French Connection

AFTER SEVERAL WEEKS of merger speculation, Sanofi-Synthelabo launched a hostile bid for French neighbours Aventis on 26th January 2004. The stock and cash deal valued Aventis at EUR47.8bn ($61bn), a 5% premium to its closing share price. Not surprisingly the hostile takeover was quickly rejected by Aventis’ management who believes “that there are other scenarios with a stronger industrial and social rationale”. Nevertheless, as the merger appears to have the backing of the French government, we would anticipate a rapid round of negotiations between the two companies in an attempt to smooth the creation of a strong French based player in the global pharmaceutical industry.

Global Pharmaceutical Market Share

In the core pharmaceutical business, the merged entity (French Pharma) generated approximate sales of $27.9bn in 2003, market share of 6.6%. Although ranked third behind Pfizer and GSK in terms of sales, French Pharma is forecast to quickly overtake GSK as the 2nd ranked company – our forecasts presume that by 2007 French Pharma will generate pharma sales of $34.2bn.

Core Products

Blockbusters – French Pharma’s portfolio currently comprises six blockbuster products, the cardiovasculars Plavix, Lovenox and Tritace, the insomnia treatment Ambien, the taxane oncology treatment Taxotere and the respiratory treatment Allegra. The portfolio is supported by fast-growing products such as the platinum anticancer Eloxatin and the anti-hypertension treatment Aprovel. By 2007, our forecasts predict that French Pharma’s portfolio will comprise seven blockbuster products generating total revenues of $14.0bn.

Overlap – There is little overlap between Aventis and Sanofi- Synthelabo’s portfolios. Potentially the only significant product requiring divested would be the LMWH anti-thrombotic Fraxiparine, a competitor to Aventis’ dominant Lovenox brand. Sanofi’s anti-thrombotic Arixtra would benefit from the expertise that Aventis has built up in this area and act as a follow-up post Lovenox’ patent expiry (anticipated in Dec 04).

Patent Expiry – A French Pharma merger would help to minimise the forthcoming impact of patent expiry for Aventis’ anti-histamine Allegra. Although patent protected to 2011, the market exclusivity of Sanofi’s major product Plavix is also under threat in the key US market from patent challenge – a lawsuit is anticipated later in 2004. The insomnia treatment Ambien’s patent expires in 2006, however a once daily form is in development to minimise the impact of generic competition.

Therapeutic Coverage

French Pharma’s presence would be enhanced in three core therapeutic areas – cardiovascular, CNS and oncology. French Pharma would be ranked third in the CV market behind Pfizer and Merck with estimated revenues of $7.3bn in 2003, equating to a market share of 11.0%. The company’s presence would also be enhanced in the CNS market where French Pharma would be ranked 5th with sales of $4.0bn. In oncology French Pharma is ranked 2nd behind Roche with sales of 3.1bn.

Geographic Coverage

French Pharma would become the top ranked pharma company in Europe with estimated market share of 8.8%. However, for its size, French Pharma would remain under-strength in the US where market share of 4.0% would rank the company behind a number of US and European majors including Pfizer, GSK, Merck, J&J and AstraZeneca. In Japan, French Pharma would achieve a market share of 2.7% – and thus would rank behind several international companies including Pfizer, Merck and Novartis.

R&D

French Pharma had a combined pro-forma R&D budget of $4.4bn in 2002 of which an estimated $4.1bn was directed towards ethical drug R&D. Only Pfizer has a higher annual R&D budget ($4.8bn in 2002). Key products approaching the market from Aventis’ portfolio include the respiratory steroid Alvesco and the anticancer agent Genasense.

Conclusion

The merger of Sanofi-Synthelabo and Aventis would create a company of sufficient critical mass to compete on a global basis against the current leading US and European companies such as Pfizer and GSK. The portfolio would include a number of blockbuster brands while synergies are particularly compelling in the cardiovascular and oncology sectors. French Pharma would lead the European market; however the main issue facing the merged company would be to improve its position in the key US market.