Thursday, January 22, 2009

Abbott seeks to cash in on growing global vision-care market with AMO acquisition

By Howard Larkin

Looking to seize a leadership position in the €17bn global vision-care market, Abbott Laboratories is acquiring Advanced Medical Optics (AMO). Valued at nearly $2.8bn, or about €2.1bn, in cash and assumed debt, the deal was approved by the boards of both firms. Pending regulatory approvals, Abbott officials expect the sale to close in the first quarter of 2009.

Abbott’s move comes just 18 months after AMO attempted to acquire Bausch & Lomb, and six years after AMO was spun off from Allergan. The acquisition is the 120-year-old firm’s first venture in ophthalmology.

Abbott approached AMO with the deal because it offers an opportunity for Abbott to further diversify its growing medical device business, Abbott spokesman Scott Stoffel told EuroTimes. “Our global presence will help fuel growth opportunities internationally, particularly in emerging markets where there are favourable demographics and growing demand for advanced eye care products.”

With revenues of nearly $26bn in 2007, Abbott dwarfs AMO. Indeed, Abbott’s blockbuster immunotherapy biologic Humira alone generated $4.4bn. That’s roughly four times AMO’s total revenue for the year.

One might expect that AMO could easily disappear into such a dominant partner. But that is not Abbott’s plan, Mr Stoffel said. “Once the deal closes, the idea would be that [AMO] would continue to operate as a separate division of Abbott. I can’t speak directly on the idea that every process and procedure will remain the same, but the focus will be on serving the needs of patients and doctors in a way that is effective for them.”

Mr Stoffel confirmed that Abbott intends to retain the AMO management team and production facilities led by AMO Chairman and CEO Jim Mazzo. “Let me assure you that we remain fully committed to providing a full complement of superior refractive, cataract and corneal products and services. We intend to make this transaction as seamless as possible to you and, as always, the entire AMO organisation stands ready to deliver life-enhancing vision to eye care professionals and their patients,” Mr Mazzo said in a written statement to AMO customers.

Since Abbott Chairman and CEO Miles D White took over in 1999, Abbott has pursued a strategy of diversifying into new pharmaceutical and medical device markets through acquisitions, Mr Stoffel said. These include Knoll Pharmaceutical in 2001, which gave the firm Humira, and Guidant’s vascular business in 2006, which resulted in Abbott taking the leading position in the global market for vascular stents. Many of these acquisitions, including the Guidant operations and Nutrition International, continue to work as independent units within the company.

Abbott also has pursued an increasingly global strategy. In 2007, more than half the firm’s revenues came from outside the US for the first time, and that share continues to grow. Some of Abbott’s latest acquisitions, including Nutrition International and Guidant, are strongly focused on international growth.

The global recession and the resulting downturn in demand for laser vision correction created the conditions for the AMO buyout. With laser vision correction volume down 35 per cent in the third quarter, AMO’s stock briefly fell below $3 a share from a 2008 high of just over $24. After AMO announced a small profit for the third quarter due to rising cataract sales, the stock gradually climbed back to almost $9 in the session before Abbott announced the acquisition offer of $22 per share. While cataract surgery is AMO’s biggest market segment, the firm is much more highly exposed to the volatile laser refractive market than competitors such as Alcon and Bausch & Lomb.

Abbott sees the AMO acquisition as a long-term investment, Mr Stoffel said. Abbott projects that the acquisition will break even in 2009 and will begin generating a profit in 2010. The firm intends to continue supporting development of new vision technology, he added.

“One thing Abbott has been effective in as it manages through acquisitions is to take the best of the existing culture and maintain it, and use Abbott’s resources to enhance the business,” Mr Stoffel said. “Together with Abbott, AMO will be even stronger.”

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