Sanofi Aventis to acquire Shantha Biotech, deal valued at 550mn euros

Sanofi Aventis is acquiring the 80% stake that Merieux Alliance held in Indian vaccine company Shantha Biotech. The Hyderabad-based 90mn euro (Rs 620 crore) turnover company makes vaccines and its flagship product, a hepatitis-B vaccine Shanvac-B brought it fame. The company says this is India’s first WHO-Geneva pre-qualified vaccine. It also makes other vaccines including those used in inoculation of infants.

But its real potential is what is going on its R&D facilities. Shantha says that it ploughs back nearly 25% of sales into R&D. Infectious diseases and oncology are its two focus areas and among products, it is targeting vaccines, therapeutic proteins (proteins made in a lab for medical use) and therapeutic monoclonals (used for treating cancer). These are key therapeutic areas for global pharmaceutical companies in search for the next winning drug.

Deal Structure

  • Merieux Alliance is a French company which calls itself a ‘bioindustrial company dedicated to public health’. It operates in the areas of early detection and prevention of infections, clinical diagnosis and prognosis, immunotherapy and clinical follow-up. It had a turnover of 1.3bn euros (Rs 8,900 crore) in 2008.
  • Merieux Alliance had taken a 60% stake in Shantha in 2006 and then hiked it to 80% in subsequent years. The stake is held through a French subsidiary ShanH which owns the stake in Shantha.
  • Sanofi-Pasteur, the vaccines division of the Sanofi group, will be the operating division for the acquisition. Alan Merieux, the chairman of Merieux Alliance, will chair the board of ShanH and a new joint committee will be chaired by him to advice on a vaccine strategy for emerging markets. Sanofi Pasteur will support Shantha in its bid to make affordable vaccines for the international markets.
  • Dr Varaprasad Reddy, founder and managing director, will continue to head Shantha Biotech, a big vote of confidence for his abilities to run this company, even with ownership changing hands between large multinationals.

Shantha Biotech’s is growing rapidly. The company had a turnover of 23mn euros in 2008 which is now expected to grow four-fold to 90mn euros. That explains why Sanofi is willing to acquire the company at a valuation of 6 times its 2009 turnover. While an 80% stake translates to 440mn euros (Rs 3,018 crore), it will be adjusted for the debt that is already on Shantha’s books. Hence, the actual consideration payable by Sanofi may be lower.

Key comments from top executives
Christopher A. Viehbacher, CEO, Sanofi-aventis, said: “The state-of-the-art manufacturing facilities allow Sanofi Pasteur to gain high quality capacity in order to enable us to provide important vaccines at affordable prices to many people around the world.” That seems to indicate that Sanofi may use Shantha’s facilities to produce vaccines too.

Alan Merieux, chairman, Merieux Alliance, speaking about Shantha: “We have in particular refocused its activity on vaccines and strengthened its range of products, especially by successfully launching a pentavalent pediatric vaccine as well as a Cholera vaccine. We have built up a portfolio of new products which are today in development: Rotavirus vaccine, Conjugated Typhoid vaccine, and HPV vaccine.”

The acquisition by Sanofi catapults Shantha into the big league. The acquisition by Merieux has already done it a lot of good. Why Merieux decided to sell it is not spelt out. Perhaps, the price had some role to play in it. But the complementary strengths of both companies should come handy in seeing that at least some of the products from Shantha’s research pipeline make it to the market. That alone will be enough for Sanofi to more than recoup the handsome consideration it is paying to acquire this company.

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