Biotech Values

[DewDiligence]

Here’s the WSJ take on the ABT-EYE deal. I wonder if ABT
got the idea for the deal from NVS’ partial purchase of Alcon.
After all, Big Pharma has been known to engage in groupthink :- )

http://online.wsj.com/article/SB123176723878473255.html

›Abbott in $1.36 Billion Deal To Buy Advanced Medical Optics

JANUARY 12, 2009, 11:56 A.M. ET
By JON KAMP

Abbott Laboratories agreed to acquire Advanced Medical Optics Inc. for $1.36 billion in a deal that launches Abbott into the eye-health market at a discount but also exposes it to a business that has slumped during the recession.

Abbott will pay $22 a share for Advanced Medical, a big premium to Friday's closing price of $8.85 but also a level where the stock was trading just four months ago.

Shares of Advanced Medical crumbled nearly 90% in September and October [!] as the market for laser-vision correction -- for which the company is the top equipment maker -- was severely damaged by economic pressure. Advanced Medical, which has been restructuring to lower costs, is also still recovering from a contact lens-solution recall in 2007.

But the company also has a big business for treating cataracts, which is an age-related issue and a market fueled by demographics. Overall, Abbott sees Advanced Medical's sales steadily growing in a high-single digits range.

Abbott, which will also assume $1.4 billion in Advanced Medical debt, expects the deal to be neutral to per-share earnings this year and positive next year.

The deal's value "is a fair price for what the acquisition brings to us," said John M. Capek, executive vice president of medical devices at Abbott, in an interview.

Abbott noted that 60% of people over 60 have cataracts and that the number of people with the eye problem is expected to grow nearly 50% in the next decade. The cataract business accounts for half of the revenue at Advanced Medical Optics, and 70% of its cataract sales are overseas.

Analysts asked Abbott executives on Monday about its outlook for the laser-vision, or Lasik market, in which lasers are used to correct vision. The procedures are expensive and paid out-of-pocket, making the Lasik market very vulnerable to economic slump.

But Abbott sees an opportunity for improvement due to Advanced Medical's leading position for Lasik equipment, which includes an increasingly used device that uses lasers rather than a blade to cut a flap in the cornea for surgery.

"Given their broad-base of equipment, they do stand to rebound considerably," Abbott's Mr. Capek said.

Advanced Medical, based in Santa Ana, Calif., has had problems outside of the Lasik market, however, especially in the market for multipurpose contact lens solutions that are used to clean and store lenses. The company pulled its major solution from the market in mid-2007 after health authorities found a link between the solution and a rare but dangerous infection called Acanthamoeba keratitis.

The company quickly reentered the market with an older product and has yet to regain the market share it lost to competitors including Alcon Inc. One question has been when it will roll out a next-generation solution.

Mr. Capek said Abbott sees potential for accelerating Advanced Medical's research and development pipeline. "As part of our due diligence we went through a full portfolio review," Mr. Capek said.

The lens-solution recall came right after Advanced Medical made a play to purchase eye-care rival Bausch & Lomb. The financial hit and stock-drop triggered by the recall made a Bausch deal much tougher to swing, however. Bausch & Lomb is now in private hands.

The major contact lens-makers include Bausch & Lomb, J&J's Vision Care business, Novartis AG's Ciba Vision and Cooper Cos. Major eye-drug makers include Alcon, Bausch & Lomb and Allergan Inc.

Abbott on Monday also reiterated its 2008 earnings target while projecting 2009 earnings, excluding items, of $3.65 to $3.70 a share. The earnings outlook fell within analysts' expectations.‹