Sanofi-Aventis agrees to buy US healthcare company Chattem for $1.9 billion
By APMonday, December 21, 2009
Sanofi-Aventis to buy Chattem for $1.9B
TRENTON, N.J. — French drugmaker Sanofi-Aventis SA said Monday it plans to buy U.S. health-care company Chattem Inc., maker of over-the-counter mainstays like Gold Bond skin products, for $1.9 billion in cash.
The deal also gives Sanofi-Aventis a distribution base for its popular allergy drug Allegra, which is awaiting approval to switch from prescription-only to an over-the-counter version, and for future switches of other drugs approaching the end of their patents.
Paris-based Sanofi-Aventis said it will offer $93.50 per share — 44 percent more than Chattem’s average price over the past six months. The Chattanooga, Tenn., company makes two dozen consumer health care products, including Icy Hot pain relief medicine and Selsun Blue shampoo.
Chattem shares skyrocketed on the news, jumping $22.89, or 33 percent, to $92.87 in morning trading. In New York trading, Sanofi-Aventis shares edged up 26 cents to $39.37.
“Chattem is the ideal entry for us in this market,” Sanofi Chief Executive Chris Viehbacher told reporters during a conference call.
Chattem ranks among the top 10 U.S. consumer health companies but sells little in other countries. But it has the highest operating profit margin in the business at nearly 35 percent, far better than the 20 percent or below at what Viehbacher called “the big boys,” Procter & Gamble and Johnson & Johnson Consumer Health Care.
Sanofi-Aventis is the world’s top maker of vaccines and fifth-biggest prescription drugmaker by revenue, with blockbusters including blood thinners Plavix and Lovenox and Lantus insulin. Sanofi said the deal would make it the world’s fifth-largest consumer health care company, up from sixth. With Chattem’s $455 million in annual revenue, that business would have nearly $2.5 billion in sales.
Sanofi’s over-the-counter business is all outside the U.S., which is a $20 billion-a-year market, a fourth of global total. It’s also a market that’s growing at a time when Sanofi-Aventis and other top drugmakers face looming patent expirations that will slash revenue from many top products.
Rolling out nonprescription versions is a popular move in the pharmaceutical industry for drugs going off patent, meant to hang onto loyal customers rather than have them defect to rivals’ generic copies.
Allegra posted sales of nearly $1 billion last year, but only the 24-hour version still has patent protection.
Viehbacher said Chattem has an excellent sales and marketing operation, which will handle U.S. sales of Allegra after the acquisition.
Sanofi-Aventis also plans to start selling some of Chattem’s products in other countries, particularly in Latin America, where Sanofi bought two major generic drugmakers this spring, and in Asia.
“Most of the initial benefit will come from taking Chattem and expanding into other markets,” Viehbacher said, saying the U.S. launch of Sanofi-Aventis brands, generally unknown here, would be prohibitively costly.
Down the road, Sanofi-Aventis foresees switching some other drugs to nonprescription versions. Viehbacher cited allergy spray Nasacort, acne treatment BenzaClin and Penlac for fungal nail infections.
Usually sold at a lower strength, over-the-counter drugs provide steady revenue that can approach $1 billion a year — the bar for blockbuster status of prescription drugs. Among recent successful switches are allergy drugs Zyrtec and Claritin and heartburn drugs Zantac and Prilosec.
“There’s a huge appetite for switch like this,” Viehbacher said, adding several major players had courted his company for the rights to handle switching of Allegra.
Sanofi-Aventis instead decided to buy Chattem and let its managers, who are all staying on, handle the switch.
The company plans to launch its public tender offer for Chattem in January, and it expects to complete the acquisition in the first quarter of 2010. The deal should boost profit that year.
Sanofi-Aventis said it would maintain both of Chattem’s manufacturing plants in Chattanooga and will continue construction on a third.
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