"IVD Update"

Abbott Says It Will Split into Two Firms in 2012

One company will be medical devices and diagnostics, the other company will be pharmaceutical products

FURTHER CHANGES ARE COMING to the in vitro diagnostics (IVD) marketplace. On October 19, Abbott Laboratories, Inc., announced that it would separate into two publicly-traded companies sometime in 2012.

One business will be the medical devices and diagnostics business. It will have about $22 billion in annual sales. Of this total, about $4 billion comes from the diagnostics products division.

Abbott describes the diagnostics division as made up of “worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. For segment reporting purposes, the Core Laboratories Diagnostics, Molecular Diagnostics, Point-of-Care, and Ibis diagnostic divisions are aggregated and reported as the Diagnostic Products segment.”

Second Company Is Pharma

The second business will be the pharmaceuticals company. It will have annual revenue of approximately $18 billion. One blockbuster drug, Humira, accounts for $8 billion of this total.

It is expected that the diagnostics business will keep the Abbott name and a new name will be applied to the pharmaceuticals company. Miles D. White, current CEO of Abbott Laboratories, will be the CEO of the diagnostics company. Richard A. Gonzalez, who currently runs the global pharmaceutical business, will be CEO of the pharma company.

Notably for lab administrators and pathologists, one reason for this split is the fact that the diagnostics business is fast-growing at this time, while the pharma business has lengthy development times. Abbott’s board recognized that shareholder value could be increased by separating these two disparate business activities.

Fast Growth for Diagnostics

White, in public comments, described the medical devices/diagnostics products market as growth-driven. He said that about 40% of the sales of these products will be in fast-growing emerging markets. Also, up to 40% of this company’s revenue will be paid—not by budget-minded governments and insurers—but by patients.

When measured by sales, Abbott Diagnostics is one of the three largest IVD manufacturers in the world, along with Roche Diagnostics and Siemens Diagnostics. It has seen very strong growth in its point-of-care testing products and its molecular diagnostics offerings.

Laboratory customers of Abbott are not likely to see many changes as a consequence of this corporate split. That’s because it will operate under the same CEO and executive team. Maybe the most interesting question is which business—post-split—will keep the sprawling Abbott Park corporate complex located in the Greater Chicago metro.

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