Company overview - College of Business at Illinois by hcj


									        Abbott Laboratories
Shih-Yi Chang, Richie Hartz, Anastasia Sutjahjo
•   Introduction
•   Company Overview
•   Macroeconomic & Industry Review
•   Equity Performance
•   Financial Analysis & Projections
•   Recommendation
 Current Holding
April 2011
Acquired 200 shares @ $52.10
November 2011
Acquired 100 shares @ $52.91
November 23, 2012
u Current position: 300 shares @ $64.47/share

u Market value: $19,341

u 15% of the total portfolio
Company overview
  Abbott Laboratories
u Abbott Laboratories is a diversified pharmaceuticals and healthcare
  products company. Abbott was founded in 1900 and went public in 1929.
u Major operations in the US, the Netherlands, Germany, Japan, Italy, France,
  Canada, the UK and Spain.
u The company primarily operates in five segments: proprietary
  pharmaceutical products, nutritional products, established pharmaceutical
  products, diagnostic products, and vascular products.

  Proprietary pharmaceutical

u The proprietary pharmaceutical division is composed of a variety of branded
  pharmaceutical products currently covered by patents.
u These products are sold under various brands that include Humira,TriCor,
  TriLipix, Simcor, Niaspan, Synagis, AndroGel, Creon, Synthroid, Zemplar, Lupron,
  Ultane and Kaletra
u Management has announced that this segment will be its own publically traded
  company by the end of 2012, named AbbVie.
 Company overview
Established Pharmaceuticals                            Nutritionals

 u The established pharmaceutical      u Manufactures and markets a line of
   products segment includes a           pediatric and adult nutritional
   broad line of branded generic         products.
   products.                           u These products are distributed to
 u These products are no longer          wholesalers, retailers, health care
   protected by patents and face         facilities, and government agencies
   increased competition from            under a variety of names.
   generic manufacturers.
       Vascular Products                           Diagnostic Products
u The vascular products segment        u The diagnostic products segment is
  manufactures, markets, and sells a     engaged in manufacturing, marketing,
  wide range of coronary,                and selling of diagnostic systems and
  endovascular, vessel closure, and      tests
  structural heart devices for the
  treatment of vascular diseases.
Industry overview

       u Aging population and increasing incidence of chronic disease will increase the
         demand of pharmaceutical industry.
       u The percentage of world population over the age of 60 is projected to grow from
         11% in 2010 to 21.8% in 2050.
Source: US Bureau of the Census
Industry overview
                                        US unemployment rate

           u As the economy has improved, the unemployment rate has continue to drop,
             reaching 7.9% in October 2012
           u Nearly 60% of US workers receive health insurance from their employers, and
             as unemployment rate drops, more individuals become covered.
           u As the number of the US workers and families with health insurance increases,
             the demand for pharmaceutical products and nutritional products increase.
Source: US Bureau of Labor Statistics
Industry overview
             New Geographic bases:

             u“Pharmerging markets” –China,
             India, Brazil, Russia, Turkey, Mexico,
             and South Africa are forecast to drive
             industry growth to 2020.

             uChinese government implement its
             policy to significant expand healthcare
             system and will replace Japan as the
             world’s second-biggest market for
             drugs after the US by 2016

Industry overview

  u By 2014, IMS predicts the “pharmerging 17” will match the size of
    Europe and Japan combined, adding $140 billion of incremental sales
  u Emerging markets represent a great opportunity for Abbott
  Industry overview

u The patent cliff in 2011 began hurting                          u Federal funding for Medicare and Medicaid
  revenue in 2012 and threatens future sales.                       is expected to decrease during 2012
u Healthcare reform is expected to boost                          u Funding for prescription drugs is expected
  sales as more individuals gain prescription                       to increase by 2013, representing an
  drug coverage in 2014.                                            opportunity for the industry.
Source: IBIS, Brand name pharmaceutical manufacturing in the US
Industry overview
              u In the next few years, numerous
                patents on blockbuster drugs will
                expire. The brand name
                pharmaceutical manufacturing will
                face the loss of patent protection
                and competition from generic
                drugs manufacturing firms.
              u When faced with potential
                revenue decrease from loss of
                patent protection, majors players
                in the industry started to adopt
                new business models:
                1. Cost down
                2. Use of new technology
                3. Product diversification
                4. Strategic alliance.

 Industry overview
                                                                                Unit: USD, thousand

Company            2011 Revenue   2011 R&D Cost                    R&D/Revenue(%)
Abbot Laboratories 38,851,259     4,129,414                        10.63%
Johnson& Johnson   65,030,000     7,548,000                        11.61%
Pfizer             67,425,000     9,112,000                        13.51%
Merck              48,047,000     8,467,000                        17.62%

                                       u Brand name pharmaceutical
                                         manufacturers’ expenditure on
                                         research and development (R&D)
                                         correlates to the number of new
                                         drugs released.
                                       u As R&D increases, the industry has
                                         more opportunities to discover
                                         products that generate revenue.
                                       u This driver is expected to increase
                                         slowly during 2012.
                                   Source: IBIS, Brand name pharmaceutical manufacturing in the US
Industry overview
u High and increasing globalization:
 During the past five years, the level of globalization has
  increased, with a number of cross-border M&A
  transactions and a growing trend toward collaborative
  alliance in R&D and marketing

u On going consolidation:
Pharmaceutical companies continue to face several key restrictions to
   growth in their markets. M&A is a necessary strategic tool for
   industry companies to lower the impact of these restrictors to
   revenue and margins.

 u Health care reform:
 Healthcare reform will support the revenue growth of pharmaceutical
   industry as it extends coverage to more people. However, reform
   will reduce profit margins by lowering drug costs for consumers.
 Industry overview
uHigh price during the life of                                  High
patents                                                         uHigh cost of R&D and
uRetail drug store have little                                  capital expenditure pose a
bargaining power while hospitals                                substantial obstacle for
and government have more                                        new companies
bargaining power
uObamacare cause uncertainty

                                                                    uBrand name drug
  uChemical inputs as
                                                                    protected by patent
  well as labeling and
                              High                                  uAlternative
  packaging products are
                              uSevere competition from generic      medical treatment
  relatively homogeneous.
                              drugs manufacturers after patent      are not widely used.
                              protection expires
                              uHigh R&D cost and highly regulated
                              clinical trial process
Equity Snapshot

Source: Bloomberg
Equity Snapshot

Source: Bloomberg
Company overview
                                     u Pharmaceuticals represent a
                                       majority of Abbott’s revenue,
                                       with proprietary and
                                       established products
                                       generating $17 billion and $5.4
                                       billion in 2011, respectively.

                                     u Abbott’s largest product is
                                       Humira, an anti-arthritis
                                       medicine, with nearly $8
                                       billion in revenue for 2011,
                                       account for 21% of the total

Source: Abbott, Annual report 2011
       Company overview

Source: Abbott, Annual report 2011

    u The United States generated 41% of Abbott’s revenue in 2011, compared to
      43% in 2010 and 47% in 2009.
    u Abbott has increasingly relied on international markets, and emerging
      markets in particular, to grow revenue.
Company overview

 u 2012 EPS forecast: $3.83-3.85
 u Management announced a 51 cent dividend for Q3 2012 - the 355th
   quarterly dividend since 1924
Company overview
Major acquisition: Increase product lines through acquisition
Year   Company                      Strategic Fit
2001   Knoll                        Acquired the right of drug Humira, which
                                    treats rheumatoid arthritis and a highly
                                    profitable drug
2004   Therasense                   Acquired products for diabetes treatment
2005   Guidant                      Acquired several vascular products
2009   Advanced Medical Optics      Started vision eye care division
2009   Solvay pharmaceuticals       Expanding its presence in emerging
                                    markets and enhancing its portfolio of
                                    pharmaceutical products

2010   Piramal Healthcare (India)   Expanded pharmaceutical portfolio abroad
                                    and become India’s largest drug company
Company overview
                               SWOT Analysis
Strength:                                    Weakness:
uAcquisitions strengthened Abbott's          uAlleged illegal marketing practices
presence in diverse healthcare segments      resulting in costly settlement
and territories                              uWeak launch portfolio increasing
uIncreased focus on R&D enhances             reliance on Humira
medical devices and nutritional portfolios
uHumira drives Abbott’s proprietary
   pharmaceutical business growth

Opportunity:                                 Threat:
uAbbott’s proposed split into two            uHealthcare reform in the US could
healthcare companies                             negatively impact the company's
uAlliances likely to help Abbott in              profitability
  strengthening its product pipeline         uRegulatory hurdles may affect
uSuccessful launch of approved               intended benefits from proposed split
products in major markets                    into two companies
Company overview
           Mid- to Late-Stage Programs

      Company overview
     Spin-Off: Two Independent, public traded Companies

   AbbVie: The research-based pharmaceutical company

                 Product Mix                                     u Annual Sales: Nearly $18 billion
                                                                 u Portfolio: Numerous leading medicines,
                                                                   including: Humira, Lupron, Synagis,
                                                                   Zemplar, Kaletra, Creon, Duodopa,
                                                                   Synthroid, Androgel and others.
                                                                 u Pipeline: more than 20 new compounds
                                                                   or indications in Phase 2 or 3
                                                                 u Strategy focus:
                                                                 • Continuing growth of leading brands
                                                                 • Advancing specialty-focused
                                                                   pharmaceutical pipeline
                                                                 • Strong margins and robust cash flow

      Company overview
     Spin-Off: Two Independent, public traded Companies

   Abbott: The diversified medical products company
                   Product Mix                                    u Annual Sales: Approximately $22 billion
                                                                  u Portfolio: Market-leading positions in
                                                                    established pharmaceuticals, adult and
                                                                    pediatric nutritionals, core laboratory
                                                                    diagnostics, point of care and molecular
                                                                    diagnostics, and medical devices.
                                                                  u Strategy focus:
                                                                  • Global and emerging markets presence.
                                                                    Expanding geographically: products in
                                                                    more than 130 countries with nearly 40%
                                                                    of sales in emerging markets today.
                                                                    Abbott is the leading pharmaceutical
                                                                    company in India.
                                                                  • Developing new technologies
Financial Analysis
Financial Analysis
Discounted Cash Flow
Comparable Analysis
Comparable Analysis
New Abbott
Comparable Analysis
u   Buy 100 Shares @ Market Price
     ØUndervalued based on both multiples and DCF
     ØArtificial pullback represents buying opportunity
     ØDiversification of the portfolio is less, given
      increased position, but deemed worth the risk

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