On May 21, Abbott Laboratories (NYSE:ABT) announced that it would purchase Piramal Healthcare, a branded generics company based in India, for $3.72 billion. The deal will give Abbott a 7 percent market share in India. Abbott expects pharmaceutical sales in India, which are projected to reach $8 billion this year, to more than double by 2015. The company joins Daiichi Sankyo (OTC:DSKYY), which owns a majority stake in India-based Ranbaxy Laboratories (OTC:RBXLF); and GlaxoSmithKline (NYSE:GSK), which purchased the pipeline of Dr. Reddy’s Laboratories (NYSE:RDY), on the list of major pharmaceutical companies looking to expand their reach in India.
With numerous blockbuster drugs facing imminent patent expiration, slowing growth, and U.S. healthcare reform policies that would promote generic drugs, pharmaceutical companies are turning to emerging markets such as India, China, and Russia as the next big revenue generators. Healthcare spending in emerging markets, currently about $200 billion per year, is expected to increase rapidly. Pharmaceutical companies believe that emerging markets will account for 30 to 40 percent of sales in the next decade, says one expert quoted in the AP article. Emerging-market sales currently account for about 20 percent of Abbott’s revenue.
However, according to a recent article in the Wall Street Journal, pharmaceutical companies shouldn’t expect a massive profit from emerging markets. Although revenue may be up, profits on emerging-market sales are significantly lower than they are in developing countries. Local companies are growing in emerging markets, and they may have an advantage when it comes to language, culture, and regulators.
Nevertheless, pharmaceutical companies appear to be optimistic about the potential of emerging markets, and India in particular. India already has a strong pharmaceutical industry that produces one-fifth of the world’s generic drugs. In addition, branded generics, or generic drugs from big-name pharmaceutical companies, are gaining popularity in emerging markets.