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UPDATE: Sanofi-aventis pulls out of merger talks with BMS

Merger talks between sanofi-aventis and Bristol-Myers Squibb (BMS) to create the world's largest pharmaceutical company have broken down

Merger talks between top French pharmaceutical company, sanofi-aventis, and US-headquartered Bristol-Myers Squibb (BMS) to create the world's largest pharmaceutical company have broken down following disagreements over valuations and legal disputes, according to media reports.

UK newspaper, The Times, revealed that sanofi-aventis was not comfortable with the valuation of BMS, which analysts had predicted would cost the French pharma giant EUR 49.2 billion (USD 64.3 billion). The acquisition would have created a drug company with a market value of EUR 133.4 billion (USD 175 billion) and revenues of EUR 42.7 billion (USD 56 billion), outperforming market leader Pfizer.

Negotiations between the companies were complicated further by a court case over sanofi-aventis' top-selling drug Plavix (clopidogrel), which it co-markets with BMS in the US. Plavix is the highest-earning drug in sanofi-aventis' portfolio and is the world's second best-selling drug after Pfizer's Lipitor (atorvastatin). Total Plavix sales from both firms amounted to over EUR 4.6 billion (USD 6 billion) in FY06. Sanofi-aventis' sales of Plavix rose 11.2 per cent, resting at EUR 1.7 billion (USD 2.2 billion) for Q3 FY06. The growth was attributed to higher market penetration and an increase in the length of patient treatment.

For BMS, the sales picture was less positive, with an announcement at the end of January 2007 that it had lost EUR 102.1 million (USD 134 million) in Q4 FY06, as sales of Plavix fell, and the firm paid a one-time charge to settle investigations into pricing policies. BMS has said that generic Plavix will continue to affect the company's performance in FY07.

The acquisition of BMS would have given sanofi-aventis access to BMS' Stateside infrastructure and biologic markets -the company employs 7,700 R&D, corporate function and marketing staff in the US.

It had been suggested that a merger with BMS would improve sanofi-aventis' profits, as BMS' earnings are expected to grow three times faster than the French firms' over the next three years. The earnings hike would have come from BMS'autoimmune, inflammatory and oncology pipelines, with the imminent launches of rheumatoid arthritis drug, Orencia (abatacept) and non-Hodgkin's lymphoma drug, Sprycel (desatinib).

News that sanofi-aventis was interested in BMS prompted other companies to emerge as potential partners in a takeover deal, with AstraZeneca, Novartis and Schering-Plough seen as potential suitors.

BMS shares fell 3.6 per cent to USD 27.49 per share in afternoon trading on 12 February on the New York Stock Exchange. Shares had hit an earlier low of USD 26.85 per share.

In other news, the existing patent dispute over platelet anti-aggregant, Plavix (clopidogrel), which makes up a third of sanofi-aventis' earnings, remains unresolved. The company also lost a patent lawsuit regarding its biggest drug, the anticoagulant Lovenox (enoxaparin), although a generic copy has not emerged as yet. The US release data for the company's weight loss drug, Acomplia (rimonabant), which has potential sales of USD 3 billion, has been delayed again. These problems explain sanofi's 20 per cent discount relative to its peers, based on FY08 price/ earnings, especially now since merger talks have broken down.

15th February 2007

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