Abbott Labs ' (NYSE: ABT) $6.6 billion
purchase of
Solvay 's pharmaceuticals business is just
what the doctor ordered.
The
diversity doctor, that is.
Anti-inflammatory drug Humira makes up more than 17% of
Abbott's sales, and being that dependent on one drug is very
unhealthy. Sure, Humira is a biologic, which provides it a
little more protection from generics, but sooner or later the
drug will face additional competition. So this purchase helps
Abbott prepare for that eventuality.
Solvay's pharmaceutical business will add $3 billion in
sales to Abbott's $30 billion or so in annual sales and
should add immediately to Abbott's earnings after the deal
closes next year. Abbott is also picking up a pipeline that
includes a drug for battling Parkinson's disease and a flu
vaccine technology, and those are bonuses that could make the
deal look even better. Of course part of the deal includes
$439 million in additional milestone payments, which may be
tied to those drugs getting approved.
The purchase has a multibillion-dollar price tag, but it's
nowhere near the size of
Pfizer 's (NYSE: PFE) purchase of
Wyeth (NYSE: WYE) or even
Merck 's (NYSE: MRK) purchase of
Schering-Plough (NYSE: SGP). Like the latter
purchase, it does include a huge reason for investors to
believe they may be getting a good deal: Abbott and Solvay
already sell two cholesterol drugs, Tricor and TriLipix,
together. Just as Merck was in the best position to analyze
the true value of Vytorin and Zetia, Abbott should be able to
make the best educated guess as to the long-term prospects of
the drugs.
Investors need to be smart about keeping a balanced
portfolio, but they also need to make sure that the companies
they invest in aren't taking undue risk by being dependent on
just one product. After today's purchase, Abbott is looking a
little
less risky.
This article was originally published as
Abbott Labs Looks Less Lopsidedon
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