(MONEY Magazine) – Scientist Eugene Sun remembers exactly how his boss at Abbott Laboratories responded some years ago to Sun's report on his breakthrough AIDS drug, Kaletra: "I'm tired of hearing about science, I want to hear the cash register ring." At a health-care firm that depends on its scientists' ability to discover new medicines, that was the wrong thing to say. This uninspiring culture was partly why Abbott Labs' drug business was stuck in the doldrums, its biggest product a run-of-the-mill antibiotic. Abbott's other divisions--hospital products, diagnostics and nutritional drinks--weren't exactly exciting investors either.

Enter Miles White. Upon becoming chief executive in 1999, the Abbott veteran began hiking research-and-development spending and hunting for deals. His boldest move: the $7.2 billion purchase of Knoll Pharmaceuticals in 2001.

Now Abbott's first potential blockbusters are waiting in the wings: Humira, a rheumatoid arthritis drug expected to hit $700 million in 2004 sales, and Atrasentan, an innovative prostate cancer drug.

The transformation is far from complete--Abbott still isn't spending enough to develop all the promising medicines that it has discovered. Abbott also has suffered from manufacturing problems that resulted in the 1999 removal of a $300-million-a-year drug, Abbokinase, from the market (sales of the drug resumed in October). Also, manufacturing woes in Abbott's $2.9 billion diagnostic testing division are preventing the sale of some of its diagnostics products.

White acknowledges the challenges. The ex-management consultant with the wry wit spoke with MONEY's Lisa Gibbs at Abbott's suburban Chicago campus about his ambitious plans for Abbott and his recent trip to AIDS-ravaged Tanzania.

Q. I just came from meeting six of your scientists...

A. Great--we've just taken a huge productivity hit. You know what that probably cost us in launch dates?

Q. ...and I heard a lot about the makeover of the pharmaceutical business. Where is Abbott now vs. when you became CEO?

A. You didn't have to become CEO to realize that the pharmaceutical business needed attention. The pipeline was clearly weak. We first had to build an R&D engine that will generate the products to drive the long-term sustainability of the company. That's why we went after some of the deals that we did. The Knoll acquisition brought us a lot of science, a lot of talent, and the global sales and marketing infrastructure we needed. And it brought us a pipeline that held several promising products, in particular Humira.

Q. There are high expectations for Humira, although your stock doesn't reflect that.

A. Yeah, it's interesting. The predictability of submitting a drug to the FDA and knowing it'll be approved in a certain period of time has dropped. Investors see that and say, "Without more predictability, I'm not going to price something into your stock unless I can see it." It's one of many reasons [drug stock] price/earnings ratios are down.

Q. What's the status of the manufacturing problems in diagnostics?

A. We were obviously disappointed that we didn't pass the FDA inspection at the end of 2001. It's important to get it right, and it's important to get it finished. We have brought in new outside experts to do a thorough evaluation and help us address what we have to do.

Q. How is this affecting business?

A. It's hurting sales, hurting profits, hurting our ability to serve customers in the U.S., and it had some impact for a while on customers overseas. We've made a lot of changes in the division and now everything's going well. I won't predict when I think it's going to be over because every time we had a goal or date in the last several years we were wrong.

There's a second thing going on, though, with the diagnostics business. The market dynamics have changed dramatically. It's not the growth market it used to be. That's why when we announced job reductions in the fall, a chunk of that was related to the diagnostics business.

Q. So is Abbott going to be more like a big pharmaceutical company that happens to have a medical-products division, or a broadly diversified health-care player like Johnson & Johnson?

A. Probably more like Johnson & Johnson. You can make the argument that when one or two of your businesses are going through tougher times, others are doing better. That's a bit of a portfolio theory.

Q. Is that how you look at it?

A. It's one way to look at it. Also, the cash flows or profits generated from one business may be feeding investments in others. There's clearly a synergy that way, and synergies between science and knowledge in various therapeutic categories. But would you say diagnostics and nutritional drinks in the same portfolio have some link? Not necessarily.

Q. Why should investors even want you to have a nutritionals division?

A. They might like the notion of a diverse model for stability, for predictability. If a pharmaceutical company takes a hit with a drug going generic, it can be pretty severe temporarily. What that argues for is scale and size, predictability of cash flow.

Q. Why did you go to Africa?

A. We had worked hard to get our AIDS drug, Kaletra, licensed in African nations. We provided free diagnostic tests. And we also had some pilot locations [in Tanzania and Burkina Faso] that involved not only treating patients but putting in infrastructure with voluntary counseling and training. Still, the criticism was that we're not doing enough. So I wanted to see for myself the hospitals, the patients, just real life. Having done so, I concluded, Yep, the price does make a difference. Doctors and nurses were making determinations on what the therapy protocol would be based on the cost. So I came back and lowered our prices even further.