Abbott Laboratories became the largest domestic pharmaceutical company in terms of market share, ahead of Cipla and Ranbaxy, after completing its acquisition of Piramal Healthcare Solutions yesterday. Michael J Warmuth, senior vice president, established products, of Abbott, US, spoke to P B Jayakumar about the acquisition, integration and growth strategy in India and other emerging markets. Edited excerpts:
You paid over Rs 17,000 crore for a business worth Rs 2,500 crore, more than eight times its value. Did you overpay?
We were looking for an asset of our liking in India and realised that most of the assets we considered were lacking the standards and yardsticks in our mind. These included product offering, quality of manufacturing and other systems and values. Once the Piramal family were willing to sell, we realised it was an opportunity and the most suitable cultural fit we could get in India.
If you remember, the media had said many of our competitors were negotiating with the Piramals, but at the time our name was not in that list. Piramal had all the ingredients and culture that we considered for the asset criteria. We looked at it with a long-term view and growth prospects in the Indian market. In a nutshell, we paid only a fair price for a premium asset. We are in India for the past 100 years and we feel happy to celebrate the occasion by becoming the top drug company in India through this acquisition.
Will you merge and integrate Piramal’s assets with Abbott?
The healthcare solutions business will operate independently and continue to be led by its current, India-based, management team. Along with 350 brands, the entire top-to-bottom leadership has come to Abbott through this acquisition. At present, there is no need to disturb its set-up. The brand names will remain the same and only Piramal’s name will be replaced by Abbott. The healthcare solutions business will report directly to me, based in Switzerland. Abbott’s established products division was formed recently, to maximise the opportunity for branded generics, particularly in emerging markets.
What are the growth prospects you see in the Indian market?
Huge. India will be a key market for us, like other competitors. India is the world’s second-fastest growing pharmaceutical market, with an $8 billion size, and this is expected to more than double by 2015. By 2020, Abbott expects its pharmaceutical sales in India to exceed $2.5 billion. The market is growing at 15-16 per cent and we will grow at over 20 per cent. Piramal’s healthcare solutions business had sales of $440 million this year and is expected to grow to $500 million next year. This business will launch 30 new products in the Indian market this year and has lined up 38 products for launch next year. Now we have 10,000 employees in India, including about 7,500 medical representatives. We will continue to grow the business in India.
Piramal Healthcare’s formulation business was restricted to the domestic market, except some minor sales in countries like Nepal. Will you take these 350 brands you acquired to other emerging markets?
Now the focus is to tap the domestic opportunity. We may look at it later.
More From This Section
You acquired the entire marketing network of Piramal’s formulation business, but most of the manufacturing units are still with them. Will you have to rely on contract suppliers or set up own manufacturing units?
The acquisition included the Baddi facility of Piramal and this unit can take care of most of our production. This facility is of high quality and we need not invest to upgrade it. Piramal also had some contract manufacturing arrangements. We will tap the same route, as there are many good suppliers. Besides, Abbott also has a manufacturing facility in Goa.
What will be India’s role in your global established product business?
Very important. Recently, Abbott entered into a supply agreement with Zydus Cadila to supply 24 products for about 15 markets and this will be expanded to about 40 additional products. We are searching for such alliances constantly and it is an ongoing process.