Abbott completes separation of AbbVie

Abbott on Wednesday announced that it completed the separation of its research-based pharmaceuticals business, establishing AbbVie as an independent biopharmaceutical company. Abbott CEO Miles White, who described the move as "the most transformative action in [the company's] 125-year history," said AbbVie "is already making a significant difference, focusing on highly specialised, market-leading therapies for some of the world's most difficult-to-treat diseases."

In November, Abbott announced that its board of directors approved the previously announced plan to separate its research-based pharmaceuticals business into the new entity, which will sell Abbott's proprietary drugs, while Abbott's focus will include diagnostic tests. The company stated that for every one share of Abbott common stock held, shareholders will receive one share of AbbVie common stock.

Commenting on the news, Morningstar analyst Damien Conover noted that "the biggest challenge is the high reliance on Humira," noting that new branded drugs are launching in Humira's key therapeutic areas, including Pfizer's recently approved rheumatoid arthritis treatment Xeljanz (tofacitinib). AbbVie also faces the loss of patent protection on certain cholesterol drugs, including Tricor (fenofibrate) and Niaspan (niacin), "so the reliance on Humira will continue to grow over the next one to two years," Conover said.

The analyst noted, however, that the autoimmune therapy is approved for conditions that should provide further room for sales growth, and that the drug's complex structure could impede generic competition, adding that he expects Humira to have an 11-percent, five-year compound annual growth rate due to its strong efficacy and safety record. He further indicated that Humira positions AbbVie to support the company's pipeline, whose key late-stage compounds include the hepatitis C drug candidates ABT 450, ABT 333 and ABT 267. "Those three collectively could all bring in close to $5 billion in annual sales if they are successful and other competitive products are less successful," Conover said.

Bill Chase, chief financial officer of AbbVie, remarked that the company's strategy is to focus "exclusively on specialty segments, where there is high unmet need." He indicated AbbVie would adopt an "incrementalist approach" with regard to acquisitions, saying "we have the financial wherewithal for a larger transaction, but we don't have the need to do a gigantic deal." Chase also noted the company is committed to increasing dividend growth "modestly" in the period up until 2015.

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