Abbott Labs (NYSE:ABT) reported its Q4 results on Wednesday, which topped market expectations on strong growth registered by the auto-immune disease drug, Humira. The performance of research-based proprietary drugs, which are now a part of AbbVie, is included in Abbott Labs’ results for the quarter as thee split was effective from January 1 2013. The Nutritional segment also continued to support growth in revenues. On a constant currency basis, sales grew by 5.6% year-over-year to about $10.8 billion. A strong U.S. dollar, however, weighed on overall growth which resulted in a decline in gross margins. 
We are updating our model and price estimate for Abbott Labs.
Humira And Androgel: Sales Grow By Leaps And Bounds
Operational sales in proprietary pharma expanded by 8.5% as a result of impressive performance by key proprietary drugs including Humira, AndroGel and Synthroid. This should bode well for AbbVie, which now owns all proprietary drugs following the spin-off.
Other notable mentions were:
- Crown jewel Humira, which dominates the rheumatoid arthritis market, was back on high growth trajectory with 23% growth due to additional indications. In Q3, the drug’s growth had declined to single-digits. 
- Other key proprietary drug AndroGel, a testosterone gel, exhibited almost 40% growth due to continued marketing push and strong demand in the U.S.
- A loss of revenues from cholesterol drug Trilipix/ TriCor and HIV drug Kaletra offset some of the gains. This was, however, expected as generic versions of Tricor entered the market last year. Further, Kaletra continues to grapple with huge competition.
The sales of established pharmaceuticals, which are mainly generic drugs sold in international market and remain with Abbott Labs post spin-off, grew slightly if one excludes the currency impact.
Nutritional: Pediatric, Emerging Market Drive Sales
The Nutritional business, which we expect to become the fastest growing segment for Abbott Labs post spin-off, justified our expectations by clocking 10% growth in Q4. This was largely due to Similac and other pediatric nutritional products like PediaSure, Ensure and Glucerna. Emerging markets drove the international market growth and now constitute around 40% of total nutritional sales. New product launches during the second-half of the year also lent support. The growth was weighed down by relatively slow growth from the adult nutritional products.
Vascular And Diagnostic Division
While the sales in Vascular division declined on a reported basis due to certain royalty and supply arrangement revenues (including Promus) in the U.S. and currency impact, total sales marginally increased excluding these factors. Abbott Labs’ contract to supply Promus stent to Boston Scientific expired in mid-2012 and the latter started manufacturing a new version of Promus internally since then. Xience sales in international market remained buoyant while weakness in the U.S. drug-eluting stent (DES) market dragged down growth.
Emerging markets drove growth in the diagnostics division in which Abbott sells laboratory and molecular tests.
Outlook Going Forward
Abbott Lab’s key growth drivers going forward:
- Per capita income levels in many emerging markets are rising rapidly, which should lead to better insurance coverage and better healthcare. Additionally, new studies and increased access to information have led to rising health consciousness in these markets. These factors should drive growth for Abbott Labs as almost 70% of its total sales are from international market. 
- While its established pharma business was bogged down by a strong U.S. dollar in 2012, we expect sales to rebound with a gradual economic recovery and exhibit mid-single digit growth going forward. In pharma, almost 60% sales are from emerging markets. 
- Further, several early-stage geographic and product expansion initiatives including more than 150 registration approvals and new product launches should drive the growth. 
- Nutritional is expected to be a star performer with Abbott’s huge focus on emerging markets. Abbott has a strong presence in China and recently opened a nutritional R&D center in India. In addition, it struck a R&D deal with a Russian group. Huge untapped potential in these markets provides a significant growth opportunity. Consistent launch of new products will also boost growth.
- In the vascular business, the company will soon be launching its next-generation DES XIENCE Xpedition in the U.S., following recent FDA approval. The device has seen accelerating sales in countries where it was launched.
- Further, Abbott has begun phase III clinical trials in the U.S. to prove efficacy and safety for world’s first drug eluting bioresorbable stent, Absorb, which dissolves in patients’ bloodstreams after finishing treatment of narrowed /diseased arteries. Mitraclip, a valve repair system, is also awaiting approval in the U.S. While these devices are currently approved and being sold in Europe and other markets, the large U.S. market still evades it, pending clinical trials.
Proprietary pharma company AbbVie could continue to see near term high growth on back of Humira and Androgel where the growth will more than offset declining sales of current blockbuster drugs Trilipix/ TriCor and Kaletra. Long-term concerns, however, arise from the fact that the company doesn’t have many blockbuster potential candidates in its phase III pipeline except for hepatitis C drug, which has shown promising results in phase II clinical trials. As the patent for Humira expires in 2016-17, AbbVie will have to keep looking for options to fill the gap.Notes:
- Abbott Reports Fourth-Quarter and Full-Year 2012 Results, Abbott Labs, Jan 23 2013 [↩] [↩]
- Abbott Reports Double Digit Earnings Per Share Growth in the Third Quarter, Abbott Labs, Oct 17 2012 [↩]
- Earnings Transcript, Morningstar, Jan 23 2013 [↩] [↩]