Abbott Labs (ABT) reported third quarter earnings of $1.18 per share, a penny above the Zacks Consensus Estimate and at the higher end of the guidance range provided by the company. Earnings increased 12.4% from the year-earlier period, as higher revenues helped drive results. Including one-time items, earnings declined 66.7% to 19 cents per share.
Third quarter revenues increased 13.2% to $9.8 billion, just above the Zacks Consensus Estimate of $9.6 billion.
The Quarter in Detail
All reportable segments performed well during the quarter. While sales for the Durable Growth Business increased 15.3% to $4.2 billion, Proprietary Pharmaceutical sales increased 13.5% to $4.3 billion. Meanwhile, sales for the Innovation-Driven Device Business and Emerging Markets grew 6.0% and 21.0%, respectively.
Performance of the Durable Growth Business was driven by strong Established Pharmaceuticals and stable sales growth in the Core Laboratory Diagnostics, Diabetes Care and Point of Care Diagnostics businesses. The Established Pharmaceuticals division posted third quarter sales of $1.4 billion. Nutritionals, which grew 12.6%, also contributed to the segment’s performance.
Proprietary Pharmaceutical sales were $4.3 billion, up 13.5%. Humira was a major contributor with sales coming in at $2.1 billion, up 25.7%. Humira recorded sales growth in both the US (18.1%) and international markets (32%) during the quarter. Abbott Labs is looking to get Humira approved for ulcerative colitis. Lupron and Synthroid also contributed to Proprietary Pharmaceutical sales growth.
The Nutritional business grew 12.6% to $1.5 billion. Nutrition sales in the US saw a recovery in the third quarter with sales increasing 9% to $682 million. Outside the US, Nutrition sales should continue to experience double-digit growth with stronger performance in emerging markets. Abbott Labs reported strong growth in Asia and Latin America, where the company is expanding its presence and gaining share with the introduction of new products.
2011 Outlook Narrowed
Following the release of third quarter results, Abbott Labs narrowed its guidance for 2011. The company now expects 2011 earnings in the range of $4.64 to $4.66 (old guidance: $4.58 to $4.68). The Zacks Consensus Estimate currently stands at $4.64 per share.
Pipeline Update
Abbott Labs also provided an update on its pipeline. So far in 2011, the company has launched several new products or indications. These include Lupron 6-Month Depot, Androgel 1.62%, the Creon infant-specific dosage, XIENCE Nano, TREK Coronary Balloon System, the ALK gene molecular diagnostics test and the FreeStyle InsuLinx Blood Glucose Monitoring System.
Abbott Labs also submitted marketing applications for XIENCE PRIME and Humira (for ulcerative colitis).
Abbott Labs is working on boosting its vascular products portfolio and expects to launch 20 new coronary, endovascular and structural heart technologies in the next five years. These include the potential US launches of MitraClip and XIENCE PRIME (US launch expected in early 2012).
Meanwhile, the acquisition of Facet Biotech has helped strengthen Abbott Labs' early- and mid-stage oncology portfolio. The company moved elotuzumab, which is being developed with Bristol-Myers Squibb (BMY), into phase III studies for multiple myeloma.
Abbott Labs is also working on strengthening its neuroscience portfolio and has several candidates in different stages of development for the treatment of diseases like schizophrenia, pain, Parkinson’s Alzheimer’s and multiple sclerosis. Abbott Labs, along with partner Biogen (BIIB), moved daclizumab into a phase III study for the treatment of relapsing-remitting multiple sclerosis (RRMS).
Another promising pipeline candidate is bardoxolone, which moved into phase III studies recently for chronic kidney disease.
Abbott Labs to Split into Two Companies
Besides announcing third quarter results, Abbott Labs announced its decision to split into two separate publicly traded companies. While one company will deal in diversified medical products, the other will focus on research-based pharmaceuticals.
The diversified medical products company, with estimated sales of $22 billion, will retain the company name and will include Abbott Labs’ branded generic pharmaceutical, devices, diagnostic and nutritional businesses.
The research-based pharmaceutical company, which is yet to be named, will include Abbott Labs’ current portfolio of proprietary pharmaceuticals and biologics including products like Humira, Lupron, Synagis, Kaletra, Creon and Synthroid. The research-based pharmaceutical company’s annual sales, based on 2011 estimates, should be almost $18 billion.
The new company’s shares will be distributed to Abbott Labs’ shareholders in a tax-free transaction. The split is scheduled to close by the end of 2012. The company is looking to ensure growth through this split. We currently have a Neutral recommendation on Abbott Labs, which carries a Zacks #3 Rank (short-term Hold rating).
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