Abbott Takes Step Forward and Back

Abbott Laboratories CEO Miles White has transformed his company through a series of big deals.

The latest, a $6.6 billion cash acquisition of Solvay SA's drug business, actually looks like a step back, making the company even more reliant on pharmaceuticals. The acquisition adds new drugs, expands Abbott's markets and, most importantly, provides a new revenue stream so the company isn't so dependent on one product, Humira.

But the acquisition of the Solvay business will make Abbott an even bigger drug company. In recent years, White focused on other areas like medical devices, making Abbott a more diverse company similar to Johnson & Johnson. Suburban Chicago-based Abbott counts on drugs for almost 60 percent of its sales but it also sells heart stents and other devices, baby formula Similac and diagnostic tests.

One concern among investors is how White follows up the success of Humira, a rheumatoid arthritis drug that Abbott acquired in 2001. That drug had $4.5 billion in sales, 15 percent of total revenue, last year. With the latest deal, White adds drugs for hypertension and Parkinson's disease and gains control of two other medicines Abbott sells with Solvay. It also bolsters Abbott's presence in emerging markets.

“This is a significant business that will further diversify the sources of our pharmaceutical growth,” White said in a conference call with investors today.

A number of large pharmaceutical companies are making strategic moves as they face expiring patents on blockbuster drugs. The good news for Abbott is it doesn't lose patent protection on Humira until 2016. But the company lacks other drugs in development that could be potential blockbusters someday. A Morningstar analysis of 10 large drug companies earlier this month showed Abbott ranked last in terms of promising products in its pipeline.

White won out in a three-person horse race for the CEO job back in 1998 largely because he had a vision to transform the sleepy hospital supplies and medical test company into something more dynamic. He's largely succeeded and is rarely predictable. The latest deal appears to fix a problem but is a departure from a recent strategy of being a diverse J&J-style health care company.