Tuesday, February 17, 2009

What Does Barron's See in Abbott that We Don't?

We’re well into the second month of the year, the world hasn’t fallen apart as some had predicted. But, then things haven’t taken off as others had hoped. Things are kind of, please excuse the technical term, blah.

Yet, some people are still back in the good old days, or, wish that they were. I found an example in this week’s Barron’s. Neil A. Martin penned an article about Abbott Laboratories (NYSE: ABT) entitled “Abbott Labs: a Prescription for Success”. He paints a very optimistic picture for Abbott. Yet, somehow, I couldn’t help but think that I’ve heard this all before.

Much is made of Abbott’s drug pipeline and how, unlike its competitors, they aren’t about to have any patents expire soon on their key products such as Humira, Niaspin, and Similac. OK, but, don’t patents eventually expire? (OK, I know some of you are snickering out there in the Blogosphere and saying to yourselves, “Not if you’ve got good lawyers.” I don’t buy that and will deal with you in a future blog.) They do. In some parts of the world, like India, they don’t care about your patents and if you try to introduce your products there, you’re going to run into the buzzsaw called ‘generics’.

Much is made of Xience, Abbott’s drug eluting stent acquired from the late Guidant Corporation. Between stents, drug eluting or otherwise, becoming a commodity and the risks from government healthcare reform, I’m not so sure that I’d get too excited about this.

Now, I don’t want to appear to be too critical. Neil does mention Wall Street’s concerns about Abbott’s growth being unsustainable. Though, he does try to minimize their arguments.

CEO Miles D. White is quoted as saying that Abbott if done with acquisitions for a while thereby violating Guy’s Third Rule of Being a CEO, always talk about the possibility of acquisitions. I suspect that White realizes that he can’t do acquisitions anymore for a variety of reasons ranging from financial to organizational.

Here’s why I’m harping on this article and poor Martin. Things have changed in the life sciences sector significantly over the last few years and will continue to do so. Pipelines come to an end. Companies without strong intellectual capital and lengthy track records of scientific achievement, not necessarily resulting in new products, cannot achieve these overnight. Companies with these assets are led by PhD’s in the sciences, MD’s, and similar credentials not MBA’s from Stanford University accomplished in the legerdemain of corporate finance.

The recent lessons from Wall Street and the American banking industry should be sufficient proof that there’s more to running to running a successful business than just a mindless shell game of assets shuffling.

As always, we welcome your feedback. Please contact us at larryrothmansblog@gmail.com. We look forward to hearing from you.

Contributed by Guy de Lastin

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