When it comes to investing in Big Pharma, it's hard to top Abbott ( ABT), especially as its peers continue to be beaten up.

In short-term, mid-term and long-term assessments of stock performance through Aug. 6, Abbott outpaced its rivals at each measurement most of the time. Abbott has also outperformed the Amex Pharmaceutical Index of big drugmakers at intervals of six months, 12 months, two years and five years.

"Abbott has done well with a diversified platform of nutritional products, diagnostics and devices to help offset the volatility of the pharmaceutical group," says Damien Conover of the financial research firm Morningstar. "Near-term, Abbott is set up for pretty good growth."

Growth was evident in mid-July when Abbott issued second-quarter results that beat Wall Street estimates, raised its full-year earnings forecast and predicted continued double-digit EPS growth in 2009.

Abbott's steady advance over the years has pushed its market capitalization to about $90 billion, trailing only Johnson & Johnson ( JNJ) and Pfizer ( PFE) among U.S. Big Pharmas.

Like J&J, Abbott's shares should continue to benefit from diversification, says Catherine Arnold of Credit Suisse, who gave a neutral rating in a recent report.

"We prefer Abbott to J&J in this regard given their relative growth outlook," says Arnold. Her firm has had a recent investment-banking relationship. (Abbott's stock beats J&J at two-year and five-year intervals; J&J wins at six-month and 12-month intervals.)

Arnold is neutral because Abbott is trading near her 12-month target of $59. Morningstar gives Abbott a four-star rating, with five being the highest, saying the stock is just below its fair value forecast of $63. The stock closed at $58.78 on Aug. 6.

Twelve of 15 analysts polled by Thomson Reuters have buy ratings on Abbott. However, fans and critics alike wonder if Abbott can sustain the torrid overseas growth-rates for drugs and nutritional products when the U.S. dollar strengthens. About half of drug and nutritional-product revenue comes from foreign markets.

Because Abbott's research pipeline isn't as broad as its peers, any R&D or regulatory setback could have a disproportionate effect, says Conover.

Citigroup's Matthew Dodds advocates selling shares, complaining that Abbott has strayed from the balanced portfolio of the mid- to late-1990s and arguing that company growth forecasts appear too optimistic.

Abbott's revenue was once spread fairly evenly among drugs, nutritional products and hospital products, Dodds says in a July 16 report. But acquisitions in 2001 and 2006 plus the 2004 spinoff that formed Hospira ( HSP) have changed Abbott.

"We believe an increased focus on pharmaceuticals has increased Abbott's risk profile," says Dodds, whose firm has had a recent investment banking relationship. By his count, 80% of operating profit comes from drugs.

Dodds, who doesn't own shares, says the stock could fall to $50 in 12 months. He says the current price doesn't support his 2009 earnings-per-share prediction of $3.42. The Thomson Reuters consensus is $3.66.

Based on second-quarter data, drugs account for 56% of corporate revenue and nutritional products represent 17%. Diagnostics, vascular products and other products, primarily diabetes care, are the other specialties. In early 2007, Abbott agreed to sell most of its diagnostics business to General Electric ( GE), but they cancelled the deal later that year.

Abbott's dealmaking produced Humira, which accounts for 15% of corporate revenue and is Abbott's biggest product. Second-quarter sales of $1.1 billion jumped 48% vs. the year-ago quarter. Humira was an experimental compound when Abbott acquired it via its $6.9 billion purchase of Knoll Pharmaceuticals from Germany's BASF in 2001.

Humira reached the U.S. market in 2003 as an injectable treatment for rheumatoid arthritis. It has since gained approval from the Food and Drug Administration for psoriasis, the gastrointestinal ailment Crohn's disease and three other diseases.

Abbott expanded its heart-disease business thanks to the 2006 acquisition of Kos Pharmaceuticals. At the time, Abbott only had TriCor, which lowers triglyceride levels. Triglyceride is a form of fat which, like bad cholesterol, increases the risk of heart disease.

Abbott paid $3.7 billion for Kos and got three cholesterol drugs, including Niaspan, which is an extended-release version of the vitamin niacin. Niaspan lowers bad cholesterol and raises good cholesterol. So does Advicor, which combines Niaspan and generic Mevacor, a bad-cholesterol drug from Merck ( MRK).

When Abbott bought Kos, Merck was testing a drug that combines extended-release niacin and a compound designed to produce fewer side effects than Niaspan and Advicor. Abbott's drugs cause flushing, or the reddening of the skin especially around the face and neck.

However, in April 2008, the FDA rejected the Merck drug called Cordaptive. The agency wanted to see more safety and efficacy data, telling Merck to reapply after results of an ongoing clinical trial are released in early 2013. Merck is talking to the FDA about providing data that would enable an earlier review.

Merck's earliest response to the FDA would be in 2010. Until that happens, Merck also won't seek FDA approval for a combination of Cordaptive and Zocor, which is now generic.

Bad news for Merck means less competition for Abbott. In February, Abbott won FDA approval for another Kos drug called Simcor, which combines Niaspan and generic Zocor. A recent Wachovia Securities report predicts the three Kos drugs could produce sales of $2.1 billion in 2012, up from an estimated $986 million this year.

Analysts are also encouraged by Abbott's follow-up to TriCor, called TriLipix, being developed with Belgium's Solvay. The FDA is due to rule on TriLipix in early October. And Abbott is collaborating with AstraZeneca ( AZN) on a pill containing that company's bad-cholesterol drug Crestor and TriLipix. On Aug. 14, Abbott signed a deal to co-promote Crestor in the U.S.

Like Humira and the cholesterol drugs, Abbott got into the drug-coated stent business via an acquisition, but the 2006 deal creates concerns even for Abbott bulls.

"Uncertainty surrounding the market dynamics could pressure shares," says Rick Wise, of Leerink Swann, in a July 17 report affirming an outperform rating. However, the U.S. launch of Abbott's Xience V stent "appears to be going better than expected." The FDA approved the stent in early July.

Wise, who doesn't own shares, says Abbott predicts a 25% to 30% market share. His firm has had a recent non-investment banking relationship.

Stents are mesh-like tubes inserted into arteries that have been cleared of plaque. Stents allow blood to flow easily. Some stents are coated with a drug to prevent the artery from reclogging.

Early research said they did a better job than uncoated stents. But recent clinical trial data shows "unclear benefits" of drug-coated stents vs. uncoated stents and other cardiac treatments, says a Morningstar report.

As a result, the drug-coated stent market was hit hard, and The New York Times reported last year that U.S. sales dropped by nearly 40% in 2007. Morningstar's Conover says the business is starting to stabilize. Based on clinical trial data, "Xience can gain a good chunk of the market, even though the pie is smaller," he says.

The question is how well can Abbott do in a crowded market. J&J and Boston Scientific ( BSX) are long-time players. Medtronic ( MDT) joined in February.

Abbott, which began marketing Xience V in Europe almost two years ago, also is competing at home and abroad with an identical stent from Boston Scientific. The Promus stent was approved by the FDA in July.

Xience was developed by Guidant, but when Boston Scientific acquired this device-maker, Abbott bought Guidant's vascular products business to help the deal to pass U.S. antitrust review. Abbott also stopped work on a homegrown stent, Zomaxx, because Xience was better.

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