New uses for a strong-selling drug and high hopes for the U.S. launch of a profitable medical device have Abbott Laboratories, the No. 3 U.S. health-care company, poised to remain a dominant player in its global industry.
Analysts forecast a double-digit profit increase next year for Abbott, especially in its lucrative pharmaceuticals business, which accounted for 57 percent of its 2006 revenues.
In the first nine months of this year Abbott earned $2.4 billion, already topping full-year 2006 earnings of $1.7 billion that were depressed by costs associated with its $3.7 billion acquisition of Kos Pharmaceuticals Inc., a producer of cholesterol treatments.
Shares of Libertyville Township-based Abbott jumped 27 percent last year and have risen another 8 percent this year, while the American Stock Options Exchange Pharmaceutical Index was gaining 6 percent last year and this year has risen less than 1 percent.
"We continue to believe that Abbott stock is undervalued, given the prospects for robust sales and earnings growth," Glenn Navarro, an analyst with Bank of America, wrote in an October note.
The shares now trade at $55.49, off the 52-week high of $59.50.
Analysts with Bear Stearns, Morgan Stanley and Bank of America all reiterated their confidence in the company despite its flat third-quarter earnings of $717 million. Without charges related to the acquisition of Guidant Corp.'s vascular stent business in the third quarter, Abbott's diluted earnings per share were 67 cents, 1 cent higher than the analysts' estimate.
These three analysts cite the expected 2008 approval of Xience -- a drug-coated stent -- and the company's high margin on pharmaceuticals as key reasons to feel confident about Abbott's earning outlook.
Abbott awaits a Thursday U.S. Food and Drug Administration panel review of Xience, a drug-eluting stent that proved popular in Europe when it was made available in late 2006. Abbott hopes to launch Xience in the U.S. in the first half of 2008.
The company says, and outsiders concur, results of clinical trials of Xience compared against the leading drug-eluting stent, Boston Scientific Corp.'s Taxus, have so far been positive. Xience and other drug-eluting stents brought in revenues of more than $185 million in the first nine months, a figure expected to skyrocket if Xience gains FDA approval.
"Even if Xience were delayed, we remain confident in the long-term outlook for the stock and would be buyers at current levels," Glenn Reicin of Morgan Stanely wrote in an October statement. The firm maintains its overweight rating and considered Abbott a "top pick" within the health-care industry.
In addition, investors and analysts are responding to strong global sales of top-selling arthritis drug Humira, which grew almost 49 percent in the third-quarter to $803 million. Humira hit the U.S. market in 2002 as a rheumatoid arthritis treatment and since has received FDA approval for the treatment of psoriatic arthritis, ankylosing spondylitis, or spine arthritis, and Crohn's disease, a type of inflammatory bowel disease.
That array of treatment options has helped Humira smash sales expectations. Further, the company is currently seeking approval to market Humira to treat psoriasis.
"It's a pipeline in a product," said Scott Stoffel, Abbott spokesman, noting the company has more than doubled spending on research and development to $2.3 billion in 2006 from $1.1 billion in 1999.
Abbott and other major pharmaceutical companies, however, continue to face pressure from expiring patents. Abbott's Depakote, a drug used to treat epilepsy and bipolar disorder, will likely face generic competition this year.
Also being watched by the analysts: Abbott's underperforming vascular stent business.
Abbott has applied for regulatory approval of three other drugs as well: a controlled-release version of the pain killer Vicodin and cholesterol drugs ABT-335 and Simcor.
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