Abbott Laboratories took a bold step yesterday as it announced it is to split off its $18 billion drugs arm into a new, as-yet unnamed company, as pharma starts to reverse its diversification of recent years. And the markets responded positively to the news, sending the firms stock price up 1.5% to close at $53.25 on the New York Stock Exchange.

The pharmaceutical unit will be named later on in the year, while the remainder – diagnostics, devices, nutrition and branded generics – will keep the Abbott name, headed by current chairman and chief executive Miles White. Richard Gonzalez, who has been at the helm of the pharma division, will become chairman and CEO of the new firm. 

Abbott’s stock price has languished in the recent past, gaining less than 1% in the last two years, as the huge success of its arthritis drug Humira - which pulls in around 45% of the firm’s overall revenues – muddied the waters and overshadowed medical products. 

“There is no question that both our research-based pharmaceutical and diversified medical product businesses have evolved over time in very different ways into two different, compelling investment identities,” White said on a call with analysts. Certainly investors seem to believe the two separate companies will now be deemed more valuable than they were as a single entity.

Recently Bristol-Myers Squibb split off non-pharma activities, including its baby formula business, to focus on drug research and development and Pfizer is expected to make a similar move later on this year for its animal health and nutrition arms – although the firm continues to insist that no decisions have been made on the fate of these non-core arms.  

Meanwhile, Abbott unveiled third-quarter results with worldwide sales up 13.2% to $9.8 billion, of which pharmaceuticals came in at $4.3 billion, up 13.5%. Humira again made top of the class, reeling in $2.1 billion – a leap of 25% over the third quarter 2010 – and the company re-confirmed its expectations for double-digit earnings per share for the full year.

$1.5bn reserve pot for Depakote

However, lost in the melee, Abbott also revealed it has put aside a $1.5 billion reserve relating to a US Department of Justice investigation into the sales and marketing of its seizure drug Depakote (divalproex). The probe was first revealed in 2009 and, in particular, is examining any irregularities “in connection with Medicare and/or Medicaid reimbursement to third parties”. Although the investigation has yet to be concluded, and therefore the outcome is unclear, a $1.5 billion charge would be the second largest healthcare fraud penalty ever levied by the DoJ, following Pfizer’s $2.3 billion fine for the illegal promotion of a number of drugs in September 2009.