Profits go north in the Far East

Multibillion-dollar Piramal deal in India makes Abbott one of biggest players in Asian emerging markets, branded generics

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ABBOTT PARK, Ill.—For a century now,Abbott has enjoyed a presence in India, but with a late Mayannouncement that it will acquire full ownership of PiramalHealthcare Solutions, the Illinois-based global company is poised tobecome the No. 1 pharmaceutical company in India and vastly expandits reach in emerging markets and branded generics.

Announced on May 21, the deal wasstruck with Piramal Healthcare Ltd. to acquire full ownership of thecompany's Healthcare Solutions business (Domestic Formulations),which is a leader in the Indian branded generics market, for anupfront payment of $2.12 billion, plus $400 million annually for thenext four years.

"We've made a significantinvestment in enriching our operations in India even before thisdeal, and we've more than doubled our employees there over the pasttwo years, so that we're just north of 2,500 people there already,"says Scott Stoffel of Abbott's Corporate Public Affairs department."We have nutritional products and medical products there, such asdrug-eluting stents, so there's a diverse business presence there,as well as elsewhere in Asia, particularly in China."

In India specifically, though, thisdeal with Piramal is seen as a strategic action that will give Abbottannual sales growth approaching 20 percent in India, expected toexceed $2.5 billion in sales by 2020.

Also, Piramal's comprehensiveportfolio of market-leading branded generics spans multipletherapeutic areas and offers a combined sales force that would be theindustry's largest in India, Stoffel notes. In addition, India—asone of world's fastest-growing markets—has generated nearly $8billion in pharma sales this year; a number that is expected to morethan double by 2015.

As big as this deal is individually, itis also extremely important to Abbott's future because it furtheraccelerates Abbott's emerging markets growth, which was spurred bythe recent acquisition of Solvay Pharmaceuticals and two keyannouncements in early May. One of those bits of news was Abbott'scollaboration with Zydus Cadila, and the other was the announcementof the creation of a new stand-alone Established Products Division atAbbott to focus on expanding the global markets for its leadingbranded generics portfolio.

"This strategic action will advanceAbbott into the leading market position in India, one of the world'smost attractive and rapidly growing markets," said Miles D. White,chairman and CEO of Abbott, in the official announcement of the deal."Our strong position in branded generics and growing presence inemerging markets is part of our ongoing diversified pharmaceuticalstrategy, complementing our market-leading proprietary pharmaceuticalofferings and pipeline in developed markets."

White also notes that emerging marketsrepresent one of the greatest opportunities in healthcare—not onlyin pharmaceuticals—but across all of Abbott's business segments,and emerging markets represent more than 20 percent of Abbott'stotal business.

"With this deal, the combinedHealthcare Solutions and Abbott businesses will become the clearmarket leader in India, with a market share of approximately 7percent," says Ajay Piramal, chairman of Piramal Group. "This wasour collective vision and I am glad that those who are part ofPiramal's Healthcare Solutions business will realize this dream."

The opportunity for growth in thegeneric pharma market is significant, Stoffel notes, especially withpatent expiry being such a big issue in pharma these days, but heemphasizes that Abbott isn't simply pursuing generics but ratherfocusing on branded generics.

"We're talking about products thatwe'll put real marketing behind, that we will attach brand namesto, and we've been building a portfolio of branded generics forsome time, going back to at least 2001 with the acquisition ofKnoll's pharmaceutical business," Stoffel says. "Then weacquired Solvay recently, and $2 billion of their portfolio is inbranded generics with a lot of critical mass in key emerging markets.Plus with Zydus Cadila, we're starting with 24 products in 15emerging markets, with the potential to bring the number of productsup to 40. This last piece with Piramal was a cornerstone of ourstrategy, with India being the second-fastest growing emerging marketand a critical market for us."

Branded generics have significant brandequity in many international markets, providing durable, sustainablefranchises for future growth, according to Abbott. Piramal marketsthe products in its Healthcare Solutions business in India only anddoes not market traditional generic products. Today, branded genericsaccount for 25 percent of the global pharmaceutical market, have themajority of market share in the largest emerging markets, and areexpected to outpace growth of patented and generic products, Abbottalso notes.

Mumbai, India-based Piramal HealthcareSolutions has a comprehensive portfolio of branded generics withannual sales expected to exceed $500 million next year in India, andmarket-leading brands in multiple therapeutic areas, includingantibiotics, respiratory, cardiovascular, pain and neuroscience. Thisbusiness grew 23 percent in 2010, faster than the market in Indiaoverall.

Stoffel notes that Piramal has a strongcommercial presence, including the largest sales force in India, witha unique model that includes dedicated sales personnel in rural areasinhabited by 70 percent of the population. The combined Abbott andPiramal sales forces will be the industry's largest in India.

Piramal Healthcare Solutions businesswill become part of Abbott's newly created, stand-alone EstablishedProducts Division, and this will add more than 5,000 people in Indiato Abbott's human resources in the nation.

"We have assembled a market-leadingbranded generics portfolio tailored to the unique needs of emergingmarkets, strongly positioning Abbott to meet the current and futuregeographic and market dynamics in pharmaceuticals," says OlivierBohuon, executive vice president of global pharmaceuticals forAbbott. "Piramal has built a reputation for high-quality,well-known and trusted pharmaceutical brands."

The transaction reportedly will notimpact Abbott's ongoing earnings per share guidance in 2010, andAbbott plans to fund the transaction with cash on the balance sheet.The acquisition is subject to shareholder approval of PiramalHealthcare and other customary closing conditions, and is expected toclose in the second half of 2010.

Abbott establishes its genericfootprint

The recently created stand-aloneEstablished Products Division (EPD) of Abbott will concentrate onexpanding the market for Abbott's established pharmaceuticalportfolio outside of the United States. EPD will be led by Michael J.Warmuth, an Abbott leader with significant experience in Abbott'spharmaceutical business, who most recently led Abbott's DiagnosticsDivision.

"Our new Established ProductsDivision, with $5 billion in sales, will focus on expanding ourpresence and product offerings in the world's fastest-growingemerging markets," says Olivier Bohuon, executive vice president ofglobal pharmaceuticals for Abbott.

Throughout the past decade, Abbott hasbuilt a leading portfolio of branded generics, through its ownproducts as well as those acquired with the 2001 acquisition ofKnoll's pharmaceutical business. In 2007, the company established aseparate business unit within its international pharmaceuticaldivision dedicated to established products. Additionally, a newgeographic region focused on Russia, India and China was createdwhich resulted in the doubling of Abbott's growth rate in thosecountries.

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