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Abbott Laboratories and the “India Cure” for the Ailing Pharmaceutical Industry

Whoever said that evolution takes a long time clearly wasn’t talking about pharmaceuticals. Just ask Abbott Laboratories (NYSE:ABT), which finds itself on the front-line of those changes.

The entire industry faces slower drug sales in developed countries and growing pressure from western governments to lower their prices. At the same time, many big name brand drug patents are expiring. And just to top it off, their research pipelines face a severe lack of blockbuster products to fall back on.

To cope with that, many of them have set their sights elsewhere, particularly in countries like India.

IMS Health, a pharmaceutical consultancy firm, thinks they have good reason to do just that. It sees drug demand rising 14% – 17% per year in emerging markets through 2014. By 2020, it could even match that of the United States and the five biggest drug markets in Europe combined.

The firm points to emerging markets’ “strong growth prospects fueled by rising GDPs, expanding access to healthcare and in many cases, an improving regulatory environment.” That’s a lot to gain.

And with little to lose, it’s hard to blame Abbott and its competitors for favoring India and its fellow fast-growing nations.

Some Very Smart Moves For Abbott Laboratories

Abbott Laboratories is one of the more prominent American pharmaceutical companies trying the emerging market route these days.

In the fall of 2009, it announced its purchase of the pharmaceutical arm of Belgium’s Solvay Group ADR (SVYSY). Despite the $6.5 billion price tag, Abbott considers the investment well worth it. The deal expands its product range and its presence in fast growing emerging nations.

Hardly done, the company announced another agreement a few weeks ago. This one involves a licensing agreement to commercialize products of India’s Zydus Cadila in 15 emerging markets.

Now, it’s adding Piramal Healthcare, Indian conglomerate Piramal’s generic drug unit for $3.7 billion. The acquisition includes the other company’s product range of 350 branded generics. It excludes its over-the-counter drug business along with certain products still in development.

But Abbott still wins out. Following the acquisition, it will become India’s largest pharmaceutical company. With 7% total market share, it expects to produce sales of about $700 million in 2011… for India alone. And by 2020, it expects that figure to rise to $2.5 billion.

Miles White, Abbott’s CEO, says the acquisition fits perfectly with his company’s overall strategy:

“Our strong position in branded generics and growing presence in emerging markets is part of our ongoing diversified pharmaceutical strategy. Emerging markets represents one of the greatest opportunities in healthcare – not only in pharmaceuticals but across all of our business segments. Today, emerging markets represent more than 20% of Abbott’s total business.”

Abbott Labs and India’s Emerging Market

Abbott Laboratories is hardly the first to push into the Indian market. And it most definitely won’t be the last either.

  • Japanese pharmaceutical giant Daiichi-Sankyo ADR (PDSKYY) struck the first big deal in 2008. Its purchase of Ranbaxy Laboratories for $4.5 billion fueled the competition. They’ve been trying to lay similar stakes ever since.
  • For one, GlaxoSmithKline ADR (NYSE:GSK) made a pact with Dr. Reddy’sADR (NYSE:RDY).
  • And Pfizer (NYSE:PFE) announced deals with both Aurobindo Pharma and Claris Lifesciences.
Such alliances expand their branded generics portfolios. It also increases their presence in India, the world’s second fastest-growing pharmaceutical market.

Not surprisingly, China takes the number one spot. But India still represents an obvious growth opportunity. Its rapid economic growth has boosted demand for healthcare.

In addition, it costs comparatively little to conduct research or procure production facilities there. The country’s weak intellectual property regime has encouraged a strong generic drug industry.

Of course, it also created fierce price rivalries between the local manufacturers, which definitely have their downside.

Much Ado Abbott Nothing

Abbott faces one other challenge as it settles deeper into the Indian market…

Western nations have reacted to the rising competition by taxing those imported drugs at heavier prices. And the FDA and other regulatory agencies really put the products – and the companies that produce them – through the wringer.

The afore-mentioned Daiichui-Sankyo found that out the hard way after its purchase of Ranbaxy. In late 2008, the FDA banned 30 of its generic drugs, accusing Ranbaxy of faking data and test results…

The dispute lingers to this day.

That aside though, Abbott Laboratories has good reason to proceed as planned. India’s growth potential far outweighs any such roadblocks. And it could even make up for the company’s existing position in the slow-growing U.S. market.

The pharmaceutical industry can change as it wants to, but Abbott looks like an excellent long-term investment.

Good investing,

Tony Daltorio


Rating: 2.0/5 (3 votes)


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