Biotechnology-2011-Abbott Laboratories

Abbott Laboratories, maker of popular Brufen painkillers, may have to swallow its own medicine for years...

Abbott Laboratories, maker of popular Brufen painkillers, may have to swallow its own medicine for years as it sweats to recover the Rs 17,000 crore it paid to buy Piramal Healthcare’s formulations business.

The American drug-maker which has spent a century in India without anything spectacular to show off, is taking a giant leap to grab the market share in fast-growing India, competing with Japan’s Daiichi Sankyo, and Pfizer of the US.

It may be second time lucky for Abbott in its attempt to grow through acquisition after legal hurdles marred a deal to buy Wockhardt’s nutrition business. Creditors of Wockhardt, a domestic drug maker which is being restructured after default, blocked the sale.

The buyout will crown Abbott numero uno in the Indian market, ahead of domestic giant Cipla, with a 7% share in a $7-billion market that is growing at 15% a year. While the growth opportunities may be enticing for a company that operates in markets growing at less than 3%, it may be a long time before returns flow in.

“You can’t justify this investment in the next five years,” said Muralidharan Nair, partner at consultants Ernst & Young. “The company must have seen value beyond that.”

After a hundred years of selling drugs, Abbott’s net sales in India was at Rs 784 crore and net profit Rs 77.5 crore for 2009. Cipla, a company set up quarter of a century after Abbott India, had sales of Rs 5,410 crore and a net profit of Rs 1,082 crore.

“There is a scarcity of assets in the Indian market,” Michael J. Warmuth, senior vice president, established products, pharmaceutical products group, Abbott, told ET. “Piramal was the best asset because of its leadership in the Indian market and brand strategy.’’

Abbott that had global pharmaceutical sales of $16 billion last year, is increasing emphasis on emerging markets, including India, Russia, China and Poland.

The Illinois-headquartered Abbott set foot on the Indian soil in 1910 with 15 employees and a distribution warehouse on the Mahatma Gandhi Road in Mumbai. That has grown to 4,000 staff now and the purchase of Piramal business will more than double it.

In 2011, combined sales from Abbott’s existing India unit arm and the newly bought unit will be $700 million, said Warmuth. “We are looking at the growth potential in the next 10 years. It is important for us to have scale in emerging markets. In Piramal we’ve found what we believe is a best fit.”

While it has paid a high valuation, it gets a jump start. The price paid also prohibits it from seeking any further buys in the country.

“We are not interested in any more mega mergers,” said Warmuth. Abbott may push some of its patented drugs here with a larger sales force, said an analyst with an international brokerage who did not want to be identified. Abbott will get a staff of around 5,500 people as part of the deal.

“Patented products will form 35% of the Indian market in three-to-four years, from just 4% now,” said JS Shinde, chairman, All India Organisation of Chemists and Druggists.

Just like most global drug makers which use the low-cost India as a base for exports, Abbott may do too.

“India is an increasingly important market for Abbott, and is becoming a base from which our company will expand into other emerging markets,” the company said on its website.