French pharma giant Sanofi ( SNY ) recently announced that it has completed the divestiture of Dermik, its dermatology business, to Valeant Pharmaceuticals International Inc . ( VRX ) for a total cash consideration of $422.5 million.
Dermik enjoys significant market share in the dermatology markets of the US and Canada. The Dermik unit includes therapeutic and aesthetic brands such as BenzaClin for treating acne; Carac for treating keratoses and Sculptra for combating facial wrinkles and folds. Sanofi's Dermik divestiture includes the sale of Dermik's manufacturing facility in Canada. For the year 2011, the Dermik unit is expected to generate sales exceeding $200 million.
Sanofi decided to divest its dermatology business in order to concentrate on its growth platforms. Currently, Sanofi boasts of six growth platforms - emerging markets, diabetes, vaccines, consumer health care, innovative products, animal health apart from Genzyme, which was acquired by Sanofi in February this year. Growth platforms and Genzyme are expected to generate sales above €22 billion in 2011. Moreover, they are expected to account for more than 80% of Sanofi's sales in 2015.
We currently have a Neutral recommendation on Sanofi. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We expect 2012 earnings to be hit by the loss of US exclusivity on Plavix and Avapro. While new product launches should make significant revenue contributions in the early part of the decade, we expect Sanofi to continue to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products. We also expect the company to grow through partnering deals and acquisitions.