As we roll into the new year, we take a look at the pharmaceutical companies under our coverage following an eventful year marked by major patent expiries. However 2012 has been a great year for drug makers as they witnessed sharp run up in their stock prices as these patent expiries were well discounted by the market in 2011 and hopes of approval for new drugs drove the rally. Abbott Labs (NYSE:ABT), with no major patent expiry and a relatively weak pipeline, managed to be a part of this rally as its share price soared 15% during 2012.
A Glance At 2012
- How Important Are Emerging Markets To Abbott?
- Why Is Abbott Acquiring St. Jude?
- What is Abbott’s Revenue And Gross Profit Breakdown?
- Abbott Earnings Review: Foreign Currency Effects Subdue An Otherwise Strong Operational Growth
- What Can We Expect From Abbott’s Q1’16 Earnings?
- What’s Abbott’s Fundamental Value Based On Expected 2016 Results?
Abbott started the year with a big bang deal that formed a collaboration with Galapagos to take on emerging competition from oral JAK1 inhibitors to treat autoimmune diseases, including Rheumatoid Arthritis (RA). In the second quarter, the company struck a multi-million dollar deal to purchase an early stage kidney drug AP214, to strengthen its drying pipeline.
During the second half, Abbott lost patent protection for its cholesterol drug Tricor in July 2012. Further, several other drug manufacturers, including Roche Holdings and Abylin, reported that their drugs work better for RA than Abbott’s largest selling drug Humira. However, these concerns were doused by various additional indications that Humira was able to add during the period. Humira was approved in Europe for treating patients with severe axial spondyloarthritis (axSpA, a condition that causes chronic back pain and stiffness) and moderately active Crohn’s disease (a form of inflammatory bowel disease that affects intestine).
Later, FDA approved Humira for moderate to severe Ulcerative Colitis (UC, an inflammatory bowel disease that causes inflammation and ulcers in the inner lining of the large intestine), opening the growth opportunity for the drug in the U.S. Abbott’s R&D collaboration with ChemDiv Research Institute (CDRI), a part of Russian R&D group ChemRar High Tech Center, to create improved forms of Abbott’s existing drugs initially, came as the drug maker’s bid to strengthen its foothold in emerging markets.
But, these developments were accompanied by several setbacks. The company’s partner Reata Pharmaceuticals announced plans to discontinue a late-stage trial of their potential blockbuster drug for chronic kidney disease and diabetes due to safety concerns raised by an independent safety committee.  Another issue was Pfizer’s Tofacitinib, touted as major competitor for Humira, got FDA approval in November.
However, the major boost, came later from results of a phase II trial, called Aviator, for its oral pill ABT-450 to treat Hepatitis C. The experimental drug exhibited never seen cure rates in patients, who had earlier failed to benefit from standard treatment. Further, very high cure rates were witnessed for newly treated patients as well. Abbott is now beginning the phase III studies to determine the efficacy for the drug. 
Abbott’s nutritional business did exhibit strong growth during the year on the back of its pediatric powder Similac and several new product launches. However, a research conducted by CER Research, a Hong Kong-based research firm, raised questions that its Similac infant powder did not meet China national safety standards, even as the drug maker refuted the same. The news came along with Abbott’s decision to open a nutritional R&D center in rapidly growing Indian market.
In its medical devices business, the company launched its next generation Drug Eluting Stent (DES) XIENCE Xpedition in Europe, while XIENCE PRIME received approval in Japan earlier this year. However, a strong U.S. dollar throughout the year, did hurt the growth.
Abbott Labs made progress with much talked about spin off of the company into two separate publicly traded companies: One, Abbott Labs, with diversified medical products, and the other, AbbVie, with research-based proprietary pharmaceuticals. To necessitate the separation, the company accessed the bond market and closed one of the largest dollar-denominated bond deals in the last three years, raising close to $15 billion in debt through AbbVie.
What To Expect In 2013?
This year will saw Abbott split into two separately traded companies Abbott Labs and AbbVie. Our current model doesn’t yet reflect the split. Overall, we expect growth in pharmaceutical division to remain mostly flat on account of lost sales due to introduction of generics for its Tricor in 2012. Further, the generic version of Niaspan is set to arrive by late 2013, as part of a settlement agreement between Kos (acquired by Abbott) and Barr (now part of Teva). We expect decline in these drugs’ sales to be offset by growth in Humira and other pharmaceutical sales which include generics.
While 2012 did not see any big bang acquisition, it will be interesting to see if Abbott, which completed various acquisition including Solvay Pharmaceuticals and Piramal Healthcare in the last two-three years, once again goes on acquisition deal spree to get new drugs on board, to fill its mostly empty pipeline. Further, we will also be looking for cues from a phase III clinical study of Hep C pill ABT-450, currently the most promising experimental drug.
We expect Abbott’s nutritional division to maintain the momentum on new product launches coupled with its strong position in the rapidly growing emerging markets. The company should be launching its next generation Drug Eluting Stent (DES) XIENCE Xpedition, along with other vascular products in the U.S. next year, driving the growth in its vascular division.
- Abbott, Reata kidney disease drug trial stopped, Abbott, Oct 18 2012 [↩]
- Abbott hepatitis C drugs bring high cure rates in trial, Abbott, Nov 10 2012 [↩]