CEO Olivier Brandicourt’s latest shift in Sanofi’s direction comes in the sector his predecessor targeted, a planned swap of the firm’s Merial animal health business for most of Boehringer Ingelheim GMBH’s OTC drug and dietary supplement business.

The firms on Dec. 15 announced they are negotiating an exchange of the businesses, excluding Boehringer’s consumer product sales in China, and a €4.7bn ($5.2bn) payment from Boehringer to Sanofi. Merial has an enterprise value of $12.5bn and the consumer product business Boehringer is swapping has a value of $7.4bn, according to the firms’ release. [See Deal]

Sanofi intends to use a portion of the proceeds to repurchase shares and expects the transaction to be neutral for earnings per share in 2017 and accretive in subsequent years.

The French firm expects Boehringer’s products to improve its consumer health sales in Germany and Japan, where it has limited presence, and expand its sales in the US, across Europe and in Latin American markets.

Sanofi Adds Dulcolax, Zantac To US Lineup

The brands Sanofi would add to its consumer health lineup include two marketed in the US, Dulcolax (bisacodyl) constipation relief and Zantac (ranitidine) heartburn remedy. Dulcolax also is sold across Europe and in Australia, Mexico and South America

Boehringer also would swap to Sanofi these brands marketed outside the US:

Antistax red vine leaf extract supplement, gel and spray promoted for leg health; eastern and western Europe, Mexico, Brazil and the Philippines
Bisolvon herbal supplement with bromhexine, a synthetic derivative of vasicine, for cough and cold; eastern Europe and South America
Buscopan hyoscine butylbromide supplement for menstrual cramps; eastern and western Europe, Mexico, South America and Australia
Eve ibuprofen, allylisopropylacetylurea, and caffeine for the treatment of headaches and menstrual pain; Japan
Mucoangin ambroxol for sore throat; eastern Europe and Venezuela
Mucosolvan ambroxol cough suppressant; eastern and western Europe and Argentina
Pharmaton multivitamin and mineral supplements; eastern and western Europe, Mexico, South America and South Korea
Thomapyrin acetylsalicylic acid, paracetamol and caffeine pain reliever; Germany

The deal, expected to close in the 2016 fourth quarter if finalized, “would allow Sanofi to become the number one ranked player in” consumer health product sales, the firm says. With the Boehringer products, Sanofi says its pro forma consumer product sales would be around €5.1bn in 2015 and its global market share would be nearly 4.6%.

Privately held Boehringer, based in Ingelheim, Germany, said its consumer health business sales were $1.5bn in 2014, 11% of its net sales. Its top-selling consumer products were Buscopan, $240.5m, mainly in Europe and Latin America, and Dulcolax, $224m, led by US sales but also available in more than 40 other countries.

In a research note posted after the firms’ announcement, Leerink Partners LLC analyst Seamus Fernandez said swapping Merial for Boehringer’s consumer product assets is not the move “some might have hoped for,” but it “is likely to be a value-creating deal and validates CEO Brandicourt's leadership.”

Societe Generale analysts also noted the planned swap as confirmation for Brandicourt’s direction. They noted that Sanofi did not want Boehringer’s consumer business in China because OTC drugs and supplements marketed there compete with Chinese traditional medicines.

“Our first impression is that such a deal would make strategic sense as it would be entirely consistent with the message given by [Brandicourt] at his inaugural analysts meeting” in November, which is that “he wants to exit non-core businesses,” according to a Societe Generale research note.

Merial, which employs 6,600 people and operates in more than 150 countries, expects $2.7bn sales for 2015 from pet health brands including Frontline, Heartgard, NexGard and Purevax and from Vaxxitek, Eprinex, Ivomec, Longrange, Circovac and GastroGard in farm animal health.

Viehbacher Pointed Sanofi On Consumer Route

Brandicourt was appointed CEO after the sudden ouster of Christopher Viehbacher by Sanofi’s board in October 2014 following disappointing earnings in 2013 and after he clashed with the board over planned job cuts that had angered the French government Also see "Sanofi Board Forces Out CEO Chris Viehbacher Amid Lantus Woes" - Pink Sheet, 3 November, 2014..

From its proposed deal with Boehringer, Sanofi would add to its US consumer health offerings the Dulcolax constipation relief line, above, and Zantac heartburn remedy, below.

Viehbacher from the start at the helm in 2008 targeted growing Sanofi’s OTC drug and supplement sales to lead the consumer product space. The Paris-based firm made significant progress in consumer health under Viehbacher, particularly with the 2010 acquisition of Chattem Inc. as a US OTC platform after making smaller deals to expand Sanofi’s European consumer business Also see "With $1.9 Bil. Bid For Chattem, Sanofi Knocks On Door To U.S. OTC Market" - HBW Insight, 4 January, 2010..

Sanofi’s first US move through Chattem was an Rx-to-OTC switch of its Allegra (fexofenadine) antihistamine line in 2011, and it made a first-in-class OTC switch in 2013, the intranasal corticosteroid Nasacort Allergy 24HR (triamcinolone) Also see "Sanofi’s Nasacort First-In-Class Switch Receives FDA Approval" - Pink Sheet, 11 October, 2013..

Brandicourt, a pharma industry veteran with nearly 30 years of experience and a physician by training, made his first operational changes as Sanofi chief in July by trimming the firm’s global business units from seven to five to heighten specialization and focus on growth drivers ([A#05150720010]).

Brandicourt has not indicated an interest in a consumer health move or in an asset swap and the planned Boehringer deal comes as a surprise, but it puts his stamp on Sanofi’s direction, Leerink’s Fernandez says.

“Executing a 1/1 swap with cash geared toward share repurchase is a strong first step toward his move to build leadership positions across key areas for” Sanofi, the analyst wrote.

Although some investors have looked for a spin-off or share exchange for Merial, they should “be pleased with Dr. Brandicourt's aggressive repositioning of the business” and “investors hoping for a share exchange will get some of what they may have hoped for,” Fernandez added. “On balance, we view this move as a likely more compelling option for driving long-term shareholder value with durable consumer brands,” he said.

Brandicourt moved to Sanofi from Bayer AG, where he was chairman of the board of management and a member of the executive council, and he previously was president and general manager of Pfizer Inc.'s emerging markets and established pharmaceuticals business units and also headed up Pfizer's specialty care and primary care operations.

Competition At The Top

While Viehbacher aimed Sanofi for the top of the consumer health expansion and the firm says the planned swap with Boehringer will put it there, other large pharmas are not ignoring OTC drugs and nutritional supplements as key growth drivers.

Indeed, the firm’s announcement caps a year of substantial consumer health moves by Bayer, GlaxoSmithKline PLC, Novartis AG and Perrigo Co. PLC.

Bayer closed early in 2015 on its $14.2bn acquisition of Merck & Co. Inc.’s consumer business announced in May 2014; GSK since May has headed GSK Consumer Healthcare LP, the consumer health product joint venture it and Novartis formed with an April 2014 agreement ([A#05150803008]).

Perrigo, meanwhile, has continued growing its dominant private label OTC market share while also adding branded consumer health products to its portfolio with three European deals. The Irish firm also fended off Mylan NV’s hostile takeover attempt during the year ([A#05151116014]).

Additionally, Johnson & Johnson continues returning its OTC brands to market after completing remediation of three of its McNeil Consumer Healthcare subsidiary’s manufacturing plants under a consent decree with FDA that followed the agency’s investigation of widespread problems ([A#05150907008]).

Sanofi Looks To Climb Consumer Ladder In Boehringer Business Swap

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