Medical Device Link.

Originally Published MX July/August 2005

COVER STORY

Sometimes the perspective of an executive leading a multinational corporation with diversified interests can be very different from the views of company leaders that are more directly attached to specific product areas. At Abbott (Abbott Park, IL), the task of keeping such a diversified business strategy in balance is the responsibility of Miles D. White, chairman and CEO.

White joined Abbott in 1984 and served in a variety of executive roles, including senior vice president of diagnostics operations and executive vice president of the corporation, on his way to election to the Abbott board of directors in 1998. Since taking over as chairman and CEO in 1999, White has demonstrated the value of his longtime experience with the company, initiating a reshaping of the company's medical product emphasis in order to further corporate growth. Below, White offers his own perspective on Abbott's “strategic transformation” to meet the needs of the medtech marketplace.

MX: The lay and investor press have frequently commented that drug companies are beginning to feel the pinch of blockbuster drugs going ‘off-patent' and a dearth of new pharmaceuticals in the pipeline. To what extent did this trend underlie Abbott's determination to reshape and refocus its medical products group?

Miles D. White: Abbott has always been a broad-based company, and we're committed to that model for several reasons: it delivers more consistent and balanced performance, minimizes reimbursement and R&D portfolio risk, draws on combined science to create more innovations, and balances heavy cash users with consistent cash generators.

Over the past five years, we've worked hard to strengthen the mix of our businesses and restock our pipeline so we could be more competitive in the markets in which we operate. We completed the strategic transformation of Abbott in 2004 with excellent performance marked by these accomplishments. We delivered strong and balanced double-digit sales growth across our diverse businesses; achieved strong earnings-per-share growth; gained momentum across our businesses, and are recognized as having one of the richest pipelines in our industry.

In addition, in 2004, we surpassed growth projections in most of our major businesses—as well as the majority of our major brands.

In the past, such trends have been seen as cyclical in nature. Is that also the case this time around, or has the pharma sector undergone fundamental technological and business changes that will make it more difficult to develop new generations of blockbuster drugs than it has been in the past? How would you describe those changes?

We're undergoing a paradigm shift in pharmaceutical R&D. Up until 5 or 10 years ago, pharma R&D was focused on finding drugs for about 35 or so targets that we generally understood. And the industry was successful in bringing forward great advances in antibiotics and therapies to treat cardiovascular disease, HIV, leukemia, and other areas.

But with the mapping of the human genome, we now have 3500 new targets that our scientists must validate or understand how they potentially affect the disease process, and then find new drugs that work against them.

The process of applying new technologies to new targets doesn't happen overnight. Because pharmaceutical discovery and development cycles range from 8 to 15 years, it will be another several years before we really start to see a steady stream of medicines derived from this new technology/genomic revolution.

We are very pleased with Abbott's strategy of focusing our pharmaceutical research on areas of unmet medical needs with greatest medical potential. This focus, in addition to our talented people, is what is driving Abbott's productive research efforts.

What are the complexities that a diversified-company CEO faces in negotiating the interests of a varied group of stakeholders?

The key is striking the right balance and getting comfortable doing it. I am continually assessing the right balance of investment in R&D and SG&A across our businesses. We also have external demands outside our shareholders.

For example, we have a significant commitment to addressing HIV around the world. The benefits to Abbott of our involvement in this are indirect. They may contribute to the culture of the company, the reputation of the company, the longevity of a brand, or representation in countries around the world over decades.

Over time, these decisions characterize the company and its values. You will always find people who object or who demand more, and you're never going to know if you've found the right balance. But that's the challenge every CEO has. And it doesn't mean we shouldn't try.

What were you trying to achieve with the Hospira spin-off and how did it turn out?

The hospital products spin-off represented a significant step in reshaping our medical products business. The spin-off created two companies more focused on their distinct markets and allowed us to focus on newer businesses and platforms.

It has been a very successful spin-off. The combined value of the two companies has increased more than $13 billion since Hospira's launch a year ago.

It also spurred reorganization of Abbott's medical products group into independent, decentralized operating units—able to more quickly respond to a rapidly changing market with shorter product cycles and greater innovation requirements.

Do you feel that the reshaping Abbott has undertaken will be sufficient to keep the company strong through any foreseeable market events in the future? After the reshaping, what do you consider the company's greatest strengths?

Our focus is on areas where we can build sustainable leadership positions: applying our scientific skills to develop innovative products for large markets, investing in hiring and retaining talented people to help drive our innovation, and building a strong culture where talented people with a passion for winning come and stay.

We will continue to ensure that we remain competitive, win in the marketplace, and remain the innovation leader in the markets in which we choose to compete.

Are there any types of market events or trends that you would consider strong warning signs—for Abbott, for the medical device industry, or for the healthcare system as a whole?

While we're not immune to some of the challenges that face our industry, we are confident that our broad-based portfolio provides us with more consistent performance.

Overall, what is your assessment of the business health and technological future of the global medical device industry?

We believe that superior technology and innovation will continue to build sustainable leadership positions in the marketplace. If you can develop an innovative technology that, in turn, can better help patients or help physicians do their job better, then you create and sustain a leadership role.

The medical technology industry is filled with that competitive drive for innovation, so I believe the future bodes very well for patients, healthcare professionals, and the industry.

Copyright ©2005 MX