Abbott Acquires Veropharm To Expand Presence In Russia
Global healthcare major Abbott Laboratories (NYSE:ABT) has agreed to acquire Russian pharmaceutical company Veropharm for between 13.6 billion and 17 billion rubles ($395 million – $495 million) in an all-cash deal. Veropharm is one of the leading generic drug manufacturers in Russia and the deal is likely to give Abbott a manufacturing presence in the country, where it has been operating since 1978. The deal makes sense in light of Abbott’s recent efforts to expand its generic drug business in high-growth emerging markets such as China, India, Latin America and Russia because of sustained sluggishness in developed markets. This deal follows Abbott’s recent $2.9 billion acquisition of Chile-based CFR Pharmaceuticals to expand its presence in Latin America [1] (read Abbott Looking To Revive Generic Drug Sales With CFR Acquisition).
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Acquisition Details
Per the terms of the deal, Abbott will acquire holding company Garden Hills, which currently owns over 80% of Veropharm, but its stake is expected to increase to about 95% when the deal closes. Abbott will also assume Veropharm’s net debt of 4.7 billion rubles ($136 million) as part of the deal, which is expected to close by the end of Q4 this year. It is expected to contribute about $150 million to company sales in 2015.
Strategic Reasons For The Deal
The deal is strategically important because of two reasons. Firstly, the company’s generic drug sales have dipped in the last two years due to competitive pressure and unfavorable macroeconomic conditions in developed markets, and emerging markets such as Russia are likely to be key for future top-line growth in the business. For instance, 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. [2]
Secondly, in addition to adding a range of oncology medicines, the acquisition is likely to complement Abbott’s current drug portfolio in women’s health, central nervous system, cardiovascular and gastroenterology. Upon completion of the deal, Abbott also plans to utilize Veropharm’s existing manufacturing facilities to expand its capabilities and business in the country.
The Russian government has consistently pushed to curb drug imports and encouraged greater local production of medicines in the country. The government’s preference for domestically produced drugs likely encouraged Abbott to acquire a local manufacturer to gain a foothold in the fast expanding Russian pharma market. [3]
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Notes:- Abbott to Acquire Veropharm, Abbott Press Release, June 23 2014 [↩]
- Abbott 2013 10-K [↩]
- Abbott offers up to $495m for Russia’s Veropharm, PMlive.com, June 24 2014 [↩]