Abbott Laboratories to split into 2 companies

Abbott Laboratories will split into two publicly traded companies, the Abbott Park, Ill., healthcare giant announced today.

The company that keeps the Abbott name will focus on the less-risky, lower-return businesses of generic medicines, medical devices and infant and adult formulas, Bloomberg Businessweek reports. The second company will focus on the development of prescription drugs, which is a higher-risk but potentially highly profitable line of work.

The generics, formula and medical-products company, which will sell the world’s No. 1 heart stent, Xience, along with Similac and Ensure drinks, is expected to make about $22 billion a year, Abbott executives said, according to Bloomberg Businessweek. The drug business, which will include the anti-inflammatory drug Humira and AIDS therapy Kaletra, is expected to pull in about $18 billion annually.

According to the Financial Times:

The move is the latest effort by large drugmakers to respond to investor scepticism towards the returns on drug development. It will stimulate discussions on whether other diversified groups such as Novartis, Pfizer and Johnson & Johnson should pursue similar initiatives.

Pfizer announced earlier this year that it would sell or spin off its animal-health and nutritional products units, Bloomberg Businessweek reports. In 2009, Bristol-Myers announced it would spin off its baby formula maker, Mead Johnson.

“A split or spin-off of certain businesses has been a move that investors had hoped for, for some time, given the belief that Abbott’s parts are worth more than the whole,” Rick Wise, healthcare analyst at Leerink Swann, told the Financial Times.

However, not all analysts were convinced this is the best move for Abbott, the Wall Street Journal reports. For example, splitting up means Abbott can’t use cash flow from Humira to fund acquisitions in the medical-device sector, Morgan Stanley analyst David Lewis suggested on an Abbott conference call with analysts.

The split is expected to be finalized by the end of 2012, Bloomberg Businessweek reports.

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