1. ABBOTT Investment Managers: Jonathan Barki Su Chen Lele Liang (Layla)
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Investment Managers:
Jonathan Barki
Su Chen
Lele Liang (Layla)
Nan Liang
Ran Mu (Renee)
Presented: November 3, 2011

2. Transaction History ABBOTT
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Transaction History
Bought 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)

3. Macroeconomics ABBOTT Defensive / recession-proof Healthcare sector
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Macroeconomics
Defensive / recession-proof Healthcare sector
Change in consumers’ behavior – postpone healthcare
The continuous Economics Recession has changed people’s behavior. People are very conservative in terms of consuming at this point. People are delaying health checks and going to hospitals and cutting budgets for their consumption of complementary medicine.
Source: Capital IQ

4. Healthcare Reform ABBOTT
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Healthcare Reform
Pharmaceutical 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 companies
No government intervention
The U.S. pharmaceutical industry agreed Saturday to spend $80 billion over the next 10 years to reduce drug costs for seniors and help pay for President Barack Obama's proposed health care reform plan.
Pundits predict the industry will be challenged to finance the initial costs of drug reform since an increase in revenue from an estimated 32 million newly insured Americans won’t be seen until at least 2014.
The new healthcare law grants drug makers a 12 year exclusivity period on biologics before they face competition from generic alternatives - a significant win for the industry, since the administration was in favour of a seven year exclusivity period.
The new law also includes a therapeutic tax credit that will benefit small, research-intensive biotechnology companies suffering from tight credit markets. It will help offset a portion of the resources spent on therapeutic development activities, including hiring scientists and conducting clinical studies.  
But overall, the pharmaceutical industry avoided many of the pitfalls that it was lobbying against. The new law does not allow direct government intervention on drug pricing for Medicare, importation of lower priced drugs from abroad, or give government authority to limit drug price increases. 
Implication: In the short-term, he says the discounts and rebates will likely combine with raised industry fees to create a market dip. He notes that this couldn't come at a worse time for the pharmaceutical industry, which is facing patent expiries in 2011 that are set to wipe tens of billions of dollars from company sales. But from 2015 onwards, those negative effects will likely be offset by an increase in the number of insured people resulting in an upsurge in drug consumption. But the generic side of the drug industry is disappointed.
Obama is also trying to stimulate R&D and he told FDA prescription drugs fall short of demand
News Source:

5. Global Demographics ABBOTT Source: Google data A Promise for Life
“the median age of the population will steadily increase from 34.0 in 1994 to 35.5 in 2000, peak at 39.1 in 2035, then decrease slightly to 39.0 by 2050” Aging baby boomers!
Source: Google data

6. Global Consumption Power
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Global Consumption Power

7. ABBOTT
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Stock Performance
Source: Capital IQ

8. Industry Current Revenue
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Industry Current Revenue
US and Europe markets: growth slows down
Emerging markets: robust growth
In the US and Europe:
-Hurt in financial crisis too
-Less resilient to economics downturn
-It has passed the golden age
But still growing very robust in emerging market with market being not penetrated yet (more than 20% in China in 2008)
Source: IBIS World, April 18, 2011, P54

9. Industry Revenue Outlook
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Industry Revenue Outlook
This growth was underpinned by rising demand. Higher standards
of healthcare, greater emphasis on prevention and healthier life styles increased demand for a range of over-the-counter
(OTC) pharmaceuticals and other health related products (such as herbal and botanical products). The emergence of new
viruses/pandemics, resurgence of infections, increasing life expectancies and an aging population also increased the
demand for drugs, particularly for degenerative diseases
Source: IBIS World, April 18, 2011, P56

10. Industry Characteristics
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Industry Characteristics
-New launch: high
-Geography: high
-Players: low
Concentration
Barrier to entry
-high
- heavy
Regulation
Market size
($980 Bn sales)
-growing
(40-50 Years)
-growth
Life cycle
Rivalry
Industry concentration – low but growing high because of M&A, escalating costs of R&D, shorter exclusivity times and the need for global marketing power. US, Europe and Japan take up 90% of production. US and Europe take up 80% of sales. US takes up 66% of new drug launch, 26% in Europe and 3% in Japan.
Barrier to entry high but decreasing (R&D 7% and regulation)- emergence of many small biotech who also makes a lot of breakthroughs
Regulation is heavy and increasing (safety, IP, access to market and healthcare cost)
Market size growing (China contributes 20%)
Source: IBIS World, April 18, 2011, P10

11. Industry Main Players ABBOTT Source: IBIS World, April 18, 2011, P34
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Industry Main Players
US: Pfizer (6.5%), Johnson & Johnson (2.7%), Merck & Co (4.7%), Abbott Laboratories and Eli Lilly
Europe: GlaxoSmithKline (4.5%), Sanofi-Aventis (4%), Novartis (4.5%), AstraZeneca (3%), Boegringer Ingelheim and Bayer Schering
Japan: Takeda
Isreal: Teva Pharmaceutical Industries
Source: IBIS World, April 18, 2011, P34

12. Industry Cost Structure
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Industry Cost Structure
Source: IBIS World, April 18, 2011, P25

13. Industry Key Factors ABBOTT Key sensitivities:
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Industry Key Factors
Key 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 opinion
Patent expirations on blockbuster drugs (Industry analysts make reference to the looming patent cliff, as up to $140 million worth of products
lose patent protection over the next few years with further key products due to lose protection through to 2016.) , increasing competition from generics as a result of therapeutic substitution, a depleted product pipeline, increasing safety and regulatory issues, growing price pressures from health insurance organizations and deteriorating public opinion with regards to the practices and profitability of pharma giants (inflate drug prices and illegal marketing practises).
Source: IBIS World, April 18, 2011, P32

14. New Drug ABBOTT New Chemical Entity: with patent– monopoly
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New Drug
New Chemical Entity: with patent– monopoly
high risk
- time: year
- money: $800million- $1billion
- probability of success: 1 out of 5,000 to 10,000
high return
Generic Drug: no patent– competition
low risk
low return
Source: Drug Discovery and Development, innovation.org

15. Drug Pipelines- New entity
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Drug Pipelines- New entity In
Market
Drug
Discovery
Pre-
clinical
Testing
Post-
marketing
FDA
Review &
Approval
Clinical
Trials
Phase I
Phase II
Phase III
In lab: 3-6 years
In hospital: 6-7 years
0.5-2 years
1-2 years
5, ,000
250 5 1
# enter into stage

16. Current Abbott ABBOTT Pharmaceuticals Nutritional Products
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Current Abbott
Pharmaceuticals
Nutritional Products
Diagnostic Products
Vascular Products
Others

17. Pharmaceuticals- diseases
ABBOTT
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Pharmaceuticals- diseases
Neurological disease
-Alzheimer, Parkinson
Immunology
-Crohn’s disease
Oncology
-cancer
Kidney Disease
Pain
Source: Abbott Investor Day 2011

18. Pharmaceuticals- diseases
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Pharmaceuticals- diseases
Neurological disease
-Alzheimer, Parkinson
Immunology
-Crohn’s disease
Oncology
-cancer
Kidney Disease
Pain
Chronic diseases persistent demand
Complex diseases high price

19. Pharmaceuticals- Products
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Pharmaceuticals- Products
Main Brands:

20. Pharmaceuticals- Products
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Pharmaceuticals- Products
Main Brands:
HUMIRA (48%)
-Crohn’s disease
TriCor/Trilipix (10%)
- Lipid disorders
Source: Abbott Investor Day 2011

21. Current Abbott- Review
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Current Abbott- Review
According to sale
Pharmaceuticals
Brand Drugs
HUMIRA
Other Branded Drugs
Generic Drugs
Generic Drugs I
Generic Drugs II
Nutritional Products
Nutritional Products
Nutritional Products
Diagnostic Products
Diagnostic Products
Diagnostic Products
Vascular Products
Vascular Products
Vascular Products

22. Spin off – End of 2012 ABBOTT According to sale Pharmaceuticals
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Spin off – End of 2012
According to sale
Pharmaceuticals
Brand Drugs
HUMIRA
Other Branded
Drugs
Generic Drugs
Generic Drugs I
Generic Drugs II
Nutritional Products
Nutritional Products
Nutritional Products
Diagnostic Products
Diagnostic Products
Diagnostic Products
Vascular Products
Vascular Products
Vascular Products

23. New Pharmaceutical Company Diversified Medical Products
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After Spin Off
Current Abbott
New Pharmaceutical Company
New Abbott:
Diversified Medical Products
Generic Drugs II
HUMIRA
Nutritional Products
Other Branded Drugs
Diagnostic Products
Vascular Products
Generic Drugs I

24. New Pharma. Company-Old Brands
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New Pharma. Company-Old Brands
Old Brands with Patents (87%)
5 main brands
Generic Drugs (13%)
Potential New Drugs

25. New Pharma. Company-Old Brands
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New Pharma. Company-Old Brands
Patent Expires!!

26. New Pharma. Company- R & D Bran
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New Pharma. Company- R & D Bran
Source: Abbott Investor Day 2011

27. New Pharma. Company- R & D Bran
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New Pharma. Company- R & D Bran
In the short future:2014
Bardoxolone: 7 billion
After next 10 years
32 drugs in clinical phase I-III
E(succeeded new brands)=6

28. Key Developments ABBOTT Source: Abbott Investor Day 2011
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Key Developments
Source: Abbott Investor Day 2011

29. Strategic Rationale ABBOTT Source: Abbott Investor Day 2011
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Strategic Rationale
Source: Abbott Investor Day 2011

30. Product Segments ABBOTT Source: Abbott Investor Day 2011
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Product Segments
$22 billion of ABT’s total sales
Source: Abbott Investor Day 2011

31. Geographic Expansion ABBOTT Source: Abbott Investor Day 2011
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Geographic Expansion
Source: Abbott Investor Day 2011

32. Established Pharmaceuticals
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Established Pharmaceuticals
Over 500 branded generic products in portfolio
“Driving efficiencies without compromising quality”
Various structural changes
Hundreds of new products in the pipeline
Even split between Developed and Emerging Markets
Source: Abbott Investor Day 2011

33. Medical Devices ABBOTT Vascular Devices Diabetes Care Vision Care
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Medical Devices
Vascular Devices
For heart diseases
#1 in many facets
Over 20 new products in pipeline
Diabetes Care
Fastest growing in insulin-dependent patients in the US
Vision Care
Source: Abbott Investor Day 2011

34. Diagnostic Products ABBOTT Core Laboratory Diagnostics
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Diagnostic Products
Core Laboratory Diagnostics
#1 in immunoassay
#1 in blood screening
Over 69,000 customers
Molecular Diagnostics
HIV tests
Pioneering the development of bio-identification with Plex-ID
Point of Care Diagnostics
Market leader in bedside testing
Sales forecast
Molecular: 250% of current sales by 2015
Point of Care: 200% of current sales by 2015
Operating margin improvement: From 14.7% up to >20% by 2015
Source: Abbott Investor Day 2011

35. Nutritional Products ABBOTT Pediatric Nutritionals 54% of sales
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Nutritional Products
Pediatric Nutritionals
54% of sales
#1 in the US
Adult Nutritionals
46% of sales
#1 worldwide
Favorable Growth Prospects: $40 billion market by 2015
Sales expectations
2011: >$2B in Emerging Markets
2014: $1B China-only Sales
Source: Abbott Investor Day 2011

36. ABBOTT
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Financial Analysis
Source: Capital IQ

37. Return on Invested Capital
ABBOTT
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Return on Invested Capital
Source: Capital IQ

38. ABBOTT
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Dupont Analysis

39. Multiple Analysis 1 -Current ABT
ABBOTT
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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.

40. Comparables Valuation 1
ABBOTT
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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

41. Multiple Analysis 2 -After Split
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Multiple Analysis 2 -After Split
New Pharmacy
Pfizer Inc (PFE)
Merck & Co. Inc (MRK)
Eli Lilly & Co (LLY)
GlaxoSmithKline PLC (GSK)
New ABT
Global 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)

42. Comparables Valuation 2
ABBOTT
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Comparables Valuation 2
ABBOTT
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

43. Valuation ABBOTT Comps 1: $56.22 Comps 2: $43.49 DCF: $69.09
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Valuation
DCF: $69.09
Comps 1: $56.22
Comps 2: $43.49
10%
10%
80%
Final Valuation: $65.24

44. ABBOTT
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Recommendation
@ Current
BUY 100