Prepared by Jennifer K. Gorman May 1, 2010 SMF Spring Recommendations

1. Prepared by Jennifer K. Gorman May 1, 2010 SMF Spring Recommendations

2. Abbott Laboratories (NYSE:ABT) Investment Thesis: Abbott Laboratories (“ABT") is a well diversified, healthcare organization with imprints in big pharma, bio-tech, medical supplies/diagnostics, and nutritionals. It commands market presence in 130 countries. Strategically recognizing the hazard in pursuing branded pharmaceuticals both from a legislative and FDA process, ABT has elected to diversify its risk by entering product markets with steady demand and sustainable revenues. Recent planned acquisitions of Solvay, an international vaccine company, and Facet Biotech, an MS and oncologic powerhouse, will further strengthen ABT’s position in the next 3 to 5 years. Recommendation: BUY ABT produces a variety of nutritionals for infants, adults, and the elderly under the brand names Similac, Isomil, and Ensure. The nutritionals segment of the business provides a steady stream of revenue from repeat demand. Through acquisition, ABT has entered the pet medications and optical care (Lasik) solutions market further diversifying its product line and decreasing its exposure to the volatility of any one product. Business Overview: Business Summary: ABT's healthcare portfolio is comprised of the following: 53% pharmaceuticals, 17% nutritionals, 12% diagnostics, 9% vascular for drug-eluting stents, and 9% other medical supply equipment. With heavy reliance on pharmaceutical, ABT has spent significant R&D on the creation of brand name pharma to treat diseases with increased incidence among its consumer population such a rheumatoid arthritis with Humira and Trilipix for LDL cholesterol reduction. ABT has also become a leader in the medical supply subsector with its drug eluting stent (“DES”) for angioplasty procedures (Xience) and its diabetes testing and monitoring system (Freestyle) product line. (See picture below of ABT DES) Yellow (ABT), green (JNJ), and orange (BMY) Source: www. bloomberg.com KEY ABBOTT STATISTICS:

3. Abbott Laboratories (NYSE:ABT) Market Profile: The healthcare sector of the S&P 500 is significantly impacted by the recent government regulation particularly the largest sub-sector - the pharmaceuticals industry which comprises 52.7% of the entire arena. The largest purchaser of pharmaceuticals in the United States is the federal government under both the Medicaid and Medicare Part D state run health care plans. Both of these plans and potentially the new state run healthcare program will place increasing downward pricing pressure on big brand pharmaceutical companies like Merck, Pfizer, Roche, and Abbott. Coupled with downward pricing pressure, pharmaceutical companies will see a massive migration from branded drugs to generics as cost-effective alternatives will govern the proposed cost-conscious government regulations. All pharmaceutical companies are likely to be poorly affected by the newly enacted government regulations: - Medicaid and Medicare increased mandatory discount from 15% to 23% - Pharmaceutical tax rate increase from 23 to 35% - Decreased patent protection term from 7 to 5 years.  Further, big pharma is headed for a patent expiration cliff as many of the large profit branded drugs are due to expire in the next five years. Increasing demand from pharmerging countries like Brazil, Russia, India, China, Mexico, Turkey, and South Korea have increased exports from U.S. pharmaceutical companies to international consumer. This export oriented trend has made global diversification and presence increasingly important in capturing this burgeoning market share. Many pharmaceutical companies seizing this opportunity have negotiated strategic alliances or tactical acquisitions to obtain a foothold in these developing markets; however, while the U.S. trend has been away from doctor driven pharmaceutical promotions to pharmacy governed prescription filling, emerging markets still rely heavily on doctor recommendations for introducing patients to pharmaceuticals. This translates into ground force marketing globally - an added expense in an industry desperately trying to contain costs in an economically contracted environment. Source: Pharmaceutical and medicine manufacturing in the U.S. Industry Report – IBIS World

4. Abbott Laboratories (NYSE:ABT) Patent Expirations of Note: Big brand pharmaceutical companies are projected to lose US$120Billion in annual sales due to patent expirations between 2009 -2012. To name a few: 2009 Johnson and Johnson – Topamax Abbott – Prevacid 2011 Pfizer – Lipitor 2012 Pfizer – Viagara With increased and more stringent FDA regulations, big pharma is likely to experience decreasing revenues until they can create the next branded revolutionary phenomenon. The Demographic Trends: The baby boomers are finally coming of pharmaceutical age. In 2009, only 10% of the population was over the age of 60. By 2050, over 25% of the population will be over age 60. Given that the current 10% aged 60 and older account for 33% of the total pharmaceutical consumption, the forecast for increased future demand of pharmaceuticals for this section of the population is well founded. Further increased life expectancy and increased incidence of chronic disease are harbingers of increased pharmaceutical demand. Unemployment is of concern to the pharmaceutical industry as medications sadly do not take priority when food and shelter are at risk. As of October 2009, unemployment topped 10% in the United States. Generics will be in higher demand where possible as consumers look to cut costs whenever practical. Source: Administration on Aging, Department of Health and Human Services http://www.aoa.gov/AoARoot/Aging_Statistics/future_growth/future_growth.aspx

5. Abbott Laboratories (NYSE:ABT) Corporate Profile: ABT has skillfully acquired a number of companies that diversify its product line mixing the more risky branded pharmaceutical business with the medical supplies and nutritionals business. It exclusively manufactures Humira and Lipicor, two large patented brand drugs that remediate rheumatoid arthritis and high cholesterol. ABT has a rich R&D FDA pipeline with coveted pipeline oncologic compounds ABT-263 and ABT-869. ABT’s recent acquisition of Advanced Medical Optics forged Abbott’s entry into opthamolic care immediately earning them the No. 1 position in Lasik and No.3 position in contact lens care products. In addition ABT gained the No. 2 position in cataract surgical products capitalizing on the aging population and increased incidence of health ailments like cataracts. Future Acquisitions: ABT has two large acquisitions planned: Solvay SA, a Belgium based pharmaceutical company, which will give ABT exclusive rights to Tricor and Tirlipix, 2 groundbreaking cholesterol drugs as well as foreign presence in the vaccine market. The Solvay acquisition is predicted to boost EPS by $0.10 in 2010 and $0.20 in 2011. (S&P Analyst report and published market expectations.) Facet Biotech, a biotech company, which will give ABT a robust oncologic and MS pipeline already past the phase 2 FD A process. Corporation Information: Location: 100 Abbott Park Road, Abbott Park, IL 60064-6400 Website: http://www.abbott.com Founded: 1888 Domicile: Illinois Employees: 73,000 Stockholders: 67,461 Management Team: Chairman & CEO: M.D. White EVP & CFO: T.C. Freyman EVP, Secretary & General Counsel: L.J. Schumacher Chief Acctg Officer: G.W. Linder Performance: ABT has posted increasing net margins year over year for the past nine years. Sales have increased by 11.32% and net income has increased by 47.64% in the last three years. ABT has an A++ rating for financial strength per Value Line. While ABT is carrying slightly more LT debt, this is to be expected given the recent acquisition strategy. ABT does face the risk of failed assimilation of each newly acquired company, but has a demonstrated track record of successful on-boarding. ABT’s acquisitions will provide a competitive advantage as big brands come off patent. ABT already has ground breaking pharma or biotech close to approval with the FDA whilst other companies pipelines are at historic lows.

6. Abbott Laboratories (NYSE:ABT) Past Performance: ABT has consistently grown revenue since 2000 to the present year and is expecting to post larger revenue figures in 2010 despite an economic recession and the recently enacted health care legislation.. Source: S&P NetAdvantage ABT has posted increasing sales year over year for the past five years. COGS has grown at a decreasing rate since 2005 posting only 4% growth between 2008 and 2009 a compared with 17% growth between 2006 and 2007. Increased efficiency is projected through 2012 as the synergies of planned acquisitions are realized. Source: Thomson One Financial Reports for ABT

7. Abbott Laboratories (NYSE:ABT) Source: Thomson One Financial Reports for ABT ABT has increased its cash holdings in anticipation of the $6.6B cash acquisition of Solvay. Cash on hand comprises 6% more of total assets on the balance sheet for 2009 as compared with 2008. Accounts receivable have remained consistent as have accounts payable. Generally speaking ABT is performing and acting in manner consistent with its underlying business model: strategic acquisitions and operational synergies. The Competition: While ABT does play in the big pharma space it is unfair to compare it to exclusive big pharma players like Pfizer, Merck, Sonafi-Adventis, or Roche as the underlying business models are inherently different due to ABT’s product and industry diversification.; thus, the analysis that follows reviews pharma-hybrids with a multi=platform product base like Johnson and Johnson as well as Bristol Myers Squibb.

8. Abbott Laboratories (NYSE:ABT) The Competition (continued): Johnson and Johnson (“JNJ”) is another large, diversified health care firm with both pharmaceutical, medical device , and personal care presence. JNJ has pursued an acquisition strategy as well with both domestic and foreign companies in the mix. It has also been the recipient of a number of succesful, patent enforcement lawsuits netting a $1B damage award. One such lawsuit between ABT and JNJ was recently adjudicated in JNJ’s favor. The lawsuit revolved around JNJ’s claim that ABT’s Humira infringed on JNJ’s Remicade. ABT has initiated the appeals process with final resolution being two years out at which time ABT will have captured dominant market share for this rheumatoid arthristis drug. Bristol Myers Squibb. is another pharmaceutical company that focuses more on branded products in the dermatological arena. It is a smaller company, but is considered as competitors by many analyst reports. (Although I cannot see the rational why given the different product base.) It is included here for comparable competitor analysis as is performed by many other reporting agencies. Medicis hangs on to its revenues failing to pay suppliers on time.

9. Abbott Laboratories (NYSE:ABT) The Competition (continued): Johnson and Johnson (“JNJ”) is another large, diversified health care firm with both pharmaceutical, medical device , and personal care presence. JNJ has pursued an acquisition strategy as well with both domestic and foreign companies in the mix. It has also been the recipient of a number of successful, patent enforcement lawsuits netting a $1B damage award. One such lawsuit between ABT and JNJ was recently adjudicated in JNJ’s favor. The lawsuit revolved around JNJ’s claim that ABT’s Humira infringed on JNJ’s Remicade. ABT has initiated the appeals process with final resolution being two years out at which time ABT will have captured dominant market share for this rheumatoid arthritis drug. Bristol Myers Squibb is a diversified health care company that recently made the strategic decision to enter the bio-pharmaceutical industry exclusively. Many contend this to be a risky move particularly given that BMY’s main revenue driver Plavixis set to come off patent in 2012.

10. THE FUTURE VALUATION: Abbott Laboratories (NYSE:ABT) ABT is currently trading at $50.36 per share 60% of what it is truly valued at. The above analysis indicates that ABT is undervalued and it strong candidate to purchase. This conclusion is consistent with the strength of the underlying business model and the strategic efficiency and positioning efforts ABT is currently undertaking that earlier analysis in this report have indicated.