Sanofi Goes East to Find Growth

There must be something about Eastern Europe that gets drugmakers excited. Last week, Sanofi-Aventis (NYSE: SNY  ) announced that it has outbid a rival for Czech generic-drug maker Zentiva.

A Dutch financial group had already made an offer to purchase the company, but Sanofi, already a large Zentiva shareholder, has so far trumped this bid with its $2.6 billion offer for Zentiva.

Sanofi's potential purchase of Zentiva would significantly expand its generic-drug operations. Other top pharmaceutical firms like Novartis (NYSE: NVS  ) have extensive generic-drug operations as well, and if Sanofi can snag Zentiva, it could better compete against these rivals, as well as the other, more traditional generic-drug manufacturers.

With billions of dollars in patented drugs losing their marketing exclusivity in the coming years, generic-drug makers operating in the right part of the world can sometimes be hot commodities. Zentiva, for instance, isn't the only Eastern European drugmaker to get caught up in a bidding war in recent years. In 2006, Barr Pharmaceuticals (NYSE: BRL  ) won a lengthy bidding contest for Croatia-based Pliva.

Last year, Zentiva had sales of nearly $1.1 billion at current exchange rates. Much of Zentiva's operations are located in fast-growing Eastern European countries like Poland and Hungary, as well as places outside of the European Union, such as Turkey.

Sanofi's bid currently bests PPF's rival Zentiva offer by 10.5%, although there are no indications that the bidding war is necessarily over. While the generic-drug business is generally thought of as a low-margin, ultra-competitive environment, there is still a lot of room to compete geographically. As Eastern Europe's economies expand, they have been a strong growth provider for generic-drug makers. Sanofi seems to have noticed.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has an A+ disclosure policy.


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