And in this corner ...

November 8, 2006

Pharmaceutical Executive

Volume 0, Issue 0

Abbott's acquisition of Kos creates a viable contender in the fight for cardiovascular market share.

Industry watchers are saying Abbott overpaid in its $3.7 billion acquisition of Kos Pharmaceuticals this week, but it's tough to put a price tag on instilling fear in the reigning champs of cardiovascular drugs. The deal, which adds three cholesterol drugs to Abbott's franchise, creates a combined company that threatens Pfizer and Merck in their struggle to hang onto the market they once dominated.

With the deal, which Bruce Cranna, an analyst at Leerink Swann & Company, dubbed "fairly expensive," Abbott adds Niaspan (niacin extended-release), Advicor (Niaspan/lovastatin), and the yet-to-be-approved Simcor (Niaspan/simvastatin).

Neither Niaspan nor Advicor has reached the blockbuster status that many cardiovascular drugs achieve--but the acquisition could change the competitive landscape. The deal "puts more horsepower behind the most significant HDL-raising franchise on the market," said Robert Hazlett, an analyst at BMO Capital Markets.

The real test, however, will be whether Abbott and Kos can break into the combination market. As the patent clock ticks on some of pharma's biggest cardiovascular moneymakers, companies are rushing to launch the next generation of blockbusters that pair statins with drugs that raise HDL levels.

As part of a separate deal struck earlier this year, Abbott will pair its "good cholesterol" drug TriCor (fenofibrate) with AstraZeneca's Crestor (rosuvastatin). The move came on the heels of its acquisition of Guidant's vascular business.

One company that is likely watching Abbott's recent moves closely is Pfizer, which is placing bets on its own next-generation combination drug in the high-stakes race. With Lipitor (lovastatin) coming off patent in 2010, Pfizer is staking at least part of its future on being able to extend the life of its $6.6 billion earner by pairing it with experimental HDL-raiser torceptrapib.

Yet the combination therapy, which would compete with the Crestor/TriCor drug, was dealt a blow last week when early results from a clinical study suggested that it raises blood pressure.

This week's deal with Kos does not pose a specific threat to any of Pfizer's products, but it signals that Abbott is angling for a bigger piece of the cardiovascular market. "It is kind of a land of giants," Cranna said. With Kos in its arsenal, Abbott--a relative newcomer in the lucrative cardiovascular market--is better armed to compete against the marketing might of Pfizer and Merck.

The hefty price tag on Kos makes sense if Abbott expects to realize significant cost cutting as a result of overlap between the two companies, according to Cranna.

Another variable in the deal will be Niaspan's performance in 2008, he said, since Kos' lead product is under a "fairly sizeable competitive threat." Niaspan can cause an unpleasant flushing side effect, which other cholesterol boosters in the pipeline aim to eliminate.

But the Kos acquisition also builds Abbott's pipeline with two additional primary care products still in development: asthma drug Flutiform--a combination steroid/beta-agonist that has gotten a lot of interest on Wall Street--and an inhaled insulin product for diabetes.

Abbott spokesman Jonathan Hamilton noted that the company would be appointing an integration team to assess post-merger operations. He declined comment on cost savings, but noted that Abbott would be increasing its R&D facilities.

Many of the uncertainties for Abbott spell immediate gains for Kos.

"One of the key issues with Kos is that management was wrestling with how to realize good profitability and growth," Hazlett said. "They were wrestling with earnings today versus earnings tomorrow. Abbott has a much larger footprint; they've been able to market their products very successfully."