Will Splitting This Healthcare Company Produce More Dividends?

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Health. Some take it for granted while others would give anything to have it. For the maintenance of well-being and health, care is needed. And in this respect, it is safe to assume that healthcare has been around from the dawn of civilization. Although the healthcare industry is a multi-billion dollar business today with pharmaceutical laboratories operating internationally, its primary purpose is really to improve the quality of life, alleviate suffering caused by physical infirmities, and provide cure for illnesses through research and innovation. Driving high revenue growth and expanding operating margins only come next.

Abbott's Position in the Healthcare Field

Abbot Laboratories (NYSE: ABT) is known globally as a healthcare company that seeks to improve life by developing products and technologies that span the whole spectrum of healthcare. Their offerings include diagnostics, medical devices, nutrition, and branded generic medicines. The company is already in its 125th year of operation, serving people in more than 150 countries, employing approximately 70,000 people worldwide. They take the lead position when it comes to market share in emerging markets because of their strong presence in extensive geographical locations. Their portfolio includes such popular products as Ensure, Pedialyte and Similac, including cardiac stents, nutrition items and diagnostic tests.

Growth Through Diversification and Reinvention

Some investors didn’t know what to make of the news when Abbot first announced in 2011 that it would divide into two companies beginning January 2013. This spin-off was a major detour from the traditional practice of pharmaceutical companies who grow into one big healthcare conglomerate such as what Johnson and Johnson is practicing. While others argue that a single conglomerate will allow a company to balance high-return, but high-risk innovative drugs with the more predictable cash earnings from lower-risk activities such as consumer healthcare, Abbott’s reason for the split is that their drug and diversified products units grew into distinct business lines.

AbbVie (NYSE: ABBV), the pharmaceutical spin-off, will concentrate on “highly specialized, market-leading therapies for some of the world’s most difficult-to-treat diseases,” according to Miles D. White, chairman and chief executive officer of Abbott. Their top-selling product Humira, a drug used to treat conditions including rheumatism and psoriasis, leads the pack, which in its roster includes Vicodin and Niaspan. Competition from other drug makers of rheumatoid arthritis medication includes Pfizer and other players. AbbVie will also explore new treatment solutions for Humira such as in ulcerative colitis and pediatric Crohn’s disease. According to the research firm Decision Resources, the Chron’s disease market is set to grow from $3.3 billion in 2010 to $4.5 billion in 2020. In this field of medication, the current leader is Abbot’s Humira, followed by Johnson and Johnson’s Remicade, and NPS Pharmaceuticals Gattex. Simply said, the unmet needs of the current medical world in this aspect will be tackled by AbbVie, with the help of the company’s management team and dedicated resources.

The Other Half of AbbVie

The other company will still be named Abbott and will concentrate on selling generic medicines, diagnostic tests, and nutritional products. Generic medicine sales hasn’t done so well in 2012, but pediatric and adult nutritionals have taken a surge and has been a bright spot in Abbot’s 2012 sales, jumping by 16%. Abbott’s diagnostics and vascular products such as its stents is planned to be developed into bioabsorbable stents, a breakthrough that will allow Abbott to edge past stent market rivals Boston Scientific and Medtronic.

Looking Back and Ahead

Abbott Laboratories has always held top market positions in many categories in healthcare. Their recent division is not divisive but is meant to develop leading products that will meet the needs of patients and consumers the world over. The global healthcare environment will never stop evolving and Abbott is poised to tackle the evolution. Reinventing themselves to cope with the changing times will allow them to create value for their customers and shareholders. It is not surprising then when others will follow their lead, thus making Abbott a valuable investment in the field of healthcare and medical science.

JosefRayDagatan has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson and Medtronic and has the following options: short MAY 2013 $44.00 calls on Medtronic. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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