Thursday, December 16, 2010

2010 M&A DOTY Nominee: Abbott/ Piramal

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Tennyson? Maybe he's an OK mascot for academic-industry deal-maker types. Rudyard Kipling, however, best characterizes Abbott's recent full-blown attack on the Indian pharma market, with his quote: "Gardens are not made by saying 'Oh, how beautiful' and sitting in the shade." Clearly, a message Abbott executives took to heart when inking the whopping $3.72 billlion deal ($2.1 billion in cash) they made in May 2010 to buy the branded generics business of Piramal Healthcare - a valuation that is an unheard of nine-times sales and 31 times earnings.

The deal, which put India's fourth largest pharma company under Abbott's wing, has kept global biopharma tongues wagging for months about over-heated valuations in emerging markets, and in particular, of course, India, as well as Big Pharma's true long-term intentions in Asia versus their short-term opportunistic motivations. It catapulted Abbott, which until last year could be diagnosed as emerging-markets deficient, into the number one spot in India. That's a steep climb from 2009, when it barely cracked the high teens, and puts it ahead of MNC India virtuosos like GSK and Sanofi. Abbott's move changed not only Abbott, however, but the entire Indian pharmaceutical landscape forever - surely the kind of transformative event that should be at the top of any dealmaker's DOTY award list.

So, what did Abbott get for its generosity? A portfolio of 350 branded generics which its newly formed Established Products Business Unit (haven't we seen similar renditions at Pfizer and AstraZeneca, among others?) will sell in India and some other emerging markets; a large, somewhat bloated sales force, with a strong presence in rural districts, and a 4% share of a very fragmented market - bringing Abbott's new total share to 7%.

Analysts say that with this deal, Abbott can move into the center of the Indian drug market and play a bigger role in its rapidly unfolding growth story. Piramal has a large number of mass-consumption products, which Abbott could not easily create from scratch in a fast-moving market, and Abbott will also be able to sell its own brands, as well as the Piramal products, which are largely in CNS, cardiovascular, and respiratory diseases. Oh, and the new Abbott's pro forma growth is projected at 13.2%, which is stunning for Western eyes, although actually below the overall growth rate of 17.5%.

India is in the midst of an M&A frenzy, which started with Daiichi Sankyo's $4.6 billion purchase of Ranbaxy generics in 2008. Even that huge effort pales in comparison to what Abbott has wrought. Before Abbott, three of the top four pharma companies in India were Indian-owned, but now that number is whittled down to one: Cipla.

If the aim of DOTY is to reward a deal-maker's brashness and recognize a company that puts its money where its mouth is, vote for Abbott-Piramal.

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