The Value of Making Drugs: Abbott Laboratories (ABT)

Page 1 of 2

Abbott Laboratories (NYSE:ABT) recently completed a spinoff that created the company AbbVie Inc (NYSE:ABBV).  Since this spinoff, both companies have seen a significant rise in the stock price. From the limited data, it is difficult to tell if one company is a better buy over the other, or if the recent trends in the stock price are merely investor excitement. According to Joel Greenblatt, in his book You Can Be A Stock Market Genius, spinoffs are one of the “special” situations in the stock market that often contain hidden opportunities.  Abbott Laboratories distributes medical products, whereas AbbVie is focused on research-based pharmaceuticals.

Abbott Laboratories (NYSE:ABT)AbbVie is much larger than Abbott Laboratories (NYSE:ABT) due to the fact that the company holds the patent for HUMIRA, a rheumatoid arthritis drug that was the largest source of revenue for the former Abbott Laboratories. This does pose some concern to AbbVie due to the fact that much of their business is focused on this drug. Any issues or patent expirations related to the drug would have a drastic impact on their bottom line. The patent associated with HUMIRA expires in 2016, posing some fairly immediate concerns with the future profitability of AbbVie. Overall, AbbVie has taken about 45% of the revenue of the original company according to the Pro Forma income statement. A little under half of those sales come from HUMIRA.

Abbott Laboratories is not necessarily doing much better as a newly focused company. The profit margins are significantly less than those of AbbVie, which most likely due to the loss in their largest source of revenue (HUMIRA). Abbott Laboratories no longer has the ability to use the significant revenues generated from HUMIRA to subsidize the costs associated with medical products such as research and development. They still do have a variety of other products that give the company opportunity to continue to thrive in the future. Abbott Laboratories does not rely on one product for their main source of revenue, which is a strength. Even though, like any company with revenue driven by patents, they still run the risk of patent expiration; their base is much more spread out to adjust for the loss of revenue of certain products. It is much easier to develop numerous small revenue generating products than to replace a massive product such as HUMIRA.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!