Abbott Laboratories (ABT)

Abbott Laboratories (ABT) discovers, develops, manufactures and sells a diversified line of healthcare products. The company has several revenue segments, including pharmaceutical products such as Humira (anti-inflammatory), Kaletra (HIV/AIDS), TriCor (cholesterol lowering) and Depakote (seizures), diagnostic systems and tests for blood banks, hospitals, consumers, commercial laboratories, and adult and pediatric nutritional products. Pharmaceutical products make up roughly 57% of the total top-line. Abbott sells these products both domestically and in the international markets. International revenues accounted for 50% of the $25.9 billion total delivered in 2007.

March 2008 brought news that Abbott would conclude their 30 year-long joint-venture (TAP) with Takeda Pharmaceutical Products whereby Abbott will receives full-rights to Lupron and will receive cash payments up to $1.5 billion over the next five years based on the sales of other of TAP's products. The transaction closed in April. Takeda retains rights to Prevacid and took full ownership of the pipeline. While Prevacid recorded sales of $2.4 billion (versus Lupron s $645 million) in 2007, Prevacid s patent expires in 2009 while Lupron s should be in place until 2015. We expect both drugs sales to continue to decline but Prevacid sales to fall at a rate 2 to 3 times that of Lupron through 2012 due to severe generic competition. Following the close of the transaction Abbott began recording U.S. sales of Lupron in its operating results and cash payments received from Takeda in its "other income" line item. The two most promising pipeline drugs that Takeda will take from the JV are febuxostat, for gout and TAP-390MR, a next-generation PPI candidate expected to be a successor to Prevacid. TAP-390MR was filed for FDA approval in the fourth quarter of 2007 while we expected febuxostat to receive approval and launch by mid-year. We view the TAP split as a sensible move by Abbott given Prevacid's impending generic competition and with full-rights to Lupron, Abbott can look to build out its oncology business which has been a recent focus for the company. We expect the transaction to be neutral to EPS in 2008 and neutral to slightly accretive afterwards.

Abbott has been a highly acquisitive over the recent past. Companies such as Spinal Concepts, MediSense, and TheraSense continue to contribute nicely to growth. Abbott Labs was a major player behind the scenes in the $27 billion acquisition of Guidant (GDT) by Boston Scientific (BSX) in 2006. Abbott contributed to Boston Scientific $4.1 billion in cash plus $900 million in a loan (at 4%) for Guidant's vascular operations. Through this acquisition, Abbott has acquired strong operations in the vascular and carotid artery stenting market. The deal was a significant positive for Abbott, now the worldwide number one player in bare-metal stents and number internationally in drug-eluting stents (DES). We expect XIENCE V to quickly make Abbott number one in the U.S. DES market as well.

In December 2006 Abbott finalized its acquisition of Kos Pharmaceuticals. Kos Pharmaceuticals is a fully integrated specialty pharmaceutical company that develops and markets proprietary medications for the treatment of chronic cardiovascular, metabolic and respiratory diseases. Kos possessed several products on the market, including Niaspan, a nicotinic acid compound for cholesterol management, Advicor, a combination nicotinic acid plus lovastatin compound, and Cardizem LA and Teveten HCT, two antihypertensive agents. Abbott agreed to acquire Kos for roughly $3.7 billion net of cash. The deal should be neutral to slightly accretive to earnings in 2008 and should build to being significantly accretive thereafter.

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