Abbott Labs ( ABT - Analyst Report ) continues to enter into deals to expand its pharma portfolio. The company recently signed an agreement to acquire Action Pharma's phase II candidate, AP214.

The Candidate – AP214

AP214 is being developed for the prevention of acute kidney injury (AKI) associated with major cardiac surgery in patients at increased risk. The candidate has the potential to be evaluated for additional indications.

Action Pharma had announced positive phase IIb top-line data on the candidate in September 2011. Abbott Labs intends to initiate another phase IIb study later this year.

Terms of the Agreement

With this deal, Abbott Labs will acquire worldwide rights for the development and commercialization of AP214 for the prevention of AKI as well as other relevant indications. While Abbott Labs will make a cash payment of $110 million and fund all future development and commercialization activities, the company will not be required to make any milestone or royalty payments.

Meanwhile, Action Pharma’s agreement with Zealand Pharma A/S regarding its SIP technology will be cancelled and replaced by a new agreement between Abbott Labs and Zealand Pharma. Abbott Labs will be liable to pay a low single-digit royalty to Zealand Pharma on future global sales of AP214.

Our Take

With this acquisition, Abbott Labs will strengthen its renal care pipeline, which currently consists of candidates like bardoxolone and atrasentan. While bardoxolone is in phase III studies, atrasentan is in phase IIb study in patients with diabetic kidney disease. The successful development of AP214 would open up significant commercial opportunity for Abbott Labs.

This deal also marks the company’s efforts towards building its pharma pipeline. Abbott Labs, which remains on track to split into two separate publicly traded companies by year's end, is looking to build the pipeline of AbbVie, the research-based pharmaceuticals company.

Earlier this year, Abbott Labs entered into a collaboration agreement with biotech company, Galapagos, for the development and commercialization of an oral, next-generation JAK1 inhibitor. The successful development of these pipeline candidates should help reduce the company’s dependence on Humira for growth.

We currently have a Neutral recommendation on Abbott Labs, which carries a Zacks #3 Rank (short-term Hold rating).