Sanofi explores cost-cutting 'options' for Merial

Sanofi CEO Olivier Brandicourt

Sanofi's ($SNY) animal health unit, Merial, has continued to turn in strong performance for the French drug giant, but it hasn't been all that synergistic with the company's other pursuits. So it was no surprise when rumors emerged in late September that Sanofi CEO Olivier Brandicourt may be weighing a spinoff of Merial, which makes a range of animal health products, including the flea-and-tick fighters Frontline and NexGard.

On Friday, Brandicourt confirmed during a presentation at Sanofi's Paris headquarters that the company is reviewing options for Merial, as it turns its attentions toward reviving its faltering diabetes franchise. The animal health unit "has successfully returned to strong growth over the past six quarters and is currently one of the most profitable companies in its sector," Sanofi said in a press release accompanying the presentation. "Nevertheless synergies are limited with other Sanofi businesses."

The news comes just one week after Sanofi reported that Merial's sales jumped 9% year over year in the third quarter to €607 million ($668.8 million), thanks largely to 14% growth in its companion-animal business. Strong demand for NexGard, which is a new chewable pill that fends off fleas and ticks in dogs, drove much of the growth.

Merial, which is one of Sanofi's 5 strategic business units that Brandicourt established earlier this year, has been investing in strengthening both its companion-animal line and its products for treating livestock. It recently introduced Avinew Neo, a poultry vaccine against Newcastle disease that is administered via an effervescent tablet, for example. And last year, Merial strengthened its equine offerings by buying two drugs from Bayer HealthCare.

Brandicourt didn't specify what options he considered to be most attractive for Merial, but selling the company to a rival is likely on the table. The M&A streak continues in animal health, with Zoetis ($ZTS) buying the aquaculture firm Pharmaq for $765 million earlier in the week. And several companies have been rumored to be on the lookout for animal-health assets, including Bayer, which reportedly missed a chance to buy Novartis ($NVS) Animal Health. That purchase was made by Eli Lilly ($LLY) for $5.4 billion.

Offloading Merial would allow Sanofi to pour more resources into its diabetes franchise while also boosting its efforts in cardiovascular medicine, vaccines, oncology and consumer healthcare. The company aims to cut $1.63 billion in expenses by 2018 so it can free up resources for R&D and acquisitions that will strengthen its core businesses.

"Consolidation has created a more competitive environment … and, at the same time, science has never been more exciting," Brandicourt told the Financial Times. "In this context, I am defining new priorities for Sanofi." The company is also exploring options for its European generics business.

As for Merial, its CEO, Carsten Hellmann, wasn't worried when he heard the buzz about a possible sale or spinoff, he told FierceAnimalHealth in September. "In the last couple of quarters, Merial has been doing very well," he said. "We're growing fast, and that's what I'm focusing on right now."

- get more at FiercePharma
- here's Sanofi's press release
- access the FT story here (reg. req.)
- read more at Bloomberg

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