Sanofi Expands Presence in U.S.

Sanofi-Aventis (SNY - Analyst Report) has decided to acquire U.S.-based Chattem Inc. (CHTT) for $93.50 per share, or approximately $1.9 billion, to create the world’s fifth-largest consumer healthcare company. The offered price represents a 34% premium over Chattem’s Dec. 18th closing price. Currently many pharma players are eyeing the over-the-counter (OTC) segment and consumer brands for portfolio diversification. The transaction, expected to be completed by the first quarter of 2010 is likely to be accretive to Sanofi's earnings from the very first year.

Although Sanofi is likely to generate around €1.4 billion globally in OTC sales in 2009, the company’s presence in the U.S. has been quite limited. We believe the Chattem acquisition serves the purpose of expanding Sanofi’s presence in this region. The U.S. market is highly lucrative, valued at about $20 billion with a 3% annual growth rate.

Chattem is an established player in the consumer healthcare segment (brands include Selsun Blue and Icy Hot, among others), with almost 130 years of experience catering to niche market segments in the U.S. Sanofi also announced its intention of converting Allegra (fexofenadine HCl) in the U.S. from a prescription medicine to an OTC product, which would be handed over to Chattem.

Sanofi has been entering into several deals in the recent past to compensate for the expected loss of sales from patent expiry of many of its lead products. Earlier this year, Sanofi acquired a majority stake in Indian vaccine maker Shantha Biotechnics for €550 million ($788.4 million) to boost the company’s vaccine business as well as expanding its presence in emerging markets.

Sanofi is working on growing its presence in emerging markets, which represent significant commercial opportunities. The company has a strong presence in Latin America and is expanding its presence in Asia, especially India and China. Sanofi has acquired generic-drug makers Helvepharm of Switzerland, Medley of Brazil and Laboratorios Kendrick of Mexico, building the company’s portfolio of lower-priced drugs. We have a Neutral recommendation on the stock.

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