With one sweep of the acquisition pen, Abbott Labs
Abbott's been playing catch-up to pharmaceutical brethren GlaxoSmithKline
If media reports are to be believed, Abbott outbid Pfizer, sanofi, and Glaxo to purchase the Indian drugmaker. At over seven times next year's sales, it's a hefty price to pay for a generic-drug maker, but Piramal's drug business grew at a 23% clip in its last fiscal year. High-growth, low-margin companies aren't my cup of tea, but no matter what the margins are, it seems you have to pay a premium for growth.
Abbott needed to make moves to balance revenue from its anti-inflammatory drug, Humira, which has quickly grown to be a large fraction of its total revenue. But I would rather have seen it stick with its strong suit, branded drugs and medical devices, rather than exploring overseas.
At this point, it's become hard for investors to find a drugmaker that isn't heading overseas. Just last week at their analyst meeting, Merck
On the one hand, low-margin growth in emerging markets is better than no growth, but on the other, there's only so much capital that pharmaceutical companies have available to deploy. Investing in emerging markets comes at a cost of not investing in higher-reward (albeit higher-risk) licensing of branded drugs. Abbott and the rest of the industry need to learn how to say "opportunity cost" in Hindi.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation. The Fool owns shares of GlaxoSmithKline and has a disclosure policy.