CHICAGO, Illinois — Abbott Labs’ play for a Belgian pharmaceutical company pays an immediate but potentially short-lived dividend, although the bigger payoff could be down the road with the development of influenza vaccines, Parkinson drugs and a broad global footprint.
Abbott on Monday said it would acquire Belgian drug company Solvay for $6.6 billion in cash — in the same league as Abbott’s purchase of Knoll Pharmaceuticals almost 10 years ago. Immediately, the Illinois drugmaker gets better access to overseas markets including Eastern Europe, Brazil, Russia and Asia. It also gets an immediate payoff from Solvay’s $1.3 billion heart drug TriCor. Abbott sold the drug for Solvay and paid the Belgians 20 percent royalties. That money now goes directly into Abbott’s pocket, and as a result will boost earnings per share by 10 cents next year, and up to 20 cents by 2012, according to the company.
Solvay also adds approximately $500 million to Abbott’s annual pharmaceutical research and development budget. The Financial Times notes that there’s even more money to be made if Abbott can bring a “sharper focus to operations.” It expects Abbott would shutter Solvay’s Belgian headquarters along with most of its research and development facilities.
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“The acquisition of Solvay Pharmaceuticals further diversifies our pharmaceutical portfolio, expands our presence in key high-growth emerging markets, enhances our investment in R&D and accelerates our long-term earnings-per-share growth outlook,” Miles D. White, Abbott’s chairman and chief executive officer, stated in a press release.
So a good deal all the way around? Not necessarily. Savoy only has an 11 percent profit margin when you remove the royalties Abbott paid for TriCor (18 percent with Abbott’s payments). And Forbes points out that this class of heart drugs is scientifically flimsy and commercially vulnerable. Generics for TriCor are expected next year, and the drug has never been popular on the eastern end of Carnegie Avenue, where Cleveland Clinic’s Dr. Steven Nissen is among those who point to disappointing clinical trial results.
“We’re still waiting for evidence of any outcome benefit,” Forbes quotes Nissen say saying.
“There certainly have been opportunities for [TriCor] to succeed, but it failed in the field trial and it has not succeeded in any of the others,” Nissen also told Forbes.
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But beyond TriCor, there are unique opportunities. The majority of Solvay’s $3 billion business was overseas, while most of Abbott’s sales were in the United States. In addition, the purchase puts Abbott squarely in the global vaccines market, and it acquires treatments for Parkinson’s disease, inner-ear disease, vertigo, irritable bowel syndrome and hormonal health, among others.
If anything, it solves what Dow Jones referred to as Abbott’s “Humira dependence,” relying on a drug that generates almost 20 percent of its revenue but has recently seen sales growth slip daramatically.
Credit Suisse’s Catherine Arnold, while acknowledging the profit boost, would have preferred to see Abbott pursue “more strategic assets that would add better long-term growth.” She said the pressures on the fenofibrate franchise will offset some of the benefits of the deal, and that Humira is still expected to contribute more than one-third of Abbott’s sales growth over the next three years.
Abbott isn’t finished with deals. White noted the company would inherit $500 million in research-and-development capacity that would give Abbott flexibility to pursue licensing or “external partnering” agreements, and that “we hope to share more news on this front in the coming months.”
