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ABBOTT
A Promise for Life
Investment Managers:
Jonathan Barki
Su Chen
Lele Liang (Layla)
Nan Liang
Ran Mu (Renee)
Presented: November 3, 2011
ABBOTT
A Promise for Life
Transaction History
 Bought 200 shares at $52.05 on April 28, 2011
 Current Price: $52.88 (as of Nov 2)
 Unrealized gain of $166, 1.59% (as of Nov 2)
Holding value excluding cash
-2
WFR - WFR
1
1%
3%
WAG
16%
ABT
10%
AEO
19%
MOS
12%
DO - 1
3%
MCD
18%
JKHY
12%
DO - 2
6%
ABBOTT
A Promise for Life
Macroeconomics
 Defensive / recession-proof Healthcare sector
 Change in consumers’ behavior – postpone healthcare
Source: Capital IQ
ABBOTT
A Promise for Life
Healthcare Reform
 Pharmaceutical firms set aside $80 billion over the
next 10 years to reduce drug costs
 Challenged to finance the initial costs of drug reform
 12 year exclusivity period on biologics before they face
competition from generic alternatives
 Tax credit for small biotech companies
 No government intervention
News Source:
http://www.rsc.org/chemist
ryworld/News/2010/March/
25031003.asp
ABBOTT
A Promise for Life
Global Demographics
Source: Google data
ABBOTT
A Promise for Life
Global Consumption Power
ABBOTT
A Promise for Life
Stock Performance
Source: Capital IQ
ABBOTT
A Promise for Life
Industry Current Revenue
 US and Europe markets: growth slows down
 Emerging markets: robust growth
Source: IBIS World,
April 18, 2011, P54
ABBOTT
A Promise for Life
Industry Revenue Outlook
Source: IBIS World,
April 18, 2011, P56
ABBOTT
A Promise for Life
Industry Characteristics
Concentration
-Players: low
-Geography: high
-New launch: high
Life cycle
-growth
(40-50 Years)
Market size
-growing
($980 Bn sales)
Rivalry
-high
Barrier to entry
Regulation
-high
- heavy
Source: IBIS World,
April 18, 2011, P10
ABBOTT
A Promise for Life
Industry Main Players
Source: IBIS World,
April 18, 2011, P34
ABBOTT
A Promise for Life
Industry Cost Structure
Source: IBIS World,
April 18, 2011, P25
ABBOTT
A Promise for Life
Industry Key Factors
 Key sensitivities:
Population age, Systems and tech, attitudinal change and
regulation
 Key success factors:
Brand names, tech sharing arrangements, R&D, product
development and financing arrangement
 Hold-back factors:
Patent expirations, competition, a depleted product
pipeline, regulatory, price pressures and deteriorating
public opinion
Source: IBIS World,
April 18, 2011, P32
ABBOTT
A Promise for Life
New Drug
 New Chemical Entity: with patent– monopoly
 high risk
- time: 10-15 year
- money: $800million- $1billion
- probability of success: 1 out of 5,000 to 10,000
 high return
 Generic Drug: no patent– competition
 low risk
 low return
Source: Drug Discovery and
Development, innovation.org
ABBOTT
A Promise for Life
Drug Pipelines- New entity
Pre-
Clinical
Clinical
Clinical
FDA
Post-
clinical
Trials
Trials
Trials
Review &
marketing
Testing
Phase I
Phase II
Phase III
Approval
Testing
Drug
Discovery
In lab: 3-6 years
# enter
into
stage
5,00010,000
250
In hospital: 6-7 years
5
0.5-2 years
1
1-2 years
In
Market
ABBOTT
A Promise for Life
Current Abbott
 Pharmaceuticals
 Nutritional Products
 Diagnostic Products
 Vascular Products
 Others
ABBOTT
A Promise for Life
Pharmaceuticals- diseases
 Neurological disease
-Alzheimer, Parkinson
 Immunology
-Crohn’s disease
 Oncology
-cancer
 Kidney Disease
 Pain
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Pharmaceuticals- diseases
 Neurological disease
-Alzheimer, Parkinson
 Immunology
-Crohn’s disease
 Oncology
-cancer
 Kidney Disease
 Pain
Chronic diseases persistent demand
Complex diseases high price
ABBOTT
A Promise for Life
Pharmaceuticals- Products
 Main Brands:
ABBOTT
A Promise for Life
Pharmaceuticals- Products
 Main Brands:
 HUMIRA (48%)
-Crohn’s disease
 TriCor/Trilipix (10%)
- Lipid disorders
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Current Abbott- Review
 According to sale
HUMIRA
Brand Drugs
Pharmaceuticals
Other Branded Drugs
Generic Drugs I
Generic Drugs
Generic Drugs II
Nutritional Products
Nutritional Products
Nutritional Products
Diagnostic Products
Diagnostic Products
Diagnostic Products
Vascular Products
Vascular Products
Vascular Products
ABBOTT
A Promise for Life
Spin off – End of 2012
 According to sale
HUMIRA
Brand Drugs
Pharmaceuticals
Other Branded
Drugs
Generic Drugs I
Generic Drugs
Generic Drugs II
Nutritional Products
Nutritional Products
Nutritional Products
Diagnostic Products
Diagnostic Products
Diagnostic Products
Vascular Products
Vascular Products
Vascular Products
ABBOTT
A Promise for Life
After Spin Off
Current Abbott
New Pharmaceutical Company
New Abbott:
Diversified Medical Products
Generic Drugs II
HUMIRA
Nutritional Products
Other Branded Drugs
Diagnostic Products
Generic Drugs I
Vascular Products
ABBOTT
A Promise for Life
New Pharma. Company-Old Brands
 Old Brands with Patents (87%)
 5 main brands
 Generic Drugs (13%)
 Potential New Drugs
ABBOTT
A Promise for Life
New Pharma. Company-Old Brands
 Patent Expires!!
ABBOTT
A Promise for Life
New Pharma. Company- R & D Bran
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
New Pharma. Company- R & D Bran
 In the short future:2014
 Bardoxolone: 7 billion
 After next 10 years
 32 drugs in clinical phase I-III
 E(succeeded new brands)=6
ABBOTT
A Promise for Life
Key Developments
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Strategic Rationale
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Product Segments
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Geographic Expansion
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Established Pharmaceuticals
 Over 500 branded generic products in portfolio
 “Driving efficiencies without compromising quality”
 Various structural changes
 Hundreds of new products in the pipeline
 Even split between Developed and Emerging
Markets
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Medical Devices
 Vascular Devices
 For heart diseases
 #1 in many facets
 Over 20 new products in pipeline
 Diabetes Care
 Fastest growing in insulindependent patients in the US
 Vision Care
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Diagnostic Products
 Core Laboratory Diagnostics
 #1 in immunoassay
 #1 in blood screening
 Over 69,000 customers
 Molecular Diagnostics
 HIV tests
 Pioneering the development of bio-identification with Plex-ID
 Point of Care Diagnostics
 Market leader in bedside testing
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Nutritional Products
Pediatric Nutritionals
54% of sales
#1 in the US
Adult Nutritionals
46% of sales
#1 worldwide
Source: Abbott Investor Day 2011
ABBOTT
A Promise for Life
Financial Analysis
Source: Capital IQ
ABBOTT
A Promise for Life
Return on Invested Capital
Source: Capital IQ
ABBOTT
A Promise for Life
Dupont Analysis
ABBOTT
A Promise for Life
Multiple Analysis 1
-Current ABT
 Johnson & Johnson: Pharmaceutical, Consumer, and




Medical Devices and Diagnostics.
Sanofi: Pharmaceutical, Vaccines and Diagnostics, Animal
Health.
Novartis AG: Pharmaceuticals, Vaccines and Diagnostics,
Sandoz division, and Consumer Health.
Pfizer Inc: Pharmaceutical, Animal health products,
Consumer healthcare products, and Nutrition products.
Merck & Co: Pharmaceutical, Vaccines, Biologic therapies,
Animal Health, and Consumer Care Products.
ABBOTT
A Promise for Life
Comparables Valuation 1
Company
Forward P/E
Price/Sale
Price/Book
JNJ
12.88
2.74
2.96
SAN
7.58
2.72
1.27
10.56
2.43
2.00
PFE
8.59
7.80
1.70
MRK
9.15
3.27
1.92
ABT
10.62
1.56
3.30
High
65.33
185.49
55.94
low
38.45
37.01
21.53
Mean
50.20
81.30
37.15
Price 1
56.22
NOVN
ABBOTT
A Promise for Life
Multiple Analysis 2
-After Split
New Pharmacy
Pfizer Inc (PFE)
Merck & Co. Inc (MRK)
Eli Lilly & Co (LLY)
GlaxoSmithKline PLC (GSK)
New ABT
Global Nutrition 30%
GNC Holding Inc. (GNC)
Amway Malaysia Holdings Bhd
(KLSE:AMWAY)
Vitamin Shoppe (VSI)
Medical 18%
Vascular Solutions Inc. (VASC)
Boston Scientific (BSX)
Merit Medical Systems, Inc
(MMSI)
Diagnostics 22%
Quest Diagnostics and Laboratory
(DGX)
Bio-Reference Laboratories Inc. (BRLI)
Laboratory Corp. of America Holdings
(LH)
Established Pharma 28%
Mylan, Inc. (MYL)
Watson Pharmaceuticals, Inc. (WPI)
ABBOTT
A Promise for Life
Comparables Valuation 2
ABBOTT
TEV1
27,626,582.61
TEV2
48,653,375.84
Total EV
76,279,958.46
-debt
12,523,517.00
+Cash
3,648,371.00
Equity Value
# of shares
Price
67,404,812.46
1,550,000.00
43.49
ABBOTT
A Promise for Life
Valuation
DCF: $69.09
80%
Comps 1:
$56.22
10%
Comps 2:
$43.49
10%
Final Valuation:
$65.24
ABBOTT
A Promise for Life
Recommendation
BUY 100
@ Current
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