Abbott Labs Signs Deal to Take On New Entrants in Autoimmune Market

Abbott Labs (NYSE:ABT) on Wednesday announced to enter into a deal with Galapagos to develop and commercialize an oral JAK1 inhibitor in Phase II development to treat autoimmune diseases including rheumatoid arthritis. The deal will cost approximately $1.35 billion. Last week, the company announced to enter into collaboration with University of North Texas science center for human identification testing. If this materializes, these deals will strengthen Abbott’s foothold in autoimmune and diagnostics market. Our price estimate for Abbott Labs stands at $62, implying a premium of about 10% to the current market price.

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Collaboration with Galapagos may help retain its bastion in autoimmune market

Abbott’s Humira, one of the world’s largest selling drugs and a leader for treatment of rheumatoid arthritis, is likely to face competition from other oral JAK inhibitors including Pfizer’s tofacitinib, if they manage to get U.S. regulatory approvals. Humira is a TNF inhibitor and is injected in the body. In addition, Humira with lose its U. S. patent protection at the end of 2016. The collaboration will give Abbott a channel fend off new entrants and help it retain its market leader position in autoimmune market.

The autoimmune segment constitutes nearly 20% of our price estimate for the company. Accordingly, any substantial progress towards development of new oral JAK1 inhibitor drug could impact our estimate of the company’s value.

Enters into an agreement with one of the Leading Forensics Institutions

The company has entered into an agreement with the University of North Texas Science Center, one of the leading forensics institutions, to evaluate and promote the company’s PLEX-ID instrument for use in analyzing human remains to support missing persons and human trafficking investigations. The collaboration may help Abbott strengthen its position in molecular and in-vitro diagnostics market. ((Abbott Collaborates with Leading U.S. Forensics Center on Human Identification Testing, Feb 23 2012))

Terms of the collaboration with Galapagos

Abbott will have to shell out approximately $1.35 billion including an initial payment of $150 million for the global rights. Upon the successful completion of the Phase II studies and meeting certain pre-agreed criteria, Abbott will license the drug for $200 million and will take responsibility of further testing and development. Galapagos would also be eligible to receive additional milestone payments up to $1 billion in addition to tiered double-digit royalties on net sales, once the drug receives final regulatory approvals and upon commercialization. However, Galapagos will retain co-promotion rights in Belgium, the Netherlands and Luxembourg. ((Abbott and Galapagos Announce Global Collaboration, Feb 29 2012))

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