After the split AbbVie will own the proprietary pharmaceutical products business and its associated contract manufacturing operations. The CMO (contract manufacturing organisation) will receive an early boost when it forms supply deals with Abbott.
“AbbVie will enter into one or more manufacturing and supply agreements with Abbott prior to the distribution pursuant to which AbbVie or Abbott, as the case may be, will manufacture, label, and package products for the other party”, the firm wrote in a regulatory filing.
Deals will last up to five years and both firms will act in their own self-interest when agreeing terms, or, as Abbott words it, “payments will be determined on an arm's length basis”. In the past inventory transfers between AbbVie and Abbott were recorded at cost.
Renegotiating these transfers at commercial rates should boost AbbVie contract manufacturing sales. The value of the deals is unclear – sections for CMO sales to Abbott in the US Securities and Exchange Commission (SEC) filing are blank – but could be material given the relatively small size of the unit.
Sizing the Abbott CMO business is traditionally difficult as it groups its sales with the animal health unit in financial reports. However, the AbbVie spinoff filing allows for an estimation of pharma CMO sales.
AbbVie revenues are calculated by adding the CMO business to sales of propitiatory pharmaceutical products. This suggests the CMO generated sales of $101m (€81m) in the first quarter of 2012 and $422m in the last financial year.
To put this in context the commercial manufacturing unit at Patheon generated sales of $123m in the first quarter of 2012 and $573m in the last financial year. These figures exclude development services sales at Patheon.
Lingering links
Manufacturing agreements are just one way AbbVie and Abbott will, at least in the near-term, stay linked. A two-year information technology agreement is planned to guide the separation of systems and give the companies chance to install their own infrastructure.
“AbbVie will install and implement information technology infrastructure to support its critical business functions, including accounting and reporting, manufacturing process control, customer service, inventory control and distribution”, the company wrote.
Management at AbbVie will also be familiar to anyone who follows Abbott. Richard Gonzalez, EVP of the pharmaceutical products group at Abbott, will lead AbbVie and other executives will also move to key roles at the spinoff.