Abbott Laboratories 2012 Annual Report Download - page 60

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Abbott 2012 Annual Report
Financial Review
Molecular Diagnostics – Various new molecular in vitro diagnostic (IVD)
products, including oncology and infectious disease assays and a next
generation instrument system are in various stages of development
and commercialization. Abbott’s companion diagnostic test for an
ALK gene rearrangement test for non-small-cell lung cancer has been
approved in more than 40 countries around the world. In 2012,
companion diagnostic efforts were expanded to include collaborative
efforts with multiple major pharmaceutical companies. In the U.S.,
an assay to genotype HCV-infected patients to aid in the choice of an
appropriate therapy was submitted for regulatory approval. Additional
assays for infectious diseases including MTb and MTb drug resistance
are in development.
Core Laboratory Diagnostics – Abbott is working on the development
of assays in various areas including infectious disease, cardiac care,
fertility and metabolics, and on next-generation blood screening,
hematology, and immunochemistry instrument systems. Abbott is also
focusing on near-term launches of automation solutions, such as its
next-generation track system, ACCELERATOR a3600 to increase
efficiency in laboratories.
Diabetes Care – In the first quarter of 2012, Abbott obtained U.S.
regulatory approval for its FreeStyle InsuLinx blood glucose monitoring
system that includes a touch-screen interface and other features
designed to support the insulin-using patient. After receiving CE Mark
for this system in May 2011 and Health Canada approval in October
2011, Abbott is continuing to provide R&D support as the product
is launched in additional markets. Development is also continuing on
an updated hospital blood glucose monitoring system for which a filing
for approval is projected to be submitted in the U.S. during the first
half of 2013. Abbott is also developing a next-generation monitoring
system under the Precision product platform and for which Abbott
anticipates submitting filings for approval in various markets in the
second half of 2013.
Nutrition – Abbott is focusing its research and development spend
on six benefit platforms that span the pediatric, adult and performance
nutrition areas: immunity, cognition, lean body mass, inflammation,
metabolism and tolerance. Numerous new products that build on
advances in these benefit platforms are currently under development
and are expected to be launched over the coming years.
Given the diversity of Abbott’s business, its intention to remain a
broad-based healthcare company and the numerous sources for
potential future growth, no individual project is expected to be material
to cash flows or results of operations over the next five years. Factors
considered included research and development expenses projected to
be incurred for the project over the next year relative to Abbott’s total
research and development expenses as well as qualitative factors,
such as marketplace perceptions and impact of a new product on
Abbott’s overall market position. There were no delays in Abbott’s
2012 research and development activities that are expected to have
a material impact on operations.
While the aggregate cost to complete the numerous projects currently
in development is expected to be material, the total cost to complete
will depend upon Abbott’s ability to successfully complete each
project, the rate at which each project advances, and the ultimate
timing for completion. Given the potential for significant delays and
the high rate of failure inherent in the research and development of
new pharmaceutical and medical device products and technologies,
it is not possible to accurately estimate the total cost to complete all
projects currently in development. After the separation of AbbVie,
Abbott plans to manage its portfolio of projects to achieve research
and development spend equal to approximately 6 percent to 7 percent
of sales each year. Abbott does not regularly accumulate or make
management decisions based on the total expenses incurred for a
particular development phase in a given period.
Business Combinations, Technology Acquisitions and
Related Transactions
On September 8, 2010, Abbott acquired Piramal Healthcare Limited’s
Healthcare Solutions business, a leader in the Indian branded generics
market, for $2.2 billion, in cash, plus additional payments of $400 million
annually in 2011, 2012, 2013 and 2014. Abbott recorded a $1.6 billion
liability for the present value of the additional payments at the acquisition
date. The acquisition was financed with cash. The allocation of the fair
value of the acquisition resulted in the recording of $2.7 billion of
deductible acquired intangible assets and $1.0 billion of deductible
goodwill. Acquired intangible assets consist primarily of trade names,
customer relationships and associated rights and are amortized over
an average of 19 years.
In February 2010, Abbott acquired Solvay’s pharmaceuticals business
(Solvay Pharmaceuticals) for approximately $6.1 billion, in cash, plus
additional payments of up to EUR 100 million per year if certain sales
milestones are met in 2011, 2012 and 2013. Contingent consideration
of approximately $290 million was recorded. The acquisition of Solvay
Pharmaceuticals provided Abbott with a large and complementary
portfolio of pharmaceutical products and expands Abbott’s presence
in key global emerging markets. Abbott acquired control of this busi-
ness on February 15, 2010 and the financial results of the acquired
operations are included in these financial statements beginning on that
date. Net sales for the acquired operations for 2010 were approxi-
mately $3.1 billion. Pretax loss of the acquired operations, including
acquisition, integration and restructuring expenses, for 2010 was
approximately $395 million. The acquisition was funded with cash and
short-term investments. The allocation of the fair value of the acquisi-
tion resulted in the recording of $2.2 billion of non-deductible goodwill,
$4.1 billion of non-deductible intangible assets, $500 million of non-
deductible acquired in-process research and development assets, net
tangible assets of $700 million and deferred income taxes of $1.1 bil-
lion. Acquired intangible assets consist primarily of product rights for
currently marketed products and are amortized over 2 to 14 years