Despite the economic downturn, sales at both Merial and Intervet grew 4 to 5 percent in the fourth quarter of 2009.
Sanofi and Merck are working together to tackle the animal healthcare market in a joint venture that will likely become the sector's biggest player, with combined sales of more that $5 billion. The marriage will help shore up revenue for both companies as they seek to diversify their revenue sources. Not only is the animal health market growing, but it is particularly strong in North America and Western Europe, markets where revenue from human medicines is facing a multitude of pressures.
Sanofi triggered the deal, announced March 9, by exercising its option to combine its animal health unit, Merial, with Merck’s, Intervet/Schering-Plough. Merial makes Frontline, the world's bestselling flea and tick deterrent for cats and dogs, as well vaccines for livestock among other products. Intervet has been focused on the livestock market but serves companion animals too with products such as Safe-Guard for deworming dogs. The combined divisons will eclipse those of current market leader, Pfizer.
Sanofi CEO Chris Viehbacher says the company is looking for businesses that can offer sustainable growth while avoiding the volatility of the human medicines market.
The animal health market is hot. It registered $19.2 billion in global sales during 2008, according to Vetnosis, an animal health and veterinary medicine consulting group. Despite the economic downturn, sales at both Merial and Intervet grew 4 to 5 percent in the fourth quarter of 2009.
A growing global population with an increased appetite for meat, dairy products and lovable pets will keep the market growing by about 5 percent per year through 2014, predicts Vetnosis.
Sanofi will pay Merck $750 million under an agreement the new partners signed when Merck shed Merial to help overcome regulatory concerns about its acquisition of Schering. Because of a difference in the values of Merial and Intervet, Sanofi will also pay Merck a $250 million true-up payment.
No combination of this size goes without regulatory scrutiny. Merck and Sanofi expect they will have tied up all the details, including antitrust review in early- to mid-2011. Between now and then, the companies will need to decide where to site the joint venture's headquarters and how many jobs will be cut in the oft-messy pursuit of synergy.
March 12, 2010