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Sanofi's Pipeline Math Adds Up With Chattem

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The deal will give the French drugmaker a new way into the US.

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French drugmaker Sanofi-Aventis is trying to end the year on a positive note as it flushes out some of the garbage from its pipeline and clears the way for a new stream of revenue.

Sanofi-Aventis (SNY) announced Monday morning that it's acquiring Chattem (CHTT), a Chattanooga, Tennessee-based consumer health-care manufacturer, for $1.9 billion, or $93.50 per share in an all-cash deal. The price represents a 34% premium over Chattem's closing price on Friday, and shares jumped by nearly that much in morning trading to reflect the news.

The alliance of the two brands will create the fifth-largest consumer health-care brand in the world, adding to the strong presence Sanofi already has in the sector. The French drugmaker commands $2 billion in over-the-counter sales worldwide, but has failed to take a strong grasp on the US market; the acquisition of Chattem will instantly give it that access.

"The acquisition of Chattem will be a significant milestone in Sanofi-Aventis' transformation strategy and will provide us with the ideal platform in the US consumer health-care market, which represents 25% of the current worldwide opportunity," said Sanofi Chief Executive Christopher A. Viehbacher. "In addition, we believe our ability to convert prescription medicines to OTC products will be enhanced by Chattem's leading sales, marketing, and distribution channels."

Chattem has a 130-year history and currently makes brands like IcyHot, Cortizone-10, Gold Bond, and Selsun Blue. The consumer health-care company had revenues of $455 million in 2008.

Keeping in the holiday spirit, Sanofi said that it won't close either of Chattem's current manufacturing facilities and will continue construction on the third. It also will maintain the current management team and brand when the deal closes in the first quarter of 2010.

Sanofi, along with other major pharmaceutical manufacturers, has been trying to diversify its business model as it faces a wave of patent expirations for its blockbuster drugs in coming years.

Monday was a busy day for Sanofi -- in addition to the deal with Chattem, it also gave investors a very thorough update of its pipeline.

Sanofi's DuoPlavin, a heart treatment, has received a positive recommendation from a panel within the European Medicines Agency for marketing authorization in Europe. The drug combines two already widely used treatments and allows patients an easier dosing schedule with fewer pills.

In the US, the FDA has fast-tracked Sanofi's New Drug Application for its prostate cancer treatment cabazitaxel. The drug has been granted a rolling submission, allowing the company to submit parts of the application as they're finished.

But the good news stopped there. The company also said Monday that it's discontinuing the development of two drugs because the research has failed to show any promising results.

"Sanofi-Aventis is doing what it should be doing -- going through the R&D pipeline and dropping unprofitable and non-promising projects," said Kepler Capital Markets analyst Tero Weckroth to the UK's Guardian website.

Sanofi stopped development on its insomnia drug eplivanserin after the FDA issued a complete response letter concerning the drug to the company in September 2009. The contents of these types of letters aren't usually made public, but often indicate that the company requires more evidence of the safety and efficacy of a drug before it can be considered for approval by the regulatory board.

The company also abandoned the development of idrabiotaparinux, a treatment designed to treat blood clots in patients with abnormal heart rhythms. "Considering recent therapeutic advances in this field, this compound does not appear able to bring significant improvement in the care of these patients," said the company in a statement.
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