Hurt by the anticipated costs of settling a federal investigation into company marketing practices cut, Abbott Laboratories’ second-quarter profit by 58 percent, the company reported Thursday.
Net income at The North Chicago-based medical product giant’s net income fell to $246.6 million, or 16 cents a share, from $592.3 million, or 38 cents a share, in the year-earlier period. Sales in the quarter ended June 30 rose 9.5 percent, to $4.72 billion from $4.31 billion, fueled by U.S. pharmaceutical sales that include the company’s new rheumatoid arthritis drug Humira.
Abbott met Wall Street’s earnings expectations, which were lowered late last month after the company disclosed that it had set aside $622 million pretax to resolve allegations that its Ross Products nutrition business worked with medical-care providers to bilk government health insurance programs for the poor and elderly.
Excluding the 34-cent-per-share cost to settle the Ross investigation and a 2-cent-per-share cost for last month’s acquisition of the device company Spinal Concepts Inc., among other one-time charges, Abbott earned $819.8 million, or 52 cents a share.
Abbott did not discuss any developments in the investigation into Ross during a Thursday morning conference call with Wall Street analysts, investors and the press. In an interview, an Abbott spokeswoman would not comment on the settlement,, which still has to be approved by a federal court.
At issue is an investigation by the U.S. attorney’s office for the Southern District of Illinois an into whether Abbott and other medical product manufacturers encouraged hospitals, nursing homes or home-care providers to buy pumps and related supplies to feed seriously ill people — –kknown as enteral nutrition therapy — by giving products away or selling them at a discount, sources close to the multiyear probe say.
Some providers then allegedly billed the products at a higher price to government health insurers, according to sources, who said that for Abbott, and other companies under investigation, the practice helped build market share. The Tribune first reported the nationwide investigation in 2001.
Sources said Abbott has negotiated a plea agreement that would allow the company to continue to do business with federal and state health insurance programs.
Abbott won’t comment on whether there will be a guilty plea but said that the company’s Ross Products business is not affected by the ongoing probe. The Ross division’s second-quarter sales were down 7.1 percent, to $478 million, largely because of “soft economic conditions and pricing pressures” at hospitals, nursing homes and similar institutional customers, a company statement said.
Sales were soft in other divisions as well, including at TAP Pharmaceutical Products Inc., the Lake Forest-based joint venture Abbott owns with Japan’s Takeda Chemical Industries. Stalled sales at TAP and in Abbott’s U.S. hospital products and diagnostics divisions helped cause the price of Abbott shares to fall 13 cents, to $43.55, Thursday on the New York Stock Exchange.
Both of TAP’s products — the prostate cancer drug Lupron and the heartburn pill Prevacid — were off in the second quarter in a competitive market for both treatments. Abbott said Lupron sales were down 9.5 percent, to $199 million, because of pricing pressures. Sales of Prevacid dipped 2.1 percent, to $797 million, due to wholesaler buying patterns and stocking by customers, Abbott said.
“The challenge of all large companies is that many products are maturing at the same time the company is trying to grow,” said Kenneth Abramowitz, health industry analyst with The Carlyle Group in New York. “The way companies overcome these problems is to accelerate spending in [research and development] and accelerate the level of acquisitions, and Abbott has been doing both.”
In the second quarter, Abbott’s spending on research and development rose 6 percent, in the second quarter to $402.7 million, as the company continues to invest in its drug development pipeline.
U.S. pharmaceutical sales grew 27 percent in the quarter, to $1.26 billion, buoyed by increased demand for the company’s AIDS drug Kaletra, the epilepsy drug Depakote and improving sales of Humira, the potential blockbuster rheumatoid arthritis drug approved in the U.S. on Dec. 31.
Humira sales in the second quarter totaled $57 million worldwide, with $54 million in the U.S. “We continue to project strong performance in pharmaceuticals, and we remain encouraged by the successful launch of Humira,” Abbott Chief Executive Miles White said.
