Abbott Snags Top Spot in India With Piramal
After much speculation about suitors ranging from Pfizer, GlaxoSmithKline, and Sanofi-Aventis, Abbott is coughing up $3.3 billion--$2.12 billion in cash up front and $400 million annually over the next four years--for the formulations business of Piramal Healthcare of India. The move makes Abbott top dog in the Indian pharmaceutical market, with a market share of roughly 7%. It’s a coveted position in an environment where the majority of drug industry growth is expected to come from emerging markets.
Abbott has been ramping up its established products business since creating the separate division 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. The Piramal deal comes on the heels of a smaller pact with Ahmedabad, India-based Zydus Cadila, which included 24 products sold in 15 emerging markets with the option to add 40 more products. Abbott says emerging markets already represents over 20% of its total business.
The companies say the Indian pharma market is expected by 2015 to more than double from the roughly $8 billion in sales this year. With the addition of Piramal, which will have branded generics sales of about $500 million in 2011, Abbott’s Indian business is expected to grow nearly 20% per year, reaching annual sales of over $2.5 billion by 2020.
“Emerging markets” have become the buzz words du jour at big pharma, as improving economies mean more people can afford medicines in countries like China, India, Brazil, and Russia. According to Burrill & Co, just 13% of the pharma world was in emerging markets in 2011, whereas forecasts suggest 50% of business will be in those markets by 2020. At the JPMorgan Healthcare conference this fall, most of the big players devoted a healthy portion of their face time with investors to discussing their strategy in those areas. As Sanofi-Aventis CEO Christopher Viehbacher noted at the time, more than 50% of growth in the drug industry will come from those regions.
As a result, big pharma firms have been scrambling to establish partnerships that can swiftly get them on the ground in those countries. GSK has a broad deal with South Africa’s Aspen Pharmacare and a pact with India’s Dr. Reddy’s Laboratories. Pfizer has established pacts with several Indian firms, including Strides Arcolab, Aurobindo, and Claris Life Sciences. Sanofi-Aventis has bought Indian vaccines maker Shantha Biotechnics, and the Czech generics firm Zentiva. Even biotechs are starting to get into the game: earlier this year, Cephalon bought Swiss generics firm Mepha.
For Piramal, the sale of the formulations business to Abbott appears to be part of a general disassembling of what was a few years ago a wide-ranging business that included drug discovery, contract manufacturing, and the formulations unit.
In 2008, the drug discovery business was spun out into Piramal Life Sciences, which has grand ambitions of becoming one of the first Indian drug firms to bring a new chemical entity to market in the U.S. The company built a fancy R&D center in Mumbai, in 2004, expanding its capabilities beyond lead identification to the full gamut of biology, chemistry, and process development services needed to bring a drug to studies in man. The focus is on oncology, metabolic diseases, and inflammation. The unit has discovery pacts with both Merck and Lilly.
So what’s left at Piramal? The deal doesn’t appear to include its contract manufacturing business, which was seriously boosted after the company bought Avecia Pharmaceuticals, a spin-out of AstraZeneca, in 2005. A year later, Piramal tried to further establish its roots in the west by buying Pfizer’s active pharmaceutical ingredient manufacturing site in Morpeth, England, a move that brought its contract manufacturing revenues up to $200 million. The company has had mixed success with its bricks and mortar operations in the west: it turns out to be no simple feat to fill large-scale facilities in a higher cost region at a time when drug firms are becoming more comfortable shifting manufacturing to low-cost region.
So, the question is: who will be the next Indian supplier to fall?