Abbott continues evolution toward devices, planning to sell generics portfolio for $5.3B

Following the $5.3 billion sale of Abbott Laboratories' ($ABT) developed market generic drugs business to Mylan ($MYL), diagnostics and devices will account for the majority of the company's sales, while pharmaceuticals' contribution to company-wide sales will stand at about 15%, based on 2013 earnings.

When the transaction closes in the first quarter of 2015, Abbott will own 21% of Mylan, which will be renamed Mylan N.V. and based in the Netherlands to achieve tax savings. Abbott said it does not plan to be a long-term shareholder in the new company and will "redeploy the net proceeds from this transaction to opportunities that would be accretive to earnings over time."

Those opportunities presumably include investments in devices and diagnostics, which contributed annual sales of about $5.5 billion and $4.5 billion, respectively, toward the total of $21.8 billion. Abbott said the portfolio to be sold contributed sales of $2 billion that year, meaning the company is on track to earn the majority of its revenues from med tech once the deal is finalized.

Abbott will keep its $2.9 billion emerging markets generics portfolio, which is expected to experience sales growth in the upper-single to double digits. In contrast to the developed markets, emerging markets for generics are characterized by favorable demographics and out of pocket payments, CEO Miles D. White said in a conference call.

Abbott sells generics in developed markets including Western Europe, Japan, Canada, Australia and New Zealand, but not the U.S. The emerging markets include Russia, as well as the rest of the word. Abbott said it is the leader in the emerging markets of India, Chile, Colombia and Peru. 

The deal exemplifies two trends in what has been a busy couple of months for life sciences M&A: a renewed focus on scale and core competencies among diversified players such as Abbott and a growing emphasis on tax inversion. White said that due to government budget cuts and slowing economic growth, selling generics there requires "scale and breadth," which is where Mylan comes into play. Meanwhile, Mylan said it expects the new company to pay a tax rate of 20% to 21% in year one and in the high teens after that. The company's tax rate was 35% in 2013, says The Wall Street Journal. It had 2013 annual revenues of $6.9 billion.

Abbott's device offerings are focused on the diabetes, eye care and vascular markets. So far this year, the FDA has approved Abbott's Xience Xpedition drug-eluting stent. The company also recently completed enrollment in a clinical trial for the CE-marked Absorb bioresorbable stent in the U.S., Japan and China. In addition, the FDA is reviewing the self-expanding Supera Veritas stent for treating peripheral vascular disease. It is currently cleared for the treatment of biliary strictures.

Abbott plans to launch preloaded intraocular contact lenses and submit a sensor-based glucose monitoring system for European approval this year, according to the annual report.

Abbott spun off its research-based pharmaceutical arm in early 2013; the move foreshadowed the latest transaction which will enable the company to once again increase its focus on med tech at the expense of drugs. Its $1 billion med tech R&D budget is the sixth largest in the industry.

- read Abbott's release 
- and Mylan's release 
- get the Wall Street Journal article (reg. req.)

Special Report: Top 10 med tech R&D budgets - Abbott Laboratories

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