What Facet Brings to Abbott
The acquisition will add new areas of business for Abbott.
Abbott is paying $27 per share, or $450 million in cash for Facet. The deal is worth $722 million when Facet's cash and securities, worth $272 million, aren't factored into the equation. The deal is expected to close in the second quarter. Facet's stock shot up 66% during off-hours trading to open the day just under $27 per share. The deal beats out the offer of $17.50 per share that Biogen made last year.
But this white knight emerged out of the ether; few analysts would have tapped Abbott as a bidder for the biotech. Abbott has been a good play for investors, with a total shareholder return of 20% over the last three years. That total return includes a healthy quarterly dividend of $0.44 per share. The stock has been included on the Standard & Poor's 500 Dividend Aristocrats list due to its consistent increases in its dividend over the last 38 years.
(See Dividend Stocks With a Healthy Outlook)
Aside from having a good payout though, Abbott has a strong focus in a couple of key areas. Its sales have been driven by the rheumatoid arthritis drug Humira, which brought in about $5.5 billion in 2009. It also makes several drugs for the treatment of HIV and high blood cholesterol. The company has a strong presence in the medical device market with its drug-eluting stent Xience V, which currently has the largest market share for products of its kind. (See Abbott's Stent Struggling to Maintain Market Share)
Abbott has been preparing for the patent expiration of Humira, which will face generic competition in 2015, by padding its pipeline with acquisitions. Unlike Facet, the other acquisitions that Abbott has made over the last couple of years have strengthened the company in its key areas. It acquired Kos Pharmaceuticals in 2006 for $3.7 billion, adding to its cholesterol franchise with complementary products. The same year, it purchased Guidant from Boston Scientific (BSX), adding to its drug-eluting stent franchise with Guidant's products. In 2009, Abbott spent $6.6 billion on the acquisition of Solvay as a means of further strengthening its cholesterol franchise.
Yet, Facet isn't strong in any of these areas -- its key concentrations are multiple sclerosis and oncology. Facet is currently developing daclizumab for the treatment of MS. The drug, which is partnered 50/50 with Biogen Idec, is currently in mid-stage trials and is expected to hit the market in 2015 should it be successful. The biotech also has several early-to-mid-stage cancer drugs, as well as a partnership with Bristol-Myers Squibb (BMY) on a drug that treats the blood cancer multiple myeloma.
(See Biotechs to Watch in the Blood Business)
While Facet doesn't really fit into the acquisition strategy that Abbott had been pursuing until now, it does address some concerns that investors have had about the company. "Facet is an attractive transaction that addresses the key negative investment debate on Abbott, the lack of an intermediate stage pipeline," writes Morgan Stanley analyst David Lewis in a note to investors. "We expect Abbott to continue to pursue tuck-in M&A to bolster the mid to late state pipeline."
Analysts agree that the deal was a good price to pay for the risk that daclizumab will pan out, but now, the only question that remains is whether or not Abbott can properly leverage its new assets.
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