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Abbott Laboratories today announced that it will split itself into two companies by spinning off its branded prescription drug business and creating a second company responsible for its medical implants, diagnostic tests and baby formula businesses.

The pharmaceutical company will exclusively sell its branded prescription drugs (including its blockbuster biologic Humira) and will be lead by Abbott’s Richard Gonzalez who currently head the company’s pharmaceutical business. Current Abbott CEO Miles White will lead the diversified medical products company. 

The reason for the split is to allow investors to value each of the companies on their distinct characteristic. Abbott’s decision to split the company is consistent with the prevailing notion that companies that sell both prescription drugs and consumer products don’t perform well. This led Bristol Myers Squibb to sell off its medical devices and consumer products divisions several years ago. Interestingly, prescription pharmaceuticals/consumer products/medical devices were de rigueur in the 1990s and early 2000s. Abbott’s decision leaves companies like Pfizer, Novartis and Johnson & Johnson as examples of the few remaining companies that still house pharmaceuticals, devices and consumer goods under one roof. Don’t be surprised if in the future these companies also decide to spin off or divest themselves of their consumer goods/medical devices divisions.

Finally, while the split may be good for investors, it may not be that great for Abbott employees. Usually, spin offs or divestitures

Until next time..

Good Luck and Good Job Hunting!!!!!!!!!!!!!!

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I just returned from a weekend of teaching regulatory affairs to biotechnology students at Georgetown University where I tried to convince them that the US Food and Drug Administration (FDA) is fundamentally sound despite its near demise during the Bush administration. Even before the Bush-induced wreckage, the agency was chronically understaffed, under funded and had serious leadership and morale problems. This, coupled with two nationwide Salmonella outbreaks in the past year, several highly publicized drug recalls, and steadily declining drug approval rates has prompted its critics to propose that FDA be split into two separate agencies—one that oversees the drug industry and another that would have responsibility for cosmetic and food safety. For those of you who may not know, FDA became responsible for oversight and regulation of the food and drug industries, in addition to the drugs, after passage of the Food, Drug and Cosmetic Act in 1938.

Drug industry advocates and longtime FDA critics contend that the agency as it exists today can no longer effectively oversee and insure the safety of American food and drug supplies. Critics argue that the history of FDA suggests that the agency focuses on medical products and only focuses on food safety when a crisis comes up. And when they occur, FDA is so distracted that it interferes with the drug review/approval process. While this is what FDA critics want you to believe, it is simply not the case. Despite its recent problems, the FDA has historically done an outstanding job when it comes to drug and food safety—when it is funded and staffed to appropriate levels.

Unbeknownst to the American public, food borne illnesses are very common and Americans are only alerted when the outbreaks reach a certain size. While the recent Salmonella outbreaks were larger in scope and breadth than past outbreaks, they were not extraordinary. However, they were extremely media worthy at the time that they were reported on. You may recall that at the time of the outbreaks, the American economy was beginning to fail and there was an inordinate amount of China, Mexico and free trade bashing going on in the US. Unfortunately, the news media decided to exploit the outbreaks to make a case that Americans ought to reduce their reliance on imported foods—a practice that was beginning to cut into the revenues of the US agriculture and food industries. Ironically, the Salmonella outbreaks might have been prevented if the production facilities (owned by American companies) were compliant with FDA mandated quality control and assurance regulations which were designed to insure food safety.

Drug industry advocates who argue that FDA ought to be split into two separate agencies have financial interests rather than safety concerns in mind.  As an investment banker or VC will tell you, slow, new drug approval rates can have serious financial consequences for the companies that are developing them—it can literally cost a company millions of dollars a day for every day the drug is kept off the market.  Interestingly, when FDA increased its drug approval rates in the late 1990s and early 2000s, there weren’t many industry insiders advocating a break up of the agency. Only recently, as FDA has become more risk adverse which in turn, has caused the new drug approval rates to slow again have critics begun to call for massive organizational changes at FDA.

Like I told my biotech students over the weekend, the only mechanism by which FDA can insure food and drug safety is by conducting regular inspections of drug and food manufacturing facilities. Unfortunately, FDA hasn’t been able to keep up with its mandatory inspections schedule because the agency has been under funded and poorly staffed for over a decade. Several FDA inspectors, who I talked with suggested that routine inspections of manufacturing facilities takes place every three to five years rather than every two years as required by FDA regulations. While in theory this shouldn’t affect a company’s ability to remain compliant with FDA regulations, in reality it does. Put simply, pharmaceutical and food companies, like most other for profit industries are incapable of policing themselves in the absence of regulatory oversight.

I ‘m not certain that the agency needs to be split into two separate agencies to continue to insure the safety of the American drug and food supplies. What I know is the agency needs more funding and much larger numbers of trained inspectors to be successful. In my opinion, the safety of the American food and drug supplies can only be guaranteed if the companies regulated by FDA make a commitment to quality manufacturing and play by the rules.

Until next time...

Good Luck and Good Job Hunting!!!!!!!!!

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