Abbott Reports – A New Look?

Abbott Reports – A New Look?

This morning Abbott (NYSE:ABT) announced some surprising results for their diabetes care unit, news which was overshadowed by their more surprising announcement that they will be splitting the company into two publicly traded companies – one focused on medical devices, the other focused on pharmaceuticals.

Before we discuss how this new corporate structure will impact the diabetes care unit, let’s first take a look at third quarter results for the unit which was surprisingly very positive. According to the company the diabetes care unit grew by 8.3% domestically for the quarter and is up 6% on a year to date basis. International sales grew at a slower rate with 2.6% growth for the quarter and 2.4% on year to date basis. Even with the improved domestic results it’s not yet time for Abbott to jump for joy and think all their issues are solved as the today’s results benefit from a comparison to last year’s results which were just awful.

The big question now becomes what this new corporate structure means for the unit. While this may be overstating the obvious it’s highly unlikely the unit will be sold, in fact quite the opposite looks to be true. Given the comments made by the company it appears they not only will keep the unit but allocate greater resources towards it. For the first time the company actually noted they are laser focused on capturing the insulin using patient. While this is hardly shocking news, as everyone in glucose monitoring wants insulin using patients, the shocker here is the company has finally articulated a clear strategy for the unit.

Given this focus and some additional remarks made by the company look for the company to launch some new products which will go beyond delivering a test result and actually try and help the patient dose their insulin. Again this is not all that surprising as the trend in BGM is already headed this way, yet Abbott may have a leg up here as the FreeStyle line of meters are already popular with insulin using patients.

At first glance Diabetic Investor believes this new corporate structure on balance should benefit the diabetes care unit. However, the new structure will not change the dynamics of the BGM market, nor will it change the Abbott culture. About the only thing we know for certain is that everyone will learn more about all this on Friday when the company is holding a meeting with analysts to go into greater detail about the new corporate structure.

If we had to guess Diabetic Investor believes the company is following a model put in place by BGM market leader LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) who reported results yesterday.  Not only will Abbott focus on insulin using patients as LifeScan has, it will also begin outsourcing their R&D as LifeScan did. The reality is with so many BGM companies there really is no reason for the big boys to carry the expense of their own R&D departments.  This is exactly what LifeScan is doing with UBI and Sanofi-Aventis (NYSE:SNY) with AgaMatrix.

As we noted the BGM market is once again in the midst of yet another transformation. This difference this time around is; don’t expect any major deals where companies spend billions to get bigger. In the new world order partnerships and licensing deals will become the norm.  It’s somewhat ironic that Abbott’s acquisition of Therasense will likely go down as the last major deal in BGM. The simple fact is there no reason to grow via acquisition when you can accomplish the same objective more cost effectively.  About the only exception here would be a company like Sanofi, who would make a deal to achieve instant scale and distribution.

It’s equally important to keep in mind this is the wacky world of diabetes devices and that while it appears Abbott wants to stay in diabetes devices, today; this sentiment could change. After all this is Abbott, a company not exactly known for their expertise in diabetes devices or how to effectively manage and grow this type of business.  Up to this point the exact opposite has been true.  The true test for Abbott isn’t changing the corporate structure but changing the corporate culture.