Abbott Settles Depakote Suit For $1.5 billion; Urges FDA To Block Generics

Abbott Labs (NYSE:ABT) was found guilty of marketing its anti-seizure and mood-stabilizing drug Depakote for uses unapproved by the U.S. FDA. Since 1998, Abbott Labs misused Depakote by promoting it for several unapproved uses such as to control agitation and aggression in elderly dementia patients and for treating schizophrenia.

Separately, Abbott has urged to FDA to prevent a sizable number of existing drugs in the U.S. from their generic versions by blocking their entry in the U.S.. Abbott Labs is one of the most diversified healthcare companies globally with operations in development, manufacturing and marketing of pharmaceuticals and other medical products, including nutritionals and diagnostics. It competes with healthcare companies such as Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Merck (NYSE:MRK).

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Depakote settled for $1.5 billion

The total outlay of $1.5 billion constitutes nearly $700 million towards criminal fine and forfeiture and $800 million towards civil settlements with the federal government and states. ^[1] The company admitted to have trained a specialized sales force to promote Depakote in treating dementia. The company also promoted Depakote to treat schizophrenia. This would directly impact the company’s cash balance. We believe, Abbott would have set aside special funds towards Depakote suit as it mentioned about the lawsuit getting settled during FY 2012 in its 10-k SEC filing for 2011.

Appealing to block generics

Abbott is pushing harder to let the generic versions of a considerable number of its drugs not enter the U.S. market and has urged U.S. FDA not to issue licenses to any generic drug company. ^[2] If FDA approves to this appeal for the benefit of the U.S. based companies, it would mean a major set back for generic drug companies as their addressable market would shrink. Abbott would tremendously impacted as several of its drugs are about to go off-patent in coming years.

We maintain a $65.83 Trefis price estimate for ABT, which is a 5% upside to its  current market price.

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1. Abbott Labs agrees to pay $1.5B over Depakote, yahoo.com, May 7, 2012 [↩]
2. Abbott’s FDA move could block Indian biosimilar drug cos, financialexpress.com, May 7, 2012 [↩]