Abbott’s (NYSE:ABT) plan to spinout its pharmaceuticals division met with a lukewarm response from investors and mixed views on whether other pharma firms will bid for the new firm.
The health care giant dropped the bombshell news along with its third-quarter results earlier this week, saying it planned to keep its medical products business under the Abbott banner and create a new, as-yet-unnamed public company from the pharma unit.
ABT shares initially soared after the news broke Oct. 19, rising more than 6 percent to a 52-week high of $55.61 before settling back down, ending the day at $53.25 (up 1.5 percent on the day). Share prices have hovered around that mark ever since, with shares down slightly to $53.71 as of about 10 this morning.
The split is good news for Abbott’s medical device division, Morgan Keegan analyst Jan David Wald told Bloomberg BusinessWeek.
“The medical device business is undervalued because it’s part of pharma,” Wald said. “The research pharmaceutical business can stand on its own and do rather well because of the pipeline. … You’ll start to see more people interested in the stock, which has languished for years. The two companies each will be more valuable than they are together.”
But Wall Street researchers were divided in their assessment of the buyout potential for the new pharma unit, with some suggesting that Abbott’s blockbuster anti-inflammatory drug Humira would be too sweet a treat to resist and others doubting the new company’s long-term growth prospects.
Jeffrey Holford, a Jefferies Group analyst, told the website that Big Pharma sharks including Merck (NYSE:MRK), Roche (PINK:RHHBY) or Bayer (PINK:BAYRY) could be circling the waters, attracted by the scent of Humira’s $6.5 billion in annual sales.
The new entity “is likely to be an attractive target,” Holford told the website, predicting that it will be worth about $45 billion. “This will be a fairly clean, stand-alone unit, the type that gets picked up.”
Goldman Sachs analyst Jami Rubin pegged the unit’s value at $54 billion, predicting Humira sales of $11 billion by 2016, according to BusinessWeek, adding that it will continue to produce even after its patents expire because of its difficult-to-reproduce complexity.
“That $11 billion is probably going down … but it’s not going to zero, and it’s going to throw off a ton of cash,” Rubin told the website.
“When it goes off patent, that is going to be a big downer, and hard to replace,” countered Peter J. Solomon Co. vice chairman Frederick Frank, adding that potential suitors have to be concerned about the reasons behind Humira holding ABT share prices down.
Credit Suisse Catherine Arnold there’s doubt about the potential of drugs behind Humira in Abbott’s pipeline. Sanford Bernstein analysts Tim Anderson and Jack Scannell said the pharma biz might not see any buyers step forward because of the revenue slide after drug patents expire, according to Bloomberg.
“With the long-term future of Humira likely tailing off, we are hard-pressed to see the U.S. and European major drug companies we cover wanting to snatch up Humira and the other $10 billion worth of Abbott products,” the researchers wrote in a note to investors, noting that Merck and Roche will likely stay on the sidelines because they already have drugs like Humira on tap.