Abbott Laboratories has billions of dollars in the bank and has made no secret of its interest in making deals.
Now, in an increasingly competitive health care market, analysts say the company needs to put its money to work quickly, shoring up what some call its weakest sector, medical devices.
Conversation about Abbott’s dealmaking took center stage Thursday after the North Chicago health care giant knocked down a Financial Times report that it was getting ready to pop a $25 billion offer to buy a Minnesota maker of heart and vascular devices, St. Jude Medical.
“I can tell you we haven’t been evaluating a bid for St. Jude and aren’t pursuing one,” Abbott spokesman Scott Stoffel said.
Still, several analysts said the company needs to make moves to bolster its overall revenue and earnings growth and, in particular, its medical devices product line, which accounts for 27 percent of the company’s annual sales of $20.3 billion last year. Abbott is best known for its products in diagnostics, pharmaceuticals, nutrition and diabetes.
“The medical device unit remains the primary laggard, with vascular and optics segments seeing weak growth in international markets,” Morningstar analyst Debbie Wang wrote in a research note last month.
In February, Wang wrote that investors remained unconvinced that Abbott can develop hot new breakthrough devices on its own. “The jury is still out on its ability to innovate in this area,” she wrote.
Some analysts think the company quickly needs to do some shopping to beef up its medical device offerings. Wells Fargo analyst Larry Biegelsen predicts Abbott will pursue emerging device technology companies in deals valued under $10 billion.
“The company’s strategy in medical devices is not to build scale for the sake of getting bigger or seeking operational synergies or bundling opportunities, but rather to focus on differentiated technologies and platforms that can drive top-line growth,” Biegelsen wrote in a research note last month.
Abbott also is under pressure to make deals as its sectors consolidate. A wave of acquisitions has swept through the health care and pharmaceutical sectors in the past two years, as companies seek to bulk up to get more pricing leverage for their products and enter new markets. About $400 billion in deals has been announced since January, according to Reuters.
One analyst said the company needs to acquire companies because its pipeline of products seems stalled. “I really haven’t seen a lot of innovative products coming from them lately,” said Les Funtleyder, a health care portfolio manager at E Squared Asset Management, a New York hedge fund. “What are they going to do to get things going again?”
A deal the size of St. Jude would have been the third-largest in the medical technology sector, trailing only Medtronic’s acquisition of Covidien for $49.9 billion earlier this year and Boston Scientific’s acquisition of Guidant for $27 billion in 2006, according to EP Vantage, a life-science market intelligence firm.
Abbott is about four times as large as St. Jude, which last year had $5.6 billion in revenue.
Abbott is sitting on about $4 billion in cash and equivalents as of Dec. 31, according to its balance sheet. The company also holds about 70 million shares of pharmaceutical firm Mylan that it received from the recent sale of a portion of its generic-drug business. Abbott has already sold more than a third of the 110 million shares it got. Its current stake in Mylan is worth about $3.6 billion.
Last month, Abbott CEO Miles D. White told analysts on a conference call that the company is actively looking at mergers and acquisitions, although he did not hint that a major deal was imminent.
“Over the last 10 years, you’ve seen us act on a lot of things, and we don’t tend to forecast it until it’s already happened,” he said. “And so I’d say you probably should not assume that we’re just sitting on our hands accumulating. I think investors expect us to deploy cash, and we do, and we will.”
He added: “I think it’s a great problem to have great cash flow and a lot of cash. … And frankly, we’re able to fund a fair amount of M&A.”
The company has recently done several smaller deals. Late last year, Abbott bought a controlling interest in CFR Pharmaceuticals of Chile for about $2.9 billion. It also acquired control of Veropharm, a Russian pharmaceuticals company, for about $315 million, and bought Topera, a medical device startup in San Diego, for $250 million.
Twitter @johnrussell99
