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Drugmakers call off animal-health deal, possible asset sale

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Drugmakers Merck & Co. and Sanofi-Aventis SA said Tuesday they have abandoned plans to combine their animal-health businesses after wrestling with regulators for a year over potential divestitures.

Indianapolis-based Eli Lilly and Co. was among a list of possible suitors for about $1 billion in assets the two companies considered selling to resolve antitrust concerns.

Lilly has been trying to grow its animal-health business through acquisitions in order to build up revenue expected to be lost late this year when its bestselling human drug Zyprexa faces competition from cheaper generic copies.

Earlier this month, Lilly’s Elanco animal-health division agreed to acquire Jannsen Animal Health, a subsidiary of New Jersey-based Johnson & Johnson. Financial terms of the deal were not disclosed.

Merck and Sanofi’s decision ends a plan to create the world’s biggest maker of medicines for livestock and pets. The drugmakers were to have been equal owners of the joint venture announced last March. The units had combined sales of $5.5 billion last year.

“It was clear from the beginning that there would be problems from the regulatory side,” said Oliver Kaemmerer, an analyst with WestLB AG in London. Kaemmerer said he believes Merck and Sanofi when they say they won’t sell their animal- health assets, but “never say never.”

For now, the companies will keep the Merial and Intervet units separate at no penalty to either side. Merck, based in Whitehouse Station, N.J., and Paris-based Sanofi remain committed to animal health, they said in a statement.

Merial’s products include a bird-flu vaccine for poultry and Frontline, the best-selling flea spray for pets, while Intervet makes a device to vaccinate pigs without a needle and the Safe-Guard treatment to deworm dogs.

“The companies are discontinuing their agreement primarily because of the increasing complexity of implementing the proposed transaction, both in terms of the nature and extent of the anticipated divestitures and the length of time necessary for the worldwide regulatory review process,” Merck and Sanofi said in the statement.

The two companies had hired Morgan Stanley to arrange the sale of assets valued at about $1 billion to resolve antitrust concerns, two sources with knowledge of the matter said in October. Prospective buyers may have included Lilly, Pfizer Inc., Bayer AG, Boehringer Ingelheim GmbH and Novartis AG, the sources said.

Potential buyers showed a lot of interest in the assets, Sanofi Chief Executive Officer Chris Viehbacher said on a Feb. 9 conference call.

Sanofi and Merck operated Merial as a joint venture for more than a decade. Sanofi bought out its partner’s stake for $4 billion in 2009, removing an antitrust obstacle to Merck’s acquisition of Schering-Plough Corp.

Merck and Sanofi agreed a year ago form a new partnership that combined Merial and the Intervet veterinary unit that Merck got in the Schering-Plough purchase.

Viehbacher sought to expand in veterinary products in part because the business wasn’t as vulnerable as prescription drugs to competition from generic products. Growing demand for food also helped lift sales of products for farm animals, and rising incomes were leading to increased pet ownership, he said.

“This is one of those sweet spots that provide sustainability of sales and earnings growth,” Viehbacher said on the Feb. 9 call.
 

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