March 10, 2010

Merck-Sanofi JV may be forced to unload cattle, poultry products

Merck & Co. and Sanofi-Aventis SA, expected to combine animal health businesses into a joint venture within a week, may have to divest some products to satisfy government antitrust regulators, analysts said.

There are "areas of overlap" among the two companies' products, primarily in cattle and poultry vaccines, said John Volk, senior consultant with Brakke Consulting, Inc., a Dallas, Texas-based firm that serves the animal health industry.

"Cattle and poultry vaccines are probably the biggest areas where they will have to do divestitures," Volk said, adding that regulators will look most closely at whether the combined companies will have an overly dominant position in any one category.

A decision on whether Merck and Sanofi will combine animal health units is expected in the next few weeks, spokesmen for the companies said March 3. Paris-based Sanofi, in February 10 statement, said an Intervet-Merial combination was "highly probable."

The joint venture would have 25% increase of the global animal health market, which generated US$18.5 billion in revenue last year, Volk said. The current leader Pfizer Inc. has around 15% of the global market.

Most small- to mid-sized livestock producers are likely to feel little impact from the joint venture,as there are still several other competitors in the animal health industry, including Boehringer Ingelheim, Novartis AG and Pfizer.

The joint venture may also signify further consolidation in the animal health industry, with the number of companies shrinking in recent years partly due to rising costs to develop and gain government approval of drugs.

Merck and Sanofi's animal health units generated a combined US$4.77 billion in revenue in 2009. Merial, whose US operations are based in Duluth, Georgia, had US$2.55 billion revenue in 2009, or almost 14% of the market.

Sanofi in September bought Merck's 50% stake in Merial, the companies' previously-formed veterinary partnership, for US$4 billion. New Jersey-based Merck sold the 50% stake to assure regulatory approval of its purchase of Schering-Plough, which closed November 4.