Abbott Labs (ABT) is continuing to work on expanding its pipeline and recently entered into an agreement with Reata Pharmaceuticals for the development and commercialization of chronic kidney disease candidate bardoxolone methyl.
Terms of the Deal
Per the agreement, Abbott Labs acquired exclusive rights for the development and commercialization of bardoxolone in ex-US territories, excluding certain Asian markets. Abbott Labs also acquired rights for the development and commercialization of certain other compounds at Reata that are being studied for chronic kidney disease, cardiovascular and metabolic indications. Once again, these rights are for ex-US territories excluding certain Asian markets. Reata has a licensing agreement with Kyowa Hakko Kirin for the development and commercialization of bardoxolone in Japan and other selected Asian markets.
Abbott Labs will make upfront and near-term cash payments of approximately $450 million to Reata. In return, Abbott Labs will gain licensing rights and a minority equity stake in Reata.
In addition to the $450 million, Reata is entitled to receive payments on the achievement of certain milestones. Abbott Labs will also have to pay royalties on product sales recognized in its territories.
The Candidate
Bardoxolone is currently in phase II studies for the treatment of chronic kidney disease. Results from two phase II studies showed that treatment with bardoxolone resulted in a significant improvement in kidney function in patients suffering from advanced chronic kidney disease and type II diabetes.
The chronic kidney disease market represents significant commercial potential with more than 50 million adults affected worldwide. Moreover, the number of patients suffering from chronic kidney disease continues to increase. Abbott Labs already has a presence in the renal care market — Zemplar is approved for the prevention and treatment of secondary hyperparathyroidism associated with chronic kidney disease and stage 5 treatment.
Impact on Guidance
Although Abbott Labs expects to incur one-time charges related to the deal in the fourth quarter of 2010, the company does not expect this deal to impact its ongoing EPS guidance of $4.13 – $4.18 per share. The Zacks Consensus Estimate currently stands at $4.16 per share.
Neutral on Abbott Labs
We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). Abbott Labs’ strong business segments, contributions from recent acquisitions and impressive late-stage pipeline should help fortify long-term earnings growth.
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