Abbott Laboratories This Company Report Assessment

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pag). Some business will continue as usual, of course: Abbott's nutrition division, based in Columbus, Ohio and employing approximately 2,000 people, announced that the nutrition unit will "fall under the umbrella of a new medical products company that will retain the Abbott name in a split announced Wednesday" (Rouan n.pag). In addition, the announcement has apparently met with international investor approval: "At the news, Abbott's shares went up 7.3% in premarket trading on Wednesday" (M2 Pharma n.pag).

The split is expected to occur in 2012 and will result in the currently-unnamed pharmaceutical company and the diversified medical products company, retaining the name "Abbott" (Abbott Laboratories n.pag).

(a). Pharmaceutical Company:

The pharmaceutical company is projected to have annual sales of approximately $18 Billion, a portfolio including Abbott's high-profile drugs such as Humira and Lupron, and a pipeline of "promising new specialty medicines and formulations" (Abbott Laboratories n.pag). According to Abbott's press release, this currently-unnamed company will concentrate on innovatively-developed products in certain critical areas of medicine "…such as immunology, Multiple Sclerosis, chronic kidney disease, Hepatitis C, women's health and oncology" (Abbott Laboratories n.pag). Revenue for the pharmaceutical company will come from "developed markets" (Abbott Laboratories n.pag).

(b). Diversified Medical Products Company:

The diversified medical products company, which will retain the name of "Abbott," is projected to have annual sales of approximately $22 Billion, a portfolio consisting of "established pharmaceuticals (branded generics outside the U.S.), adult and pediatric nutritionals, core laboratory diagnostics, point of care and molecular diagnostics, and medical devices, including vascular devices, diabetes care and vision care" (Abbott Laboratories n.pag) and a pipeline of unspecified "new technologies and products" (Abbott Laboratories n.pag).

Abbott expects the diversified medical products company to be "…one of the largest and fastest growing investment opportunities in medical products" (Abbott Laboratories n.pag) due, in part, to an exceptional range of essential healthcare products (Abbott Laboratories n.pag).

An exceptionally bright developmental decision for the split was CEO White's designation of Richard Gonzalez, Abbott's current executive vice president, as CEO for the new research company (M2 Pharma n.pag). "Gonzalez retired in 2007 after 30 years with Abbott but was lured back in 2009 to head its medical investment arm. Last year the throat cancer survivor was named head of Abbott's global pharmaceuticals business" (Yerak n.pag). Some industry insiders are already weighing in on the selection of Gonzalez: Harry Kraemer, former chairman and CEO of Baxter International and now a professor at Northwestern University's management school believes the longstanding working relationship between White and Gonzalez is a good sign: "If people are compatible then the process can go incredibly smooth for shareholders, who often end up owning stock in both companies," Kraemer said (Yerak n.pag).

(c). Possible Problems Executing Company Split:

While the anticipated division of Abbott into two companies sounds straightforward and simple, it could be highly complex and problematic. "Executing a business transformation is always difficult. The problem is sheer scale...Many transformation efforts fail, and even those that succeed often achieve only some of the original goals" (Bridgeland and Zahavi 278-9).

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In fact, while Abbott contends that the division should be accomplished by the end of 2012, Abbott also acknowledges that the split is contingent on approval by the board of directors, the Internal Revenue Service's decision regarding Abbott's intended tax-free distribution of stock for the new pharmaceutical company, and Abbott's intended "Form 10" registration with the Securities and Exchange Commission (Abbott Laboratories n.pag). Nevertheless, Pisano's book, written 5 years before Abbott's announcement, seems to preemptively agree with Abbott's new course of action: "Some industry observers, and even executives within the industry, have expressed the view that established pharmaceutical companies should focus on sales and marketing, allowing smaller, more innovative biotechnology firms to develop products" (Pisano 176). Abbott's anticipated split would allow exactly that division of resources.

iv. Tentative Settlement of Whistle-Blower Suit:

This year has also seen the tentative settlement of a notable whistle-blower suit against Abbott. Between 2007 and 2010, some Abbott sales employees filed four lawsuits against the company, claiming that Abbott's "off-label marketing of Depakote beginning in the late 1990s caused false claims for prescription reimbursement to be submitted to government health programs, including Medicaid" (Loftus, Abbott Books $1.5 Billion Charge for Potential Settlement n.pag). Depakote was approved by the Food and Drug Administration to treat epilepsy, bipolar disorder and migraines (Loftus, Abbott Books $1.5 Billion Charge for Potential Settlement n.pag). The pending suit was filed by a former Abbott sales representative named Meredith McCoyd on behalf of the U.S. government, 24 states, the District of Columbia and Chicago. McCoyd alleges that beginning in 1998, Abbott marketed the drug Depakote for treatment of Alzheimer's and dementia in elderly patients, though Abbott knew that Depakote "was unapproved for the treatment of Alzheimer's, did not work to treat the disease and was actually dangerous for use by the elderly" (Feeley and Cronin Fisk n.pag). McCoyd also claims that due to Abbott's aggressive and fraudulent marketing, sales of Depakote "rocketed to $1.4 Billion per year" (Feeley and Cronin Fisk n.pag). Three unnamed people familiar with the proposed settlement stated that the agreement would require Abbott to pay approximately $800 million to settle civil claims and approximately $500 million in criminal penalties (Feeley and Cronin Fisk n.pag).

3. Conclusion and Predictions:

Abbott Laboratories is one of the oldest-yet-youngest pharmaceutical/biomedical companies in existence. Recently celebrating its 123rd birthday, Abbott is a "granddaddy" of the pharmaceutical/biomedical community; however, its top management is constantly adapting and expanding to enhance its operations, meet the needs of its consumers and benefit the financial interests of its shareholders. Given the intelligent, forward-thinking approach of CEO White and his continuing productive association with Executive Vice President Gonzalez, Abbott should successfully split into two viable companies, continue to weather any economic downturns and provide dividends for the 40th consecutive year.

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