Biotech Values

[DewDiligence]

ABT Hopes to Defy Skeptics—Again

[The author shows an appalling lack of facility with arithmetic, thinking that a 150% deal premium means ABT paid 1.5x the market price! Despite this, the article gives a good rundown of ABT’s stellar track record of acquisitions from Perclose to Knoll to Guidant’s vascular business to Kos. Moreover, there was the successful spin-off of HSP. All told, ABT is a company that clearly knows how to make value-enhancing deals and you certainly can’t say that about some of the other Big Pharma.]

http://online.wsj.com/article/SB123182060290976723.html

›JANUARY 13, 2009
By HEIDI N. MOORE

Abbott Laboratories is hoping the eyes have it.

The medical-device maker is on something of an acquisition binge, spending nearly $21 billion in the past decade for companies, including Monday's $2.8 billion acquisition of Advanced Medical Optics. The $22-a-share offer, nearly one-and-a-half times Friday's closing price of $8.85 [LOL—see above], certainly cheered Advanced Medical's investors, with the stock more than doubling to $21.50. But Abbott's own shareholders were more subdued, as the stock fell 2%.

While an acquirer's stock often falls in reaction to a deal, Abbott Laboratories must be used to its deals initially getting jeered. In 1999, it paid $680 million for Perclose, a maker of devices used in coronary-bypass surgery. The price -- a whopping 61.8 times earnings -- left investors gobsmacked. Still, Perclose turned into a success. And in 2001, Abbott bought Knoll Pharmaceuticals, a maker of thyroid hormone-replacement drugs, from Germany's BASF for $6.9 billion. While the acquisition slowed Abbott's profit growth, Knoll later paid off in spades with a successful Humira drug for rheumatoid arthritis. Abbott now draws about 70% of its per-share earnings from pharmaceuticals, and the majority of that comes from Humira, according to Morgan Stanley research.

It was the same with Abbott's acquisition of Guidant's interventional cardiology business, whose Xience coated stent recently beat out Boston Scientific's Taxus in key clinical trials, and with the $3.7 billion acquisition of cholesterol drug maker Kos Pharmaceuticals in 2006.

The common theme has been Abbott's bet that an aging population would require more advanced drugs to fend off the inevitable decline of so many baby-boomer bodies.

Now Advanced Medical Optics, of Santa Ana, Calif., makes devices for elective Lasik eye surgery. The surgery is considered a luxury and is hardly a recession-proof service. In addition, Advanced Medical's multipurpose contact-lens solutions were yanked from the market in mid-2007 after being linked to a rare but dangerous infection called Acanthamoeba keratitis. The acquisition would also be Abbott's entry into the ophthalmology business.

Still, given Abbott's deal track record, analysts were ready to give Abbott the benefit of the doubt. "We note ABT's solid track record of timing, executing and integrating transactions," wrote analysts from Leerink Swann.

As to that huge premium? Well Advanced Micro was trading in the mid-20s before the full force of the financial crisis that struck in September.‹