Abbott Laboratories

Abbott Laboratories

One Abbott Park Road
Abbott Park, Illinois 60064-3500
U.S.A.
(708) 937-6100
Fax:(708) 937-1511

Public Company
Incorporated: 1900 as Abbott Alkaloidal Company
Employees: 49,659
Sales: $8.41 billion
Stock Exchanges: New York London Zurich Basle Geneva
Boston Cincinnati NASDAQ Philadelphia Pacific
Lausanne
SICs: 2834 Pharmaceutical Preparations; 2833 Medicinals
and Botanicals; 2835 Diagnostic Substances; 2844 Toilet
Preparations; 2879 Agricultural Chemicals, Not Elsewhere
Classified; 3841 Surgical and Medical Instruments; 3845
Electromedical Equipment; 3826 Laboratory Analytical
Instruments

Abbott Laboratories is one of the oldest and most successful of America’s pharmaceutical companies. While ethical drugs only accounted for one-fourth of its annual sales in the early 1990s, Abbott ranked as a top manufacturer of medical diagnostic equipment, with an emphasis on blood analyzers, and was also a leading producer of infant formulas under the Similac and Isomil brands, which commanded over half of the $3 billion American market. Abbott’s consumer brands also included Clear Eyes and Murine eye care products; Selsun Blue shampoo; and Ensure nutritional supplement. Moreover, the company held the patent on the “truth serum” sodium pentothal and continued to lead sales of the antibiotic erythromycin, which it introduced in 1952.

Abbott Laboratories has its origin in the late nineteenth century in a small pharmaceutical operation run from the kitchen of a Chicago physician named Wallace Calvin Abbott. As did other physicians of the time, Dr. Abbott commonly prescribed morphine, quinine, strychnine, and codeine—all of which were liquid alkaloid extracts—for his patients. Because they existed only in a liquid form, these drugs were prone to spoilage over time, mitigating their effectiveness as treatments. In 1888, Dr. Abbott heard that a Belgian surgeon had developed alkaloids in solid form. Alkaloid pills soon became available in Chicago, but Dr. Abbott was dissatisfied with their quality, and he decided to manufacture his own.

Dr. Abbott began to advertise his products to other doctors in 1891. So successful was his business that he eventually sold shares to other doctors and incorporated his operation in 1900 as the Abbott Alkaloidal Company. By 1905, annual sales had grown to $200,000. During World War I, Abbott’s company was essential to the medical community, as several important drugs, manufactured exclusively by German companies, were no longer available in the United States. Abbott developed procaine, a substitute for the German novocaine, and barbital, a replacement for veneral.

After the war, Abbott continued to concentrate on the research and development of new drugs. In 1921, the company established a laboratory in Rocky Mount, North Carolina, which developed a number of new drugs, including sedatives, tranquilizers, and vitamins. Even after Dr. Abbott’s death that year, the company continued to invest heavily in new product development and aggressive marketing campaigns.

DeWitt Clough was named president of the company in 1933, ending a period of somewhat stale communal leadership. A more dynamic character than any since Dr. Abbott, Clough is best remembered for the inauguration of the company magazine, What’s New?. The publication had such a positive impact on worker morale and public opinion that several of Abbott’s competitors started similar publications.

During World War II, Abbott once again played an important role in battlefield and hospital health care. By this time, American pharmaceutical companies such as Abbott were much less dependent on Germany’s companies, particularly the IG Farben—a conglomeration of the world’s most advanced drug manufacturers. After the war, much of the IG Farben’s research was turned over to American manufacturers. Abbott, however, had little to gain from this information; it was already a worthy competitor on its own.

After the departure of DeWitt Clough in 1945, Abbott shifted its attention to the development of antibiotics. The company developed erythromycin, which, under the brand names Erythrocin and E.E.S., constituted a significant portion of Abbott’s prescription drug sales for several decades—even after the expiration of its 17-year patent. Sales of the drug increased dramatically when it was found to be an effective treatment for Legionnaire’s disease.

Abbott stumbled onto a lucrative new product when one of its researchers accidentally discovered that a chemical with which he had been working had a sweet taste. The chemical, a cyclamate, could be used as an artificial sweetener. Initially, from 1950, it was marketed to diabetics, but in the 1960s, as Americans became more health and diet conscious, it was increasingly used as a sugar substitute in a wide variety of foods.

By the mid-1960s, Abbott had gone several years without a major breakthrough in research, and none was projected at any time in the immediate future. Then, in 1967, Edward J. Ledder was named president of the company. He advocated a reduction in Abbott’s emphasis on pharmaceuticals by diversifying into other fields. In the years that followed, Abbott introduced an array of consumer products, including Pream non-dairy creamer, Glad Hands rubber gloves, Faultless golf balls, and Sucaryl, the cyclamate sugar substitute. In an effort to ensure the success of Abbott’s consumer product line, Ledder placed Melvin Birnbaum, a highly experienced and able manager he had hired away from Revlon, in charge of the division. Ledder’s policy of diversification laid the groundwork for more flexible corporate strategies. No longer exposed exclusively within the pharmaceuticals market, Abbott was able to cross-subsidize failing operations until they could be rehabilitated.

Despite this flexibility, Abbott soon realized new obstacles to its growth. The company’s hospital products competed in a limited, institutional market. New drugs had greater profit margins but were subject to government approval procedures that kept companies waiting for several years before they could market their discoveries. Consumer products, on the other hand, involved more expensive marketing and generated less profit than Pharmaceuticals. Unable to increase profits without substantial risk, Abbott’s management decided to maintain the strategies that were in place.

Cyclamate sales had grown so dramatically that by 1969 they accounted for one-third of Abbott’s consumer product revenues—or about $50 million. The increasing popularity of cyclamates as an ingredient in diet foods, however, led the FDA to conduct an investigation of possible side effects from their overuse. The FDA’s research was widely criticized as “fragmentary” and “fatally flawed,” but it was nonetheless used as evidence that cyclamates were carcinogenic. The market collapsed in August 1970 when the FDA banned domestic sales of cyclamates. Abbott, which overnight had suffered the loss of one of its most profitable operations, protested the ban, but was unable to reverse the decision. Although the company continued to petition the FDA, subsequent studies have confirmed that metabolization of cyclamates can lead to chromosome breakage and bladder cancer.

Less than a year after cyclamates were banned, Abbott was forced to recall 3.4 million bottles of intravenous solution. The bottles were sealed with a varnished paper called Gilsonite, which, it was discovered, harbored bacteria. The contamination was discovered only when health care workers noticed and then investigated the high incidence of infection in patients who had been administered Abbott’s intravenous solutions. The Center for Disease Control linked the contaminated solutions to at least 434 infections and 49 deaths. With sales down from $17.9 million to $3 million, Abbott’s share price began to fall. Abbott moved quickly to replace its Gilsonite seals with synthetic rubber, but the company was unable to regain its leadership of the intravenous market. Litigation resulted in the company eventually pleading no contest to a charge of conspiracy and paying a $1,000 fine.

The crises of the early 1970s left the company’s upper echelon of management weakened and vulnerable to criticism. Although Edward Ledder was recognized for the success of his diversification program (and largely excused for his inability to prevent either the cyclamate ban or the intravenous solution crisis), conditions were obviously ripe for the expression of talent by a new manager. Robert Schoellhorn, a veteran of the chemical industry, was just such a manager. His efforts as a vice-president in the hospital products division at Abbott resulted in a revenue increase of 139 percent for that division between 1974 and 1979. He correctly predicted that the next most profitable trend in health care would be toward cost-effective analysis and treatment. Schoellhorn was later promoted to president and chief operating officer of the company.

Abbott Laboratories registered an annual sales growth rate of 15.5 percent and an earnings growth rate of 16.5 percent by 1979. This expansion was attributed by financial analysts to the company’s increased productivity, reduced costs, expansion into foreign markets, and greater involvement in hospital nutritionals and diagnostic testing equipment. The company also introduced three new drugs in 1979: Depakene, an anticonvul-sant, Tranxene, a mild tranquilizer, and Abbokinase, a treatment for blood clots in the lungs. All three products were the direct result of the company’s increased investment in research and development in the mid-1970s.

Utilizing its knowledge of intravenous solution production, vitamin therapy, and infant formula, Abbott developed a comprehensive nutritional therapy program to speed the recovery of hospital patients and thereby reduce medical care costs. In the 1980s, as many as 65 percent of all hospital patients suffered from some form of malnutrition, so Abbott was highly successful in marketing their program. Another advantage of adult nutritional products was that they had a place in the growing home care market.

Abbott had similar success marketing its lines of diagnostic equipment. Electronic testing devices developed by Abbott proved more accurate than manual procedures. In order to strengthen the technical end of its diagnostic equipment research, Abbott hired two top executives away from Texas Instruments to head the division.

Robert Schoellhorn, who advanced to chairperson and chief executive officer in 1979, continued to emphasize investment in pharmaceutical research and development in the 1980s. Seven new drugs introduced in 1982 accounted for 17 percent of sales in 1985. Foreign operations also remained extremely important to Abbott, and the company had over 75 foreign subsidiaries and manufacturing facilities in more than 30 countries. Schoellhorn continued to support Ledder’s original diversification policy. The introduction of Murine eye-care products and Selsun Blue dandruff shampoo served to expand the domestic consumer product line and promised to provide earning stability in the event of a downturn in any of the company’s other markets.

Schoellhorn was also credited with promoting Abbott’s emphasis on diagnostic equipment, especially blood analyzers. These devices were increasingly used to detect legal and illegal substances in the bloodstream. Abbott led the trend, developing the first diagnostic tests for Acquired Immune Deficiency Syndrome (AIDS) and hepatitis. The company’s “Vision” blood analyzer fit on a desktop and performed 90 percent of typical blood tests within eight minutes. By the end of the 1980s, sales of blood analysis devices were a billion dollar business, and medical diagnostic products (at $2.3 million per year) constituted nearly half of Abbott’s annual sales.

Schoellhorn was widely praised as the driving force behind Abbott’s phenomenal growth during the 1980s—sales nearly tripled, profits doubled, and the pharmaceutical company rose to 90th from 197th on Fortune’s list of the world’s top 500 companies. The leader’s aggressive management style, however, often led to conflict. Over the course of the 1980s, three presidents—James L. Vincent (1981); Kirk Raab (1985); and Jack W. Schuler (1989)—quit. In December 1989, Abbott’s board of directors unseated Schoellhorn, who in turn sued the company for his job. Abbott accused Schoellhorn of misappropriation of company assets and “fraudulent conduct,” adding that the former CEO exercised stock options worth $9.3 million within days of his release. Schoellhorn was succeeded by vice-chairperson Duane L. Burnham.

Unlike many of its competitors (including Merck & Co., Smith-Kline Beecham plc, and Eli Lilly & Co.), Abbott had not acquired a drug distribution manager in the early 1990s. Instead, the company plowed funds into research and development. R & D outlays rose from 5.2 percent of sales in 1982 to over ten percent of sales by 1994. That year marked the company’s 23rd consecutive earnings lift and helped Abbott’s stock hold its value better than most competitors in the uncertain health care environment of the early 1990s.

Principal Subsidiaries

Abbott Biotech, Inc.; Abbott Chemicals, Inc.; Abbott Health Products, Inc.; Abbott Home Infusion Services of New York, Inc.; Abbott International Ltd.; Abbott Ltd. of Puerto Rico; Abbott Laboratories International Co.; Abbott Laboratories Pacific Ltd.; Abbott Laboratories (Puerto Rico) Inc.; Abbott Laboratories Residential Development Fund, Inc.; Abbott Laboratories Services Corp.; Abbott Manufacturing, Inc.; Abbott Trading Company, Inc.; Abbott Universal Ltd.; CMM Transportation, Inc.; Corporate Alliance, Inc.; Exact Science, Inc.; Fuller Research Corporation; Laser Surgery Partnership; Mediase Holding Corporation; North Shore Properties, Inc.; Oximetrix de Puerto Rico, Inc.; Oximetrix, Inc.; Sequoia Turner Corporation; Sequoia Turner Export Corp.; Solartek Products, Inc.; Sorenson Research Co., Inc.; Swan-Myers, Inc.; TAP Pharmaceuticals Inc. (50%); Tobal Products Inc. The company also owns subsidiaries in the following countries: Argentina, Australia, Austria, Bahamas, Belgium, Bermuda, Brazil, Canada, Chile, China, Colombia, Ecuador, El Salvador, England, France, Germany, Greece, Grenada, Guatemala, Hong Kong, India, Indonesia, Ireland, Italy, Jamaica, Japan, Korea, Lebanon, Malaysia, Mexico, Mozambique, the Netherlands, New Zealand, Nigeria, Pakistan, Panama, Peru, Philippines, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Uruguay, and Venezuela.

Further Reading

Berss, Marcia, “Aloof But Not Asleep,” Forbes, August 29, 1994, pp. 43-44.

Kogan, Herman, The Long White Line: The Story of Abbott Laboratories, New York: Random House, 1963.

—updated by April Dougal Gasbarre