Breaking up could turn out to be good medicine

With apologies to Neal Sedaka and his 1963 hit song, breaking up isn��t hard to do.

Abbott Laboratories (NYSE:ABT) proved that to be true on Wednesday, when it announced the 123-year-old company is splitting itself in two. Its brand-name pharmaceutical business will become a publicly traded firm under the guidance of 30-year Abbott veteran Richard Gonzalez, who currently serves as the company’s executive vice president, global pharmaceuticals. Chairman Miles White will continue at the helm of the company that will retain the Abbott name. It will keep the remaining product lines, which include branded generic pharmaceuticals, diagnostic devices, and nutritionals.

“Today’s news is a significant event for Abbott, and reflects another dynamic change in our company’s�� history, strengthening our outlook for strong and sustainable growth and shareholder returns,” White said in a company news release.

Evidently, White had an epiphany during the past nine months. When asked during a January conference call about a possible spinoff of the company��s nutritional business, he brushed the notion aside. ��I don’t make strategic decisions for the company based on transactions the Street might like to see,” he said, according to an article in Forbes, calling nutritionals “an incredible and attractive business” that “will remain part of Abbott.”

Evidently, White finally got the message analysts had been whispering in his ear: ��break up, break up, break up.�� Or he took a peek at Mead-Johnson (NYSE:MJN) and saw that the company��s shares have nearly tripled since it was spun off by Bristol-Myers (NYSE:BMY)?in 2009. Mead now sells at a gaudy P/E of 30 based on trailing earnings, nearly double that of its former parent.

Investors also seem to be applauding Abbott��s move. In Wednesday��s trading, the s! tock was up nearly 2%, to $53.34. Meanwhile, highly diversified giant Johnson & Johnson (NYSE:JNJ) was down about the same percentage after it reported a 6% decline in third-quarter profit on costs related to a planned medical-device acquisition. Perhaps the market is telling us that diversification is out and narrowing the focus is in among health care companies.

Will Abbott��s split spur others in the health care industry to follow suit? As we noted in a July 29 article here, Pfizer (NYSE:PFE) has already said it will shed its nutritional and animal health businesses to pump more money into its pipeline compounds. Some investors don��t think this is enough. They want the company to get rid of everything but its prescription pharmaceutical business.

Investors also might want to take a close look at other industry players that appear ripe for a breakup.?Medtronic (NYSE:MDT) shares could jump 30% or more if that company followed Abbott��s lead, Jami Rubin, a drug analyst at Goldman Sachs, said in a Forbes article published earlier this year.

Corporate breakups also could boost the share prices of a number of European drug companies, the Forbes article noted. Among those named were Sanofi-Aventis (NYSE:SNY), Novartis (NYSE:NVS) and GlaxoSmithKline (NYSE:GSK).

If less proves to be more for Abbott and Pfizer, breakups might be just what the doctor ordered to improve the financial health and share prices of other diversified health care companies.

As of this writing, Barry Cohen was long PFE, BMY, GSK, NVS and JNJ.