abbott a promise for life

ABBOTTA Promise for Life

Investment Managers:

Jonathan Barki

Su Chen

Lele Liang (Layla)

Nan Liang

Ran Mu (Renee)

Presented: November 3, 2011


Transaction HistoryBought 200 shares at $52.05 on April 28, 2011

Current Price: $52.88 (as of Nov 2)Unrealized gain of $166, 1.59% (as of Nov 2)


MacroeconomicsDefensive / recession-proof Healthcare sector

Change in consumers’ behavior – postpone healthcare

Source: Capital IQ


Healthcare ReformPharmaceutical firms set aside $80 billion over the next 10 years to reduce drug costs

Challenged to finance the initial costs of drug reform

12 year exclusivity period on biologics before they face competition from generic alternatives

Tax credit for small biotech companiesNo government intervention News Source:

http://www.rsc.org/chemistryworld/News/2010/March/25031003.asp






Global Demographics

Source: Google data


Global Consumption Power


Stock Performance

Source: Capital IQ


Industry Current RevenueUS and Europe markets: growth slows down

Emerging markets: robust growth

Source: IBIS World, April 18, 2011, P54


Industry Revenue Outlook



Industry Characteristics



Industry Main Players



Industry Cost Structure



Industry Key FactorsKey sensitivities: Population age, Systems and tech, attitudinal change and regulation

Key success factors: Brand names, tech sharing arrangements, R&D, product development and financing arrangement

Hold-back factors: Patent expirations, competition, a depleted product pipeline, regulatory, price pressures and deteriorating public opinionSource: IBIS

World, April 18, 2011, P32

New DrugNew Chemical Entity: with patent– monopoly high risk- time: 10-15 year- money: $800million- $1billion- probability of success: 1 out of 5,000 to 10,000

high returnGeneric Drug: no patent– competition

low risklow return


Source: Drug Discovery and Development, innovation.org

Drug Pipelines- New entity

In

MarketDrug

Discovery

Pre-

clinical

Testing

Post-

marketing

Testing

FDA

Review &

Approval

Clinical

Trials

Phase I

Clinical

Trials

Phase II

Clinical

Trials

Phase III

In lab: 3-6 years

In hospital: 6-7 years

0.5-2 years

1-2 years

5,000-10,000 250 5 1

# enter into stage


Current AbbottPharmaceuticalsNutritional ProductsDiagnostic Products Vascular Products Others


Pharmaceuticals- diseasesNeurological disease

-Alzheimer, ParkinsonImmunology

-Crohn’s diseaseOncology

-cancerKidney DiseasePain


Source: Abbott Investor Day 2011

Chronic diseases persistent demand

Complex diseases high price

Pharmaceuticals- diseasesNeurological disease

-Alzheimer, ParkinsonImmunology

-Crohn’s diseaseOncology

-cancerKidney DiseasePain


Pharmaceuticals- ProductsMain Brands:


Pharmaceuticals- ProductsMain Brands:

HUMIRA (48%)-Crohn’s disease

TriCor/Trilipix (10%)- Lipid disorders



Current Abbott- ReviewAccording to sale

Pharmaceuticals

Nutritional ProductsDiagnostic Products Vascular Products

Brand Drugs

Generic Drugs

HUMIRA

Generic Drugs I

Generic Drugs II

Other Branded Drugs




Spin off – End of 2012 According to sale

Pharmaceuticals


Brand Drugs

Generic Drugs

HUMIRA

Generic Drugs I

Generic Drugs II

Other Branded Drugs




After Spin Off

Generic Drugs I

Generic Drugs II

HUMIRA

Other Branded Drugs


Current Abbott

New Abbott: Diversified Medical

Products

New Pharmaceutical Company


Old Brands with Patents (87%)5 main brands

Generic Drugs (13%)Potential New Drugs


New Pharma. Company-Old Brands

New Pharma. Company-Old Brands

Patent Expires!!



New Pharma. Company- R & D Bran


In the short future:2014Bardoxolone: 7 billion

After next 10 years32 drugs in clinical phase I-IIIE(succeeded new brands)=6


New Pharma. Company- R & D Bran


Key Developments


Strategic RationaleABBOTTA Promise for Life


Product SegmentsABBOTTA Promise for Life


Geographic Expansion



Established PharmaceuticalsOver 500 branded generic products in portfolio

“Driving efficiencies without compromising quality”

Various structural changesHundreds of new products in the pipeline

Even split between Developed and Emerging Markets



Medical Devices

Vascular DevicesFor heart diseases#1 in many facetsOver 20 new products in pipeline

Diabetes CareFastest growing in insulin-dependent patients in the US

Vision Care



Diagnostic Products Core Laboratory Diagnostics

#1 in immunoassay#1 in blood screeningOver 69,000 customers

Molecular DiagnosticsHIV testsPioneering the development of bio-identification with Plex-ID

Point of Care DiagnosticsMarket leader in bedside testing



Nutritional ProductsPediatric Nutritionals54% of sales#1 in the US

Adult Nutritionals 46% of sales#1 worldwide



Financial Analysis

Source: Capital IQ


Return on Invested Capital

Source: Capital IQ



Dupont Analysis

Multiple Analysis 1-Current ABT

Johnson & Johnson: Pharmaceutical, Consumer, and Medical Devices and Diagnostics.

Sanofi: Pharmaceutical, Vaccines and Diagnostics, Animal Health.

Novartis AG: Pharmaceuticals, Vaccines and Diagnostics, Sandoz division, and Consumer Health.

Pfizer Inc: Pharmaceutical, Animal health products, Consumer healthcare products, and Nutrition products.

Merck & Co: Pharmaceutical, Vaccines, Biologic therapies, Animal Health, and Consumer Care Products.


Comparables Valuation 1 Company Forward P/E Price/Sale Price/Book

JNJ 12.88 2.74 2.96

SAN 7.58 2.72 1.27

NOVN 10.56 2.43 2.00

PFE 8.59 7.80 1.70

MRK 9.15 3.27 1.92

ABT 10.62 1.56 3.30

High 65.33 185.49 55.94

low 38.45 37.01 21.53

Mean 50.20 81.30 37.15

Price 1 56.22


Multiple Analysis 2-After Split

New Pharmacy Pfizer Inc (PFE) Merck & Co. Inc (MRK) Eli Lilly & Co (LLY) GlaxoSmithKline PLC (GSK)

New ABTGlobal Nutrition 30%

GNC Holding Inc. (GNC) Amway Malaysia Holdings Bhd (KLSE:AMWAY) Vitamin Shoppe (VSI)

Diagnostics 22% Quest Diagnostics and Laboratory (DGX) Bio-Reference Laboratories Inc. (BRLI) Laboratory Corp. of America Holdings (LH)

Medical 18% Vascular Solutions Inc. (VASC) Boston Scientific (BSX) Merit Medical Systems, Inc (MMSI)

Established Pharma 28% Mylan, Inc. (MYL) Watson Pharmaceuticals, Inc. (WPI)


Comparables Valuation 2ABBOTT

TEV1 27,626,582.61

TEV2 48,653,375.84

Total EV 76,279,958.46

-debt 12,523,517.00

+Cash 3,648,371.00

Equity Value 67,404,812.46

# of shares 1,550,000.00

Price 43.49



Valuation

DCF: $69.09

Comps 1: $56.22

Final Valuation: $65.24

80% 10%

Comps 2: $43.49

10%


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