Abbott gets local production cred with deal to buy Russia's Veropharm

Veropharm's pharmaceutical facility--Courtesy of Veropharm

Russian leader Vladimir Putin has made it clear to drugmakers that if they want to sell drugs in the growing Russian market, they better be ready to manufacture there and transfer technology to help the country build its pharma infrastructure. Abbott Laboratories ($ABT) said Monday it will establish its manufacturing bona fides by buying Russian drugmaker Veropharm and its four manufacturing plants.

The Chicago area-based company announced late Monday that it will acquire the Russian drugmaker in a cash deal that could top $630 million. In the process, it will pick up existing manufacturing facilities in Pokrov, Belgorod and Voronezh, and one facility still under construction. It also gets more than 2,000 employees.

The new operation is only expected to add about $150 million to Abbott's top line next year, the company said Monday, but it will make Abbott a local manufacturer. "Upon completion of the transaction, Abbott would also establish a manufacturing presence in Russia through its ownership of Veropharm's existing production facilities as well as a new state-of-the-art manufacturing facility that is currently under construction by Veropharm. Abbott intends to utilize its manufacturing expertise to expand Veropharm's capabilities and enhance the existing infrastructure." Veropharm in 2012 said it was building a $63.5 million plant to add to its three others.

Abbott, which has been selling drugs in Russia since 1978, missed an opportunity to get local production last year when Russia's antitrust regulator shot down its plans to buy vaccine maker Petrovax Pharm. The Federal Anti-Monopoly Service (FAS) decided that maintaining local control of vaccine-making was a national security issue.

Putin has said Russia may penalize those companies that don't have local production and Western drugmakers have taken his threats to heart. Others have already made their moves. German Bayer in 2012 struck a strategic partnership with Russian drug manufacturer Medsintez to "jointly manufacture and commercialize" drugs in Russia, while Novartis ($NVS), AstraZeneca ($AZN), GlaxoSmithKline ($GSK) and Novo Nordisk ($NVO) are among the drugmakers who are putting money into Russian infrastructure and partnerships to secure their place in that market.

Abbott says to buy the drugmaker it will acquire Garden Hills, the holding company that currently own more than 80% of Veropharm's shares and expects to own up to 100% at the time of closing. Abbott will pay between $395 million and $495 million for Garden Hills, depending on how much of Veropharm it owns at closing. It also will assume $136 million in debt. The Abbott Park, IL, company said it will pay cash to do the deal.

- here's the announcement

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