Abbott profit tumbles after layoffs, drug withdrawal

By Bruce Japsen
Posted Oct. 20, 2010 at 10:33 a.m.

Abbott Laboratories reported third-quarter profits tumbled 40 percent thanks to the costs of withdrawing a diet drug from the U.S. market and global cost-cutting in the wake of its acquisition of Solvay Pharmaceuticals.

The North Chicago-based drug and medical product giant reported earnings of $891 million, or 57 cents a share, compared to $1.5 billion, or 95 cents a share in the third quarter of 2009.

Net earnings included after-tax charges of $513 million, or 33 cents a share due to a major product withdrawal, a recall of infant formula in the U.S. and costs that Abbott said was primarily related to restructuring following the Solvay deal. Abbott last month said it would cut about 3,000 jobs worldwide or about 3 percent of the company’s global workforce to eliminate redundancies following the purchase.

In addition, Abbott last month withdrew its diet drug Meridia from the U.S. market at the request of the Food and Drug Administration. Consumer groups and one of the FDA’s own safety advisory panels criticized the drug for potential dangers to obese patients and concerns the drug’s risks of heart attack and stroke outweighed its benefits.

The Meridia withdrawal in the U.S. and certain other countries as well as a recall last month in the U.S. of infant formulac Similac after reports of insects in the product contributed $84 million to the after-tax charges tally.

The recall of Similac caused Abbott to miss Wall Street analysts expectations for sales, with some analysts saying they missed revenue estimates in the quarter by more than $200 million. The price of Abbott shares fell 1.4 percent, or 70 cents a share, to $52.12 in trading this morning on the New York Stock Exchange.

“Though sales were light — $215M below our estimate — the miss was largely a result of the September Similac recall, which Abbott had previously indicated would be a $100 million hit to the top-line,” said Rick Wise, an analyst with Leerink Swan in New York, said in a note he issued this morning.

Revenue was still up nearly 12 percent to $8.7 billion, compared to $7.8 billion in the third quarter. Growth, Abbott said, was driven by a jump of 22 percent growth in pharmaceutical sales.

Abbott, however, said underlying growth was solid. Excluding the costs of the Solvay job cuts and other special items, Abbott said net earnings were up 14 percent.

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