Abbott Labs (ABT) recently completed its acquisition of Indian company Piramal Healthcare Ltd.’s Healthcare Solutions business (Domestic Formulations) for $3.8 billion. In addition to an upfront payment of $2.2 billion, Abbott Labs will pay $400 million annually over the next 4 years.
Position Strengthened in Indian Pharma Market
The acquisition of Piramal’s Healthcare Solutions business should catapult Abbott Labs to the top position in the Indian pharmaceutical market, which is one of the world’s fastest-growing. The Healthcare Solutions business, which is now a part of Abbott Labs’ Established Products Division, grew 23% in fiscal 2010 and has a presence in several therapeutic areas including antibiotics, respiratory, cardiovascular, pain and neuroscience.
The Established Products Division focuses on branded generics especially in emerging markets.
Abbott Labs estimates that the Indian pharma market will generate $8 billion in sales this year – this amount is expected to more than double in the next five years. With this acquisition, the company expects its Indian pharmaceutical business to grow 20% annually, with sales slated to exceed $2.5 billion by 2020. The combined Abbott Labs and Piramal business should have a 7% share of the market.
Emerging Markets a Focus Area
This acquisition, which is not expected to affect Abbott Labs’ earnings per share guidance for 2010, is in line with the company’s goal of strengthening its presence in the generics business as well as emerging markets. The company is looking to double its presence in emerging markets, which currently account for 20% of the company’s revenues.
A few months back, Abbott Labs acquired the pharmaceuticals business of Belgian company Solvay Group. This deal has not only helped expand Abbott’s product portfolio, it has also allowed the company to expand its presence in the European market as well as emerging markets where Solvay has a strong presence.
Besides this, Abbott also signed a licensing and supply agreement with another Indian company, Zydus Cadila, for the commercialization of at least 24 Zydus products in 15 emerging markets.
Abbott Labs’ deal with Piramal is the latest in a series of deals signed by global pharma companies to expand their generics portfolio and strengthen their presence in emerging markets. While Pfizer (PFE) has agreements with two Indian companies, Aurobindo Pharma and Strides Arcolab, for the manufacture of several generic drugs, GlaxoSmithKline (GSK) has an agreement with Dr. Reddy’s Laboratories (RDY) for the development and marketing of select products in various emerging markets. Meanwhile, AstraZeneca (AZN) recently entered into a licensing and supply agreement with Aurobindo Pharma.
Neutral on Abbott Labs
We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). Abbott has some very strong business segments and a great late-stage pipeline. We believe Humira will continue to be a strong growth driver in the years to come.
