The Rising Influence of Rising Affluence

[DewDiligence]

ABT continues push in branded generics for EM, acquiring Russian company, Veropharm:

http://finance.yahoo.com/news/abbott-acquire-veropharm-200200789.html

Abbott today announced a definitive agreement to acquire Veropharm, a leading Russian pharmaceutical manufacturer. Under the terms of the agreement, Abbott will acquire Limited Liability Company Garden Hills, the holding company that currently owns a controlling interest in Veropharm, for between 13.6 billion rubles and 17 billion rubles (or a range of approximately $395 million to $495 million) depending on Garden Hills' share ownership of Veropharm at time of close. Garden Hills currently owns more than 80 percent of Veropharm but is expected to own more than 95 percent by the time the transaction closes. Pursuant to the agreement, Abbott will also assume net debt of 4.7 billion rubles (or approximately $136 million). [I.e., the total cost to ABT is ~$530-630M including debt assumption.]

…Through this acquisition Abbott will obtain a portfolio of medicines that is well aligned with its current pharmaceutical therapeutic areas of focus in women's health, central nervous system, cardiovascular, and gastroenterology, while also adding an offering in the field of oncology.

Upon completion of the transaction, Abbott would also establish a manufacturing presence in Russia through its ownership of Veropharm's existing production facilities as well as a new state-of-the-art manufacturing facility that is currently under construction by Veropharm. Abbott intends to utilize its manufacturing expertise to expand Veropharm's capabilities and enhance the existing infrastructure.

…Abbott expects the acquisition to add approximately $150 million in sales in 2015.

The fact that these drugs are manufactured in Russia was an obligate component of the deal insofar as Russia imposes severe restrictions on drug imports.

Complementing ABT’s recent acquisition of CFR, which makes branded-generic drugs in Latin America (#msg-102107675), the Verophram deal will tilt ABT’s Established Products (i.e. branded generics) division even further toward serving emerging markets, which is where the most profitable opportunities lie (#msg-102107675).

In 1Q14, branded generics comprised 21% of ABT’s overall corporate sales (#msg-100847322). After the CFR and Veropharm deals close, this percentage will be higher by a few hundred basis points (unless ABT divests some of its branded-generics business in developed markets such as Europe).

Bottom line: One of the main reasons I own ABT is that it’s a strong beneficiary of The Global Demographic Tailwind, and selling branded-generic drugs in emerging markets figures to be an excellent business for many years to come. (Please see #msg-50473238 and #msg-97351131 for related stories.)