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Abbott wins bidding war for Solvay

Multi-disciplinary healthcare giant Abbott Laboratories has fought off competition from Nycomed to secure the $6.6 billion acquisition of Solvay's pharmaceutical business.

The deal is a timely one for Abbott and will help accelerate the Chicago drugmaker's expansion in emerging markets and provide it with a novel vaccine development platform.

This latest deal in Abbott's recent flurry of M&A activity follows its weakened prospects in the prescription (Rx) pharmaceutical market. Although Abbott has done well to strengthen its presence in novel segments such as ophthalmology and vascular intervention, the company is in clear need of a growth injection within its dominant pharmaceutical business, which faces growing pressure from all angles of the prescription drug market.

According to Datamonitor, without the positive impact of the Solvay acquisition, Abbott's Rx business stood to grow at a very slow compound annual growth rate (CAGR) of 0.2% from 2008 to 2014.

Ongoing litigation poses a considerable challenge to two of Abbott's most important growth driver franchises, Humira and TriCor, and Abbott's exposure to generic competition is gathering pace with patent expiries to Depakote, Biaxin and Synthroid, as well as its lucrative stealth products, such as Zemplar and Reductil. A substantial proportion of Abbott's Rx revenue stream comes from products that will see generic erosion over the next few years, further highlighting the need for new launches and successful lifecycle management.

As it stands, Abbott has an under-strength pipeline that will do little to mitigate these heightened competitive pressures (Abbott has only three new compounds in late-stage development, compared with a Big Pharma average of ten, according to Datamonitor’s PharmaVitae Explorer). It is clear, therefore, that Abbott will need to utilize M&A to reinforce its position among the leading drug companies.

Although Solvay itself has limited pipeline potential, with new drug launches forecast to contribute just over $500 million in annual revenues by 2014, the deal was mainly driven by the instant injection in revenues that will be gained upon the integration of Solvay's marketed portfolio, which will reduce Abbott's reliance on its current crop of medicines.

The most novel late-stage compound in Solvay's pipeline, pardoprunox (for Parkinson's disease), will undoubtedly be of interest to Abbott as it looks to build a presence within the degenerative central nervous system (CNS) disorder market.

Abbott is already recognized as one of the most prolific deal makers in the industry, having done well with its Kos, Knoll and Guidant Vascular acquisitions. Through its acquisition of Kos and a recently emerging partnership with AstraZeneca in the US, Abbott is firmly committed to growing its position in the lipid management market.

A deal with Solvay, therefore, always looked likely, given Abbott's need to reinforce its Rx portfolio and its strategic focus on the dyslipidemia segment. Abbott's growing collaborations with Solvay for TriLipix and Simcor have served as a primer for the deal and Abbott will look to gain full control of these franchises because the future of its existing blockbuster fibrate, TriCor, looks uncertain.

Datamonitor forecasts that integration with Solvay will provide Abbott with close to $1bn in additional annual revenues from the dyslipidemia market, reinforcing the expectation that Abbott will become the second biggest player in the lipid control segment, behind AstraZeneca and ahead of current market leader Pfizer.

Other rationale for the merger includes emerging market expansion, the integration of vaccine development capabilities and synergies among the companies' respective US sales forces, Datamonitor pharmaceutical markets senior analyst Joshua Owide says. ‘Not including the amortization of fenofibrate royalties, Solvay's mature portfolio is forecast to contribute $4 billion to Abbott's Rx business in 2010, equaling a 25% lift in projected annual sales.

‘The long-term impact of the deal will be significantly better Rx sales growth for Abbott at a 2008-14 CAGR of 4.6%, a vast improvement on the 0.2% forecast prior to the deal,’ he says.

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