It’s been said that one person’s trash is another’s treasure.
Granted, the separate pharmaceutical company that will be created by Wednesday’s spinoff announcement by Abbott Laboratories (NYSE:ABT) can hardly be considered a throwaway. After all, the brand-name drug firm likely will have sales of about $18 billion. Still, it’s clear that Abbott CEO Miles White’s decision to detach the drug unit reflected his belief that it was dragging down Abbott’s other faster-growing businesses, including nutritionals and medical devices.
But it’s possible the as-yet-unnamed company might never see the light of day. That’s because just hours after the Abbott announcement, rumors already have surfaced that some members of Big Pharma might be eying the business.
The names of potential suitors being bandied about include Merck (NYSE:MRK), Astra-Zeneca (NYSE:AZN), Roche (PINK:RHHBY) and Bayer (PINK:BAYRY).
How much would it take to get Abbott’s brand-name drug business? Estimates vary. Jeffrey Holford, a Jefferies Group Inc. analyst in London, said the new company might be worth $29 per share, according to a story by Bloomberg. If so, that would place its value at $45 billion, based on 1.55 billion Abbott shares outstanding. Jami Rubin, a Goldman Sachs Group Inc. analyst in New York, puts the price higher, at $54 billion, with a greater value possible depending on how much the company might save through cost cutting.
Prospective suitors undoubtedly are drooling over the prospect of adding the crown jewel of the Abbott product line to their offerings. That is Humira, the treatment for rheumatoid arthritis, psoriasis and other autoimmune disorders, which is forecast to generate $11 billion in sales by 2016. By itself, the market for autoimmune treatments alone is forecast to grow by as much as 9% annually to $32 billion by 2015, according to IMS Health Inc., the prescription-data company based in Norwalk, Conn.
Humira is expected to become the No. 1-selling drug in the world after the Pfizer (NYSE:PFE) cholesterol treatment Lipitor loses patent protection in the United States later this year. Humira won’t face the same fate until December 2016. But even after losing marketing exclusivity, Rubin thinks generic competition for Humira is likely to be limited because of the difficulty of copying the complex biological drug.
The Humira dynamic could change, however, if the new Pfizer treatment for rheumatoid arthritis lives up to its early reviews. Recent data from a trial of the drug, called tofacitinib, showed it was as effective as Humira. And the Pfizer drug has a big advantage in that it is taken orally, as opposed to Humira, which is injected.
Abbott does have a successor to Humira in the pipeline. But a great deal can go wrong in clinical trials, and potential buyers probably are leery of paying for a drug that isn’t yet on the market.
Uncertainty about the prospects for the Abbott pipeline might have been one of the reasons the company decided a spinoff was its best option. We’ll have to wait to see how much another big drug company is willing to pay for the known — and the unknown.
Barry Cohen is long PFE and AZN.
