Sanofi-Merck deal paves the way for animal drug giant

A planned drug company buyout will open the door for the creation of a massive animal-pharmaceuticals joint venture in the near future.

French drug-maker sanofi-aventis agreed last week to purchase 50 percent of Merial Limited for $4 billion in cash from Merck and Co., Inc. The deal would make sanofi-aventis the sole owner of Merial, which until now has been a 50-50 joint venture between Merck and sanofi-aventis. Merial’s best-known products include flea and tick control product Frontline and dog heartworm preventative Heartgard.

According to one analyst, veterinarians will most likely not see much change in terms of products or service, though the high price of the deal could potentially affect spending on research and development.

“Revenue critical mass is important in order to fund the creation of new innovative products,” said Ron Brakke, president and CEO of animal health consultants Brakke Consulting Inc. “Since Merial is the same company, just with one owner, I’d not expect many changes. Another possibility is that sanofi, in paying $4 billion for the other 50 percent of Merial, may force expense reductions in order to obtain a return.”

In addition to the Merial deal, Merck, sanofi-aventis and Schering-Plough signed a “call option agreement,” which gives the companies the option to create a new animal-health joint venture between Merial and Intervet/Schering-Plough Animal Health (ISP). This deal would take place after Merck’s planned $41 billion merger with Schering-Plough Corp., which is anticipated to be completed in the fourth quarter of this year.

The Merial-ISP joint venture would be owned by the new Merck and sanofi-aventis, and would be a powerful force in the lucrative animal health market.

“We are pleased with the acquisition of Merial, a major global player in animal heath, and the possibility of combining Merial and Intervet/Schering-Ploughs complementary businesses,” said sanofi-aventis CEO Christopher Viehbacher in a statement. “The combination would create a new leader in this $19 billion global animal health market, supporting our vision of a global diversified healthcare leader.”

If the Merial-ISP joint venture goes forward, Merial would be valued at $8 billion, and ISP’s value would be set at $9.25 billion.

The sale of Mercks interest in the Merial joint venture must be cleared by European antitrust authorities, and the formation of the Merial-ISP joint venture would also be subject to antitrust review in both the United States and Europe.