Abbott May Be Looking To Divest Part Of Generic Drug Business
Abbott Laboratories (NYSE:ABT) is reportedly considering divesting a significant part of its generic drug business, according to a recent Reuters report. The report also suggests that the healthcare major is working with Morgan Stanley to find a buyer for the business. Abbott joins the ranks of competitors such as Pfizer, GlaxoSmithKline, Sanofi and Merck, who may also be looking to divest their portfolios of generic (or ‘mature’) medicines. [1] [2] [3]
Generic drugs are part of Abbott’s Established Pharmaceutical division, which generated sales of about $5 billion in 2013. The division’s sales have seen a low-to-mid single-digit decline in the last few years, owing to pricing pressures in developed markets such as Europe and Japan. By divesting a part of its business, the company could be looking to exit from the low-margin, low-growth generic drug market in developed regions to focus on the high-growth opportunity in emerging markets such as India and China. According to some sources privy to the matter, Abbott could be looking to divest about 40% of its Established Pharmaceutical businesses for more than $5 billion. The business under review for sale generated about $2 billion in revenue in 2013.
We have a price estimate of $40 for Abbott Labs, which is slightly above the current market price.
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See our full analysis for Abbott Labs
Why Is Abbott Looking To Divest?
The most likely reason for Abbott to weigh the sale of a big chunk of its generic drug division could be to streamline its business and focus on higher-growth areas. Sales from the Established Pharmaceutical division have dipped in the last two years due to competitive pressures and unfavorable macroeconomic conditions in some developed markets, partially offset by strong sales in emerging markets. Operational sales in the company’s 14 key emerging markets, which include Brazil, China, Russia and India, increased 6.3% in 2013 and 12.8% in 2012. In contrast, Abbott’s generic drug sales in developed markets and other regions (excluding key emerging markets) declined 4% in 2013 and 5.6% in 2012. [4]
We believe that Abbott is likely looking to divest its Established Pharma business in developed markets only, where the company has struggled to grow. In its 2013 annual report, the company reported that emerging markets accounted for about 50% of its overall sales, and this proportion is expected to increase to about 60% in the coming years. The sale of its branded generic dug business in developed markets could be a step in this direction.
Abbott spun its proprietary pharmaceutical business as Abbvie Inc. (NYSE:ABBV) in 2013 but retained its portfolio of branded generic medicines. This portfolio currently comprises of well-known drugs such as Creon, Biaxin, Klacid, Klaricid, Influvac, Serc, Brufen, Synthroid, Duspatal, Dicetel, and Duphaston.
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Notes:- Exclusive: Abbott taps Morgan Stanley to sell mature products – sources, Reuters, May 2 2014 [↩]
- Sanofi, Merck Each Said to Weigh Sale of Mature-Drug Portfolios, Bloomberg, May 3 2014 [↩]
- Exclusive: Merck explores $15 billion-plus drug portfolio sale, Reuters, April 30, 2014 [↩]
- Abbott 2013 10-K [↩]