The investment community is speculating that sanofi-aventis is interested in making a US-based acquisition, according to a July 2 Bloomberg News article, with possible acquisition targets being Allergan (Irvine, CA), Biogen Idec (Cambridge, MA), or Genzyme (Cambridge, MA). In a July 4 Wall Street Journal article, sanofi-aventis would not confirm such plans, stating that it does not respond to speculation. Only time will tell if such reports are accurate as information becomes available, but as the waiting game begins, would an acquisition be a good move for sanofi aventis?

The Bloomberg report indicated that sanofi aventis is in the early stages of considering an acquisition of roughly $20 billion or so. The speculated targets of Allergan, Biogen Idec, or Genzyme have product portfolios that are aligned with industry projections of strong growth, namely for specialty drugs and biopharmaceuticals. The market for specialty pharmaceuticals, defined as a class of medications used to treat complex, chronic conditions, comprised 21% of the US market by value in 2009 and increased 7.5% in 2009, according to IMS Health. IMS projects annual growth of more than 10% through 2014 for drugs to treat oncology, diabetes, multiple sclerosis, and HIV. Industry estimates place biopharmaceutical growth in the double digits. This growth compares with near-term estimates of only a 4–7% gain for the global prescription drug market as a whole, according to IMS.

Allergan, a specialty pharmaceutical company that makes eye-care treatments and Botox, had 2009 sales of $4.5 billion, of which $3.6 billion were in specialty pharmaceuticals. Sales of its specialty pharmaceutical sales increased 5.1% in 2009 compared with 2008. Biogen Idec, which announced the appointment of a new CEO this week, is dependent on three major drugs: two drugs to treat multiple sclerosis, Avonex (2009 sales of $2.3 billion) and Tysabri (2009 sales of $776 million), and Rituxan, used to treat non-Hodgkin’s lymphoma and rheumatoid arthritis, and which netted Biogen Idec 2009 sales of $1.1 billion as part of a codevelopment deal with Roche. Genzyme reported 2009 revenues of $4.5 billion, but has experienced recent manufacturing and revenue problems for some of its key products. The company reported first-quarter 2010 revenue of $1.07 billion compared with $1.15 billion in the same period in 2009, reflecting limited shipments of Cerezyme (imiglucerase for injection) and Fabrazyme (agalsidase beta) due to product-supply constraints. The company’s first-quarter net loss (based on generally accepted accounting principles) was $114.9 million compared with net income of $195.5 million in the first quarter of 2009.

If sanofi-aventis decides to purse one of these companies or another company, it will join the list of pharmaceutical companies trying to increase revenues through acquisitions. Although not at the scale of the mega-mergers in 2009 (Pfizer-Wyeth, Merck-Schering-Plough, and Roche-Genentech), an acquisition of $20-billion or so would be greater than another recent mid-sized acquisition: that of Solvay Pharmaceuticals by Abbott for EUR 4.5 billion ($6.2 billion), a deal that was completed earlier this year.

A recent analysis by Datamonitor shows how crucial acquisitions have been and will continue to be to Big Pharma as it struggles to increase revenues through organic growth, which has been hurt by fewer and lower-valued new product introductions and increased generic-drug competition. In 1995, sales from Big Pharma were $84 billion, and based on organic growth only, would be forecast to increase to $195 billion by 2014 (an absolute increase of $111 billion). However, the contribution of merger and acquisition (M&A) activity is forecast to lift 2014 sales to $381 billion, augmenting sales by an additional $186 billion. Thus, as a proportion of absolute growth over the period 1995–2014, M&A activity is forecast to account for approximately 63% of revenue growth for Big Pharma companies.

So the conjecture that another Big Pharma company is evaluating its options for another deal is not surprising. But it will be interesting to see what the next marriage in Big Pharma M&A will be.