Sanofi sees Shantha Biotech's Shan5 back in 2014

When Sanofi ($SNY) bought an 80% stake in Indian vaccinemaker Shantha Biotech in 2009, the talk was of the deal accelerating growth in emerging markets. Things played out a little differently though. Within 9 months of the deal, Shantha ran into quality-control problems from which it has yet to recover.

Failure to address the problems to the satisfaction of the World Health Organization cost Shantha a $340 million contract to supply a pentavalent vaccine, Shan5. Three years have passed since the WHO decision and--while Sanofi has replaced the CEO and had its people help improve the plant--the recovery is still incomplete. Sanofi has long targeted a 2013 return for Shan5, but this goal now looks likely to slip.

Shantha CEO Harish Iyer expects a Shan5 clinical trial to take up most of 2013, after which the company will seek government approval and finally WHO prequalification. "We are hoping to achieve all this by March next year. We have already filed the dossier for the manufacturing part and expect WHO and DCGI [Drugs Controller General of India] to audit us sometime this year," Iyer told the Financial Chronicle. One year ago, Shantha was talking itself up as a contender for the UNICEF 2013-2015 contract.

Meaningful revenues from Shan5 are now expected in 2014. The return of Shan5 is viewed as a transformational event by Shantha, with Iyer predicting that total company sales will increase fivefold. Iyers expects Shantha to bring in around $18.5 million this year. The WHO deal Shantha lost because of quality control was worth 6 times more over each of the three years it was due to run. Winning such a deal would be enough for Iyer's prediction of a fivefold increase in sales to come true and begin to justify why Sanofi reportedly fought with GlaxoSmithKline ($GSK) to buy a stake in Shantha--which valued the firm at $783 million--four years ago.

- here's the Financial Chronicle interview