Sanofi-Aventis (SNY), the world's fourth-largest drugmaker, is likely to buy Fovea Pharmaceuticals for E370 million. Sanofi's American Depositary Receipt (ADR) is currently trading at the high end of its 52 week range. How is the company positioned to benefit from the current industry trends?

Short term - Swine flu

Recently, Sanofi Pasteur, the vaccines division of the group, received an additional order from the U.S. Department of Health and Human Services (HHS) to produce vaccine to help protect against the Influenza A (H1N1) 2009 virus. The new order is for the production of bulk antigen equivalent to 27.3 million doses based on 15 mcg of antigen per dose. To date, Sanofi Pasteur has committed to the U.S. government a total of 75.3 million doses of Influenza A (H1N1) 2009 Monovalent Vaccine. Sanofi Pasteur produces approximately 40% of the influenza vaccines distributed worldwide and more than 45% of the influenza vaccines distributed in the U.S. for the 2008-2009 influenza season.

Long term

Animal health

Sanofi-Aventis SA has completed its $4 billion purchase of Merck&Co.'s half interest in their veterinary medicine business, Merial Ltd. Sanofi-Aventis acquisition values Merial three times its 2008 sales and 10.2 times its Ebit, or earnings before interest and taxes. Merial sales were $2.6 billion in 2008. This purchase should add 3% to 4% growth of adjusted earnings per share, excluding selected items, in 2014.

Merial, a joint venture founded in 1997, sells two widely used pet medicines, flea-and-tick blocker Frontline and chewable heartworm preventer Heartgard. It also sells Ivomec, which kills parasites in hogs and cattle, and other medicines and vaccines for livestock. Sanofi-Aventis retains an option to buy Schering-Plough's animal health business after the combination of Merck and Schering-Plough is completed, although any such deal is subject to regulatory approvals.

Merial ranked third last year in global animal health sales, with a market share of nearly 14%. Schering-Plough's Intervet animal health business was just ahead of that, with almost $3 billion in revenue last year. A combined Merial-Intervet would be 50% owned by Sanofi, and form the largest global animal health company.

Animal health is a much steadier business than the human pharmaceuticals business these days. Moreover, animal products tend to have very nice margins, due to high brand loyalty and low threat of generic competition.

Vaccines markets

Vaccines market is one of the main growth areas for Sanofi-Aventis. According to Sanofi CEO Chris Viehbacher, their vaccines business will double over the next five years without any acquisitions reaching E5 billion ($7.3 billion). This forecast excludes contributions from the recently acquired Indian vaccines maker Shantha, which is developing vaccines for rotavirus, polio and the human papillomavirus that causes cervical cancer. Sanofi's recent acquisition of U.S. biotech BiPar will help renew its presence in oncology through a promising breast cancer drug in development. The company is also in plans to acquire more cancer drugs which should help it offset major patent expirations of Taxotere cancer drug and Plavix blood-clot treatment over the next few years.

Another huge unmet need Sanofi is looking to address in emerging markets is Dengue fever, a mosquito-transmitted viral disease pervasive in the southern hemisphere but one that has reached up to Florida and Texas. Sanofi could begin making regulatory submissions for the Dengue vaccine between 2012 and 2014.

The vaccine business is not as vulnerable to patent expirations as traditional pills. It also does not face the same kind of competition, despite recent moves by other pharmaceutical companies to break into the market.

Road ahead

If the company's initiatives regarding Merial-Intervet and vaccine portfolio expansion materialize as planned, then there should not be any problem in profitable growth in the next few years.