A Look At Abbott's Branded Generic Drug Business

| About: Abbott Laboratories (ABT)

Abbott Laboratories (NYSE:ABT) spun of its proprietary pharmaceutical business as Abbvie Inc. (NYSE:ABBV). It however retained its portfolio of branded generic medicines (also called “established” medicines). This portfolio currently comprises well-known drugs such as Creon, Biaxin, Klacid, Klaricid, Influvac, Serc, Brufen, Synthroid, Duspatal, Dicetel and Duphaston etc.

The drugs in this portfolio are exclusively sold in international markets (not in the U.S.). Specifically, Abbott is focused on growing this business in 14 key emerging markets. These markets currently comprise approximately 50% of its business’ sales today, and this proportion is expected to increase to approximately 65% by 2016.

Within these emerging markets, the company is working toward increasing the breadth of its product offerings by launching new and improved formulations. At the start of 2013, Abbott was working on 20-30 key brands. Depending on the drug, its development effort focuses on new data, formulations, combinations or indications. It is also working on building country-specific portfolios to best meet the needs of each local market. These country-specific portfolios are likely to have its global as well as local pharmaceutical brands, depending on their suitability to the local market needs [10-K 2012, Abbott, December 31, 2012].

The sales of Abbott’s generic pharmaceutical business have been declining in the recent past due to unfavorable macroeconomic conditions in Europe and Japan, partially offset by the growth in emerging markets. Sales for this division declined almost 4.4% in 2012. The trend continued in the first six months of 2013, as revenue dropped by 3.4% year-on-year.

However, the company’s management expects low single-digit operational sales growth in the third quarter and beyond. The growth is likely to be driven by emerging markets, where Abbott has been working on expanding its portfolio and has recently won some tenders [Abbott Laboratories (ABT) CEO Discusses Q2 2013 Results – Earnings Call Transcript, SeekingAlpha, July 17, 2013].

Abbott is also focused on improving its commercial execution in order to improve sales. It recently created two new commercial leadership positions – one for developed markets and another solely focusing on emerging markets. It is also working on increasing its brand awareness at hospitals, pharmacies, and with the end consumer. Additionally, it is looking to get its drugs registered in newer geographies.

We forecast Abbott’s revenue from branded generic drugs to grow at low single digits for the next several years and reach around $6 billion at the end of this decade. A higher growth rate is unlikely because the generic drug market has intense competition and pricing of these medicines is always under pressure.

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