Sanofi-Aventis (SNY) and Merck (MRK) have decided to combine their Animal Health businesses – Merial and Intervet/Schering-Plough to create a global leader in this segment. The joint venture, equally owned by the two companies is awaiting approval from certain regulatory authorities. The transaction is expected to be completed by the end of 2010 or early 2011.
In July 2009, Merck sold its 50% interest in Merial to its partner Sanofi-Aventis for $4 billion. In addition, Sanofi had an option to combine the Intervet/Schering-Plough Animal Health business with Merial to form an animal health joint venture.
The enterprise value of Merial and Intervet/Schering-Plough has been fixed at $8 billion and $8.5 billion, respectively. Sanofi, on exercising its option, will pay $250 million to Merck on top of the $750 million agreed upon earlier in 2009.
The animal health market has witnessed some action recently. Earlier this week, Eli Lilly (LLY), through its animal health division, Elanco, acquired the European rights to some of Pfizer’s (PFE) animal health products, which consist of vaccines, parasiticides and feed additives for both companion and production animals.
Lilly will also acquire a manufacturing facility in Ireland currently used in the production of animal vaccines. Pfizer had to divest these products following a directive from the European Commission after it acquired Wyeth last year.
Companion animals include dogs, cats, other pets, and horses, while production animals include cattle and other food-producing animals. We believe this is a large market with an attractive growth profile.
Increased spending is driven by the rising number of households with pets, enhanced human-animal bonding, aging pet population, more focus on animal health, advancements in pharmaceuticals and diagnostic testing and extensive marketing programs sponsored by companion animal nutrition and pharmaceutical companies.
The potential of the production animal segment is primarily based on disease prevention, improved productivity as well as a growing focus on food safety.
The global animal health market recorded sales of about $19 billion in 2008 and is expected to grow at 5% per year for the next 5 years driven by a growing demand for animal proteins, as well as a strong consumer need for companion animal health care.
While products for companion animals accounted for 40% of total sales, products for production animals accounted for the rest. Based on 2008 sales figures, the combined entity will command a market share of approximately 28%
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