Abbott To Acquire Piramal's Generics

Abbott Laboratories will pay $3.7 billion for the generic drug business of India’s Piramal Healthcare. The move gives Abbott the top spot in the Indian pharmaceutical market, with a share of roughly 7%. It’s a coveted position, given that the majority of drug industry growth is expected to come from emerging markets.

Piramal gets $2.1 billion of the cash up front and another $400 million annually over the next four years. With expected sales this year of about $500 million, the generics business represents about half of Piramal. The divestment will leave the Indian firm with operations in custom manufacturing, over-the-counter products, and drug discovery.

Abbott has been ramping up its generic drug business since creating a separate division called Established Products in 2007. Last fall, the company bought Solvay’s pharmaceuticals business for $7.6 billion, which brought a portfolio of branded generics and a presence in emerging markets. And it recently acquired numerous products from India’s Zydus Cadila. Abbott says emerging markets already represent more than 20% of its total business.

The companies say the Indian pharmaceutical market is expected to more than double in size by 2015 from roughly $8 billion in sales this year. With the addition of Piramal’s business, Abbott’s Indian sales are expected to grow nearly 20% per year, reaching more than $2.5 billion by 2020.

However, the opportunity comes at a hefty premium, says Larry Biegelsen, a stock analyst who follows Abbott for Wells Fargo Securities. In a note to clients, he points out that Abbott is paying almost eight times the annual sales of Piramal’s generics business. The Solvay purchase, Pfizer’s acquisition of Wyeth, and Merck & Co.’s purchase of Schering-Plough were all made for three times the purchased firms’ annual sales or less.

Biegelsen says the premium suggests that multiple bidders were after the Piramal business. Indeed, speculation about suitors ranged from Pfizer to GlaxoSmithKline to Sanofi-Aventis.

Generics deals that position big drug companies in emerging markets have been rampant lately. GSK has signed agreements with South Africa’s Aspen Pharmacare and India’s Dr. Reddy’s Laboratories. Pfizer has pacts with several Indian firms, including Strides Arcolab, Aurobindo, and Claris Lifesciences. And Sanofi-Aventis bought Indian vaccines maker Shantha Biotechnics and the Czech generics firm Zentiva.