Sanofi-Aventis (SNY) recently entered into an agreement with Japanese company Nichi-Iko Pharmaceutical Co., Ltd. for the setting up of a joint venture. Sanofi will hold a 51% stake in the joint venture called Sanofi-Aventis Nichi-Iko K.K. Sanofi will also hold 4.66% of Nichi-Iko following the acquisition of 1,524,500 shares of the company.
The setting up of the joint venture in Japan should help Sanofi strengthen its presence in the country, which is the world’s second largest pharmaceutical market. The generics market in Japan offers tremendous commercial potential for Sanofi.
Currently, generics account for about 8% of prescription drug sales in Japan. However, by 2012, generics are expected to account for more than 30% of the Japanese pharmaceutical market. Several factors like patent expiry of major drugs, an aging population and government initiatives supporting the use of generics should help drive growth in the Japanese generics market.
The joint venture will initially be responsible for the marketing and distribution rights of anti-insomnia drug Amoban (Ambien).
This deal is in-line with Sanofi’s aim to grow its presence in generic markets. Sanofi’s March 2009 acquisition of Zentiva helped it to establish and strengthen its presence in countries like the Czech Republic, Slovakia, Romania, Turkey, Poland, Russia, Bulgaria, Hungary, Ukraine and the Baltic States. Meanwhile, the April 2009 acquisition of Medley helped Sanofi strengthen its presence in Brazil.
Sanofi’s generics segment posted sales of €1,012 million in 2009 with performance being driven by organic growth and acquisitions. The Japanese joint venture should help drive its generics segment revenues further.
We currently have a Neutral recommendation on Sanofi. Our biggest concern for the stock is the high exposure to generic risk on many of its leading franchises, especially Lovenox. However, we are encouraged to see the company’s progress with its pipeline.
While new product launches should make significant revenue contributions in the early part of the decade, we expect the company to continue look to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products. This should help keep earnings at positive, albeit modest, growth over the next few years.
We also expect the company to grow revenue through additional partnering deals and acquisitions.
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