Abbott buys unit of Piramal Healthcare for $3.7B

[May 21, 2010]  MUMBAI, India (AP) -- Abbott Laboratories has agreed to buy the domestic healthcare business of India's Piramal Healthcare Ltd., a leading branded generics company, for $3.72 billion, the companies said Friday.

The deal is part of Abbott's drive to establish itself as a leading emerging market pharmaceutical player and reflects the growing global importance of generics as well as the rise of India's consumer market for drugs.

Illinois-based Abbott will pay $2.12 billion up front, plus $400 million annually for four years.

The deal will vault Abbott past market leaders Cipla and Ranbaxy to number one in India's fast growing market, with a 7 percent market share.

"They achieve leadership across all the product categories. Take the two companies together, they're number one now," said Sujay Shetty, Associate Director for Pharma and Life Sciences at PricewaterhouseCoopers in Mumbai.

Abbott expects pharma sales in India, which are on track to hit $8 billion this year, to more than double by 2015.

Piramal has India's largest sales force, with a strong network across fast-growing rural areas. Together, the companies will have over 7,500 employees in India.

Abbott said it expects its Indian pharma business with Piramal, which will be incorporated into a new Abbott division created to boost sales outside the U.S., to grow by 20 percent a year, with sales topping $2.5 billion by 2020.

Abbott said it plans to fund the Piramal acquisition with cash from its balance sheet and does not expect it to impact earnings guidance.

"Emerging markets represent one of the greatest opportunities in health care," Abbott chief executive Miles White said in a statement.

Emerging markets now account for over 20 percent of Abbott's business.

Last week, Abbott said it would license at least 24 products from India's Zydus Cadila to sell in emerging markets.

In February, Abbott agreed to pay $6.2 billion for Belgium's Solvay Pharmaceuticals, which brings it about $850 million a year in emerging markets sales across Eastern Europe, Latin America, the Middle East and Asia.

Abbott is not alone in pushing into places multinational pharmaceutical companies once feared to tread.

"Almost all big pharma companies have decided emerging markets will constitute 30 to 40 percent of growth in the coming decade," Shetty said.

Japan's Daiichi Sankyo paid $4 billion for a majority stake in India's Ranbaxy Laboratories in 2008 and GlaxoSmithKline has acquired exclusive rights to the pipeline of India's Dr. Reddy's Laboratories, which has over 100 generics for sale in emerging markets.

The cross-border friendship between such traditional foes -- big pharma and generics makers -- has bloomed as cost-conscious markets like India grow and a new appreciation for affordable drugs sweeps cash-strapped Western capitals, analysts say.

Big pharma's main markets -- North America, Europe and Japan -- are under serious pressure from slowing growth, a raft of patent expirations, and pending policy changes that would promote the use of more affordable generics.

The deal with Abbott, which is still subject to shareholder approval, leaves Piramal Healthcare to reimagine its future.

Piramal is hiving off the most valuable part of its healthcare business, comprising rights to about 350 brands and trademarks, about 5,000 staff, and a factory in the northern state of Himachal Pradesh. It has also agreed to an 8-year noncompete period for branded generics.

What's left for Piramal Healthcare is an assortment of things like custom manufacturing, over-the-counter consumer products, vitamins, diagnostic devices and services and an affiliated drug discovery company called Piramal Life Sciences Ltd.

Ajay Piramal, head of the Piramal group, sought to reassure shareholders as his stock tanked in Mumbai trading Friday.

Piramal Healthcare closed down 11.8 percent in an otherwise flat market.

He said the company planned to use Abbott's money, after paying 22 percent capital gains tax, to invest in existing and new businesses and would consider a special shareholder dividend. He emphasized that Piramal would continue to push novel drug discovery.

"We can play in the domestic market by launching patented products," he told reporters. "Today there is not a single company that has launched a novel discovery product."

[Associated Press; By ERIKA KINETZ]

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