Replies to post #128784 on Biotech Values

[ghmm]

ABT:

The street must like the news the stock is up about 6 (over 10%) in premarket!

[DewDiligence]

ABT—I guess the Pharma unit will have the higher PE

I think it will be the reverse: i.e. the diversified products successor company (the one that will continue to be called Abbott) will have a higher P/E than the proprietary pharma successor company that keeps Humira, the cholesterol franchise, and the development pipeline.

Worry about future competition for Humira (especially from PFE’s Tofacitinib) has unduly affected ABT’s share price (#msg-61383188, #msg-66970993), and the split-up is intended to remove this worry from the valuation of the diversified products successor company. It’s a dumb move, IMO, but that’s the rationale.

[DewDiligence]

ABT—Analysts are starting to conduct valuation arithmetic on the planned split-up; as conjectured in #msg-68125025, the pharma successor company (AbVie) will likely receive a lower P/E ratio than the diversified products successor company (Abbott):

http://online.barrons.com/article/SB50001424053111903715504577309582498394516.html

JPMorgan Chase analyst Michael Weinstein last week valued the two parts at around $60 a share. That reflects an anticipated price of $34, or 10 times estimated 2012 profit for AbbVie, and $26 for new Abbott, or 14 times earnings. Abbott is likely to be more richly valued than AbbVie because of expectations of double-digit annual profit growth from its diversified portfolio [i.e. it doesn’t have to contend with patent expirations on branded drugs].

Barbara Ryan of Deutsche Bank has a more bullish target of $70, based on higher estimated values for the two parts. She and others see the pharmaceutical division anchored by a high dividend that could top 4%. Abbott now pays a 3.3% dividend, and the two new companies plan to pay out a like amount, with the new Abbott expected to yield about 2%.

[DewDiligence]

ABT’s diversified products segment (i.e. what will become the new Abbott when AbbVie is spun off) showed during 1Q12 why it will be a premiere beneficiary of The Global Demographic Tailwind. Some highlights from the quarter:

• 40% of nutritional-product sales came from emerging markets, where YOY growth exceeded 10%.

• 60% of “established products” (i.e. branded generics) sales came from the BRIC countries, where YoY growth was 17%.

• Sales of diagnostics in the BRIC countries grew 25% YoY.

• Sales of vascular products in the BRIC countries had double-digit YoY growth. (60% of ABT’s drug-eluting stent sales are ex-US.)

Humira had a pretty good quarter too: $1.93B (a $7.7B annualized rate), +19% YoY in constant currencies.

Due to the solid quarter, ABT raised its non-GAAP EPS guidance for 2012 by $0.05 to a range of $5.00-5.10.