French pharmaceutical company, Sanofi’s (SNY) Animal Health division, Merial, recently announced that it has acquired a privately-held Minnesota-based company, Newport Laboratories.
Newport Laboratories specializes in diagnostic testing and production of veterinary biologics products including PINPOINT (autogenous) evidence-based biologics, to address animal health problems. The company is one of the leading producers of autogenous biologics. In the field of Swine Influenza Virus diagnostics and vaccine development, it is the industry leader.
We expect this deal to create synergies at Merial and strengthen the company’s position in the Swine treatment industry. Merial generated revenues exceeding EUR2 billion in 2011. The company witnessed a 4.3% growth, which is in line with the growth in the animal health market worldwide.
As a reminder, Merial was founded in 1997. It was a 50/50 joint venture between Merck & Co. (MRK) and Sanofi. Sanofi acquired Merck’s 50% share in September 2009 for $4 billion (approximately EUR2.9 billion). Now it is a wholly owned division of Sanofi.
We note that Sanofi’s biggest challenge is the generic threat being faced by several of its products. The company lost approximately EUR2.2 billion in sales in 2011 due to genericization.
Sanofi is looking to combat the generic threat through inorganic growth. Moreover, Sanofi is also introducing new products to counter the loss of revenues due to genericization of key drugs. We believe that the acquisition of Newport Laboratories is a step in that direction.
Towards fulfilling the same objective, Sanofi inked a deal to acquire Massachusetts-based medical device company Pluromed Inc in March 2012. Sanofi entered into a co-promotion agreement with Veracyte, Inc., earlier in the year, to provide a personalized solution for thyroid patients.
Though the financial terms of the Newport deal were not disclosed, it is possible that the strong cash balance of EUR4.1 billion as of December 31, 2011, enabled the company to fund the acquisition.
We currently have a Neutral recommendation on Sanofi. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
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