Abbott to Buy Piramal Unit - Analyst Blog

Abbott (ABT) is all set to acquire Indian company Piramal Healthcare Ltd.’s Healthcare Solutions business (Domestic Formulations) for $3.72 billion. Per the terms of the definitive agreement with Piramal, Abbott will make an upfront payment of $2.12 billion, and annual payments of $400 million for the next 4 years.

This acquisition should catapult Abbott to the top position in the Indian pharmaceutical market which is one of the world’s fastest-growing pharmaceutical markets. The Healthcare Solutions business, which will become a part of Abbott’s Established Products Division, grew 23% in fiscal 2010 and has a presence in several therapeutic areas including antibiotics, respiratory, cardiovascular, pain and neuroscience.

According to Abbott, the Indian pharma market is expected to generate $8 billion in sales this year – this amount is expected to more than double in the next five years. Following the acquisition, Abbott expects its Indian pharmaceutical business to grow 20% annually, with sales likely to exceed $2.5 billion by 2020. The combined Abbott and Piramal business should have a 7% share of the market.

The acquisition, which is scheduled to close in the second half of the year, will not affect Abbott’s earnings per share guidance for 2010. The company intends to fund the acquisition with available cash.

This acquisition is in line with Abbott’s goal of strengthening its presence in the generics business as well as in 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 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’s 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. We currently have a Neutral recommendation on Abbott.