Abbott Labs (NYSE:ABT) has entered into a R&D collaboration with ChemDiv Research Institute (CDRI), a part of Russian R&D group ChemRar High Tech Center. The collaboration will pursue creating improved forms of Abbott’s existing drugs initially even as the deal includes the development of new small molecules and viral disease treatments. The move marks a growing interest among pharmaceutical companies in one of the fastest growing pharmaceutical market. Recently, Pfizer (NYSE:PFE) had entered into a similar deal with the same institution.
Deal is Part of the Strategy to Make Inroads into Emerging Markets
Abbott’s management, at many times, has reiterated its intention to tap high potential emerging markets as they are expected to grow at a faster pace than developed markets, going forward. The pharmaceutical industry in Russia has witnessed double-digit growth rates in the last couple of years to reach nearly $8.6 billion in 2010. This trend is expected to continue at a higher pace as the Russian government continues to invest money to boost its pharmaceutical market, which is forecast to reach $22 billion in 2016, a compound annual growth rate of nearly 21%. 
In recent years, Abbott has made significant moves to expand its presence and product portfolio in many of the most populous and fastest-growing countries. The company has been building manufacturing facilities in Asia Pacific. Recently, the company opened a R&D center in India. We believe it will reap benefits for the company in the long term and fend off looming patents expiry in next 2-4 years. With a diversified portfolio of offerings from pharmaceuticals to diagnostics, Abbott is well poised to grab a share of emerging markets. The 2010 acquisitions of Solvay and Piramal Healthcare position Abbott well to capitalize on growth opportunities in these markets.
In 2011, emerging markets accounted for over 25% of total revenue of the company, and we expect this figure to increase, going forward. However, the company will have to be watchful of its EBITDA margins, as the margins from international markets are usually lower than that of the U.S. market due to higher price sensitivity among consumers.
Our price estimate for Abbott Labs stands at $66, in-line with the current market price. We will soon update our price estimate to reflect the recent developments.Notes: