Merck, Sanofi combining animal medicine businesses

[March 09, 2010]  TRENTON, N.J. (AP) -- Two of the world's biggest pharmaceutical companies said Tuesday they are uniting their animal health businesses in a deal to become the top dog in the veterinary industry.

Merck & Co. and France's Sanofi-Aventis SA said they'll jointly own the combined business, which will have a share of about 29 percent in the $19 billion-a-year global market for medicines for pets and livestock. That's well ahead of the current leader, Pfizer Inc.'s Fort Dodge unit, which has about 20 percent of the market.

The joint venture will combine Sanofi's Merial animal health business, the maker of Frontline flea and tick fighter and Heartgard for preventing heartworm infection, with Merck's Intervet/Schering-Plough unit, which mainly makes vaccines and drugs for farm animals. Merial mainly operates in North America and South America, while Intervet sells in Europe and emerging markets.

"They are valuable assets and deserve to be together," Merck Chief Executive Dick Clark told reporters during a conference call late Monday.

Last year, Merial had sales of about $2.55 billion and Intervet had $2.74 billion, for a total of $5.3 billion.

Clark noted their products and countries of operation are complementary, adding anticipated growth will boost resources for research.

Sanofi-Aventis CEO Chris Viehbacher said the animal health market is expected to grow 5 percent a year through 2014, fueled by multiple trends.

The growing middle class in some developing countries is eating more meat, boosting the need for farm animals and thus livestock medicine. Meanwhile, the planet's population is expected to grow 50 percent by 2050, further increasing food needs, and the increasing elderly population likes having pets, he said.

Viehbacher noted the animal health business was resilient during last year's economic crisis.

"The pets business is more profitable, from a margin point of view," he added, compared with prescription drugs subject to a "boom-bust cycle" as generic competition slashes sales.

The deal, expected to close in the next year, comes amid an unusual level of jockeying in the veterinary medicine business recently.

Pfizer, the world's biggest pharmaceutical company by revenue, bought Wyeth in October for $68 billion in a diversification strategy that gave it strong businesses in vaccines, other biologic drugs, nonprescription medicines and veterinary medicines. Merck made a similar move, buying Schering-Plough in November for $41 billion for its biologic drugs, consumer health products, veterinary medicines and strong portfolio of drugs in development.

But Merck, of Whitehouse Station, N.J., already had its own animal health business -- a half-interest in the Merial business with Sanofi-Aventis. So, to avoid a protracted overview by antitrust regulators that would hold up Merck's purchase of Schering-Plough, Merck sold its half of Merial to Sanofi for $4 billion in September.

That deal gave Sanofi-Aventis an option to later combine the full Merial business with Intervet, which Schering-Plough just acquired in November 2007.

Clark and Viehbacher told reporters that parts of their businesses may have to be divested after an expected nine- to 12-month review by antitrust regulators in the U.S. and Europe.

Given the slight discrepancy in the worth of the businesses -- Merial is valued at $8 billion and Intervet/Schering-Plough at $8.5 billion -- Sanofi-Aventis will give Merck a $250 million "true-up payment," plus another $750 million payment required under its option to combine the two businesses.

Clark said combining them will bring annual savings, but that it is too soon to say how much or how many jobs might be eliminated out of their current combined total of 13,600. He said the companies also have yet to choose a leadership team or headquarters for the new business.

[Associated Press; By LINDA A. JOHNSON]

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