Updated: 12:45 p.m. Abbott Laboratories said on Wednesday it would separate into two publicly traded companies, one focused on medical devices like heart stents and the other in what it called “research-based pharmaceuticals,” such as its blockbuster rheumatoid arthritis drug Humira.
The medical device company will have $22 billion in annual sales and be led by current Abbott chairman and chief executive Miles D. White and retain the Abbott name while the other company will have $18 billion in annual sales, which has yet to be named and be led by Richard A. Gonzalez, an Abbott veteran of three decades.
“Today’s news is a significant event for Abbott, and reflects another dynamic change in our company’s 123-year history, strengthening our outlook for strong and sustainable growth and shareholder returns,” said Mr. White.
Before he was named CEO in 1999, Mr. White, 56, ran the company’s diagnostics business, which will also be included in the Abbott device business. The company’s Ohio-based Ross nutritionals business, which sells Similac nutritional formula, will also be included in the device company.
The deal is another chapter in the comeback story of Mr. Gonzalez, who in 2007 retired as Mr. White’s No. 2, president and chief operating officer, after recovering from a successful battle with throat cancer. Mr. Gonzalez returned to a venture investment arm that Abbott started in 2008. And last year, he was tapped to run Abbott’s global pharmaceuticals business. While acting as the second-in-command, Mr. Gonzalez headed the 2006 integration of Guidant Corp.’s vascular business, which Abbott bought for $4.1 billion.
An Abbott spokesman said Mr. Gonzalez is healthy. “ I don’t think it could be in better hands,” Mr. White said of putting Mr. Gonzalez in charge of the new pharmaceutical company.
Some analysts questioned whether splitting the pharmaceutical business off only to be sold to a pure-play pharmaceutical company wasn’t the end game.
After all, these analysts reasoned, Abbott’s blockbuster drug Humira is poised this year to generate $8 billion of the proposed new company’s $18 billion in annual sales. Yet Humira is also expected to face competition from cheaper so-called “biosimilar” versions of the drug by 2016, threatening a drug that treats multiple autoimmune diseases and has grown by more than $1 billion a year in sales since its launch.
But Mr. White said Abbott is committed to remaining diverse while the new company will be more like other companies that have shed non-pharmaceutical businesses but will operate fine on its own with a strong pipeline of potential blockbuster drugs to drive sales.
“We have two long-term sustainable companies,” Mr. White told analysts investors on a 90-minute conference call Wednesday morning. “ We have no interesting in selling. We’re not looking to sell or merge it or anything else.”
White also said a sale would result in substantial tax payments. The division of the companies, however, will result in a tax-free distribution to shareholders. Abbott said the deal should be completed by the end of next year.
Wall Street analysts could hardly contain their glee over Abbott’s move when asking questions on the analysts call.
“A split or spinoff of certain businesses has been a move that investors had hoped for, for some time, given the belief that Abbott’s parts are worth more than the whole,” said Rick Wise of Leerink Swann in New York.
In 2004, Mr. White spun off Abbott’s hospital products division into what today is Hospira Incorporated, a maker of generic injectable drugs that has grown into a global company poised to make cheaper copies of biologics, a burgeoning business.
While stock analysts cheered the announcement, a research firm for corporate bonds, Gimme Credit, said it was changing the outlook for Abbott to deteriorating from stable, a signal there could be a downgrade. The company said Abbott’s size and diversity had been key factors in its strong credit profile.
“Its financial aggressiveness had already soured us on the credit to some extent, and now with details of its spinoff vague bondholders will be left in limbo for months,” Carol Levenson, director of research at Gimme Credit, wrote.
There were no questions from Wall Street on a day Abbott disclosed it was taking a $1.5 billion charge in the third quarter for a possible settlement related to the Justice Department’s investigation into allegations the company’s drug sales force improperly promoted the anti-seizure drug Depakote.
In a statement, Abbott spokeswoman Melissa Brotz said the settlement talks with federal prosecutors “are ongoing, and until concluded, there can be no certainty about definitive resolution.”