Abbott Labs (NYSE:ABT) may be looking to acquire the manufacturing facilities of Russian drug maker Petrovax Pharm, according to a local newspaper.  The news marks the company’s growing focus in one of the fastest growing pharmaceutical markets. Abbott recently entered into a R&D deal in Russia to strengthen its presence in the rapidly growing emerging market.
Our price estimate for Abbott Labs stands at $67, a slight discount to the current market price. The stock has appreciated more than 30% in the past year. We recently discussed the company’s business model (read here) to see what factors could lead to an upside to the Trefis price estimate.
Russia: A Key Market For Growth
Abbott’s management has oftentimes reiterated its intention to tap the high potential emerging markets as they are expected to grow at a faster pace than developed markets going forward. In the past few 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, including China and India. Russia, however, was off the radar until recently. Abbott’s revenue from Russia is a meager $430 million in a market worth more than $16 billion even as most of the drugs sold in the country are from international companies.   But, with the recent R&D deal and news of acquisition of Petrovax Pharm’s manufacturing facilities in Russia, it seems the company is trying to make inroads into the country.
The pharmaceutical industry in Russia has seen double-digit growth rates in the last couple of years to reach nearly $16 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.  With the looming patent cliff and dim growth outlook in developed markets, pharmaceutical companies cannot afford to ignore Russia.
We believe the acquisition will complement Abbott’s global presence and brand. Petrovax Pharm is the twelfth largest local drug manufacturer in Russia. By securing local manufacturing facilities, Abbott is trying to become localized in the Russian market and secure government orders which could reap benefits for the company in the long term.
Revenue from AndroGel, Synagis and other division was $9 billion in 2007 and soared to $11.5 billion in 2011. We expect these revenues will steadily increase going forward and eventually approach $16 billion by the end of the Trefis forecast period. The 2010 acquisitions of Solvay and Piramal Healthcare position Abbott well to capitalize on growth opportunities in these emerging markets. In 2011, emerging markets accounted for over 25% of the company’s total revenue, and we expect this figure to increase going forward.
With Petrovax Pharm’s present sales of $98 million coupled with price-to-sales multiples of 2-3 (as witnessed in the recent deals), the overall deal could be valued in the range of $190-290 million.  While the sum may seem pricey for now should Russia be able to maintain historical double digit growth, in-line with the market expectations, Abbott will be able to recover most of it a short span of time.Notes: