It gave Abbott
the "Xience" stent - a scaffold for clogged heart arteries - which
later became a market-leading device behind strong clinical study
data.
To Loucks' point, Xience arrived just in time to offset a
home-grown Abbott stent program canceled due to less-impressive
data.
The Humira and Xience home runs put pressure on Abbott to keep
the good times rolling, now that both products are maturing and
losing prior high-growth steam. Abbott's White, for his part, said
the Solvay deal should reinforce the company's growth
prospects.
Abbott spent about 9% of sales on research and development in
the first half of 2009, which matches the company's projection for
the full year. By comparison, Johnson & Johnson (JNJ), the huge
pharmaceutical and medical-products conglomerate with which Abbott
is often compared, spent 10.4% of first-half sales on R&D.
Buying Solvay's drug business will add about $500 million to
Abbott's annual R&D investment, and will lift spending as a
percentage of sales by at least half a point, Abbott said.
White said Abbott has a "very, very healthy" early and mid-stage
pipeline of products it discovered that isn't well-known. Adding
Solvay's drug business bolsters Abbott's ability to fund and move
its own pipeline forward, White said.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com