Abbott Laboratories (NYSE:ABT) has developed an appetite for the nutritional business. The firm is bulking up in this area through the purchase of privately held EAS as part of an ongoing effort to reach consumers directly and better position itself in the lucrative and growing diet market.
Abbott is shelling out $320 million in cash to buy EAS, which according to the Chicago Tribune booked sales of $300 million last year. The latest deal complements Abbott's 2003 purchase of ZonePerfect Nutrition and should help build positive momentum in the company's Ross Products nutrition line. EAS sports a number of well-known brands, including AdvantEdge, Myoplex, and Body for Life.
The move makes a lot of sense considering recent trends. Medicare has changed its position on obesity, and lawmakers reportedly are considering covering more preventative care, such as doctor's visits for help in weight loss. With its marketing prowess, scientific expertise, and strong reputation among health care providers, Abbott has all the tools to build sales in the nutritional supplement segment.
Further, the EAS purchase will help Abbott offset risks in the pharmaceutical business. The surging costs of development, regulatory and political headaches, and marketing restrictions are making the drug segment an increasingly difficult area in which to operate. By contrast, Abbott can run its nutritional side at comparably low cost and with remarkable flexibility.
Of course, Abbott's increasing thrust into the nutritional business by no means signals a retreat from pharmaceuticals. After all, in the second quarter the company announced that it expects its arthritis drug HUMIRA to achieve 2004 sales of more than $800 million. Who would walk away from that? Nevertheless, given the current tumultuous environment in the drug industry, it makes sense to have other cards to play.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
