Sanofi-Aventis Acquires Consumer Healthcare Company Chattem for US$1.9 bil., Cancels Two Drug Development Programmes

Diversifying Sources of Growth

French pharma major Sanofi-Aventis has announced its acquisition of U.S. consumer healthcare company Chattem. The deal, which is estimated to be worth US$1.9 billion, will give Sanofi-Aventis full rights to Chattem's skin and healthcare, health and wellness, and pain relief range of products, with sales of US$353.1 million in the first nine months of the year. This will form the basis of Sanofi-Aventis' foray into the U.S. over-the-counter (OTC) consumer healthcare segment, an important lucrative sector that accounts for 25% of the global consumer healthcare market. In a company presentation entitled "Creating a Strong U.S. Consumer Platform", the company outlined the key reason why this acquisition is an attractive one in the context of the growing lucrative nature of the global consumer healthcare market. The OTC market reported sales worth US$86.6 billion in 2008, and is experiencing a growth rate of 4%, which is primarily driven by the increasing self-medication trend.

The U.S. market accounts for 95% of Chattem's sales, and the company has in place strong sales, marketing and distribution networks, as well as household brand names. Sanofi plans to expand Chattem's global presence by selling its products in crucial emerging markets such as Latin America and Asia. However, in order to preserve Chattem's winning formula, Sanofi-Aventis does not plan to make any drastic changes to the current structure of the company, and Chattem's management team will continue to run the company in much the same manner.

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Allegra to Become OTC

Sanofi-Aventis' first taste of the OTC market is expected to come shortly, as the company has also announced plans to sell its allergy drug Allegra (fexofenadine hydrochloride) as an OTC drug in the United States, where it is currently marketed as a prescription drug. Chattem will assume responsibility for the launch of the drug, once the OTC conversion process is complete. This will be the first test of the partnership between the two companies, as Sanofi-Aventis is hoping to use the OTC conversion strategy as a key brand management for other prescription drugs in the future.

Drug Development Programmes for Eplivanserin and Idrabiotaparinux Terminated

Sanofi-Aventis has revealed in its latest research and development pipeline update document that it will no longer proceed with the development of two drugs: eplivanserin in the treatment of chronic insomnia, and idrabiotaparinux in the treatment of atrial fibrillation. The company had already submitted a regulatory filing for eplivanserin with authorities in the United States and European Union; however, the approval process has been plagued by calls for additional information to support the drug's benefit/risk profile. A conclusion has been reached that this process will require additional clinical trials, to which the company is not willing to devote more funds. The regulatory filings will now be withdrawn. Idrabiotaparinux is also being shelved, as the company no longer believes that the drug will offer a value proposition for patients, in light of the developments being made in the therapeutic area.

Outlook and Implications

Sanofi-Aventis continues to make huge strides in its quest to diversify its business, and the OTC market is expect to play an important role in this, having been identified as one of the company's top five priorities, and a key pillar of its business model. Sanofi-Aventis is already a leading player in the consumer health market, with its OTC sales up 19.6% year-on-year in the first nine months. The acquisition of Chattem therefore fits in to the company's overall corporate strategy, and the company will become the firth largest consumer healthcare franchise—up one place and behind leading players such as Johnson & Johnson (U.S.), GlaxoSmithKline (U.K.), Novartis (Switzerland), and Bayer (Germany). Most importantly, this acquisition will provide Sanofi-Aventis with a strong platform from which to launch its OTC products in the important U.S. market, starting with allergy drug Allegra. This drug is a prime OTC candidate in many respects. Allergy drugs continue to be clear OTC winners, as their brand recognition allows them to maintain market share way beyond their patent expiry. Claritin (loratadine; Merck &Co, U.S.) and Zyrtec (cetirizine, J&J; U.S.) are prime examples of this. Sanofi-Aventis hopes to replicate similar success with Allegra, with the aid of Chattem's marketing clout. Chattem has so far had limited success in the international market, with international sales only accounting for 5% of its revenue. However, this might change, given Sanofi-Aventis' international presence. The emerging markets remain another important area of growth, and Sanofi-Aventis will be keen to tap into this opportunity. As the year draws to a close, Sanofi-Aventis has provided us with a clearer picture of where it is headed in the future. In addition to the emerging markets and consumer health market, its other top priority areas include diabetes products, generics, vaccines, and new product launches (see France: 18 December 2009: Sanofi-Aventis Banks on Vaccine Market, Plans to Double Vaccine Sales by 2013). With patent expiry for key products approaching and drug attrition rates increasing, diversification appears to be the way forward.