Abbott Labs (
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.
See our complete analysis for Abbott Labs
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.
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