By Mimosa Spencer
PARIS (Dow Jones) – French pharmaceuticals company Sanofi-Aventis (SAN.FR) Monday stepped up its move into consumer drugs by entering the U.S. market, acquiring Chattem Inc. (CHTT) for $1.9 billion.

Seeking to offset the impending loss of sales of older drugs with expiring patents, Sanofi-Aventis has been increasing its presence in the over-the-counter drugs market this year. In October, it bought French nutritional beauty supplement brand Oenobiol and it expects the entire unit to achieve sales of about EUR1.4 billion this year.

Sanofi’s consumer healthcare products, which include Maalox heartburn treatment and Doliprane pain reliever, last year made revenues of EUR1.42 billion, compared with group sales of EUR27.6 billion. Chattanooga, TENN.-based Chattem, maker of products like Icy Hot pain-relieving patches and gel and ACT mouthwash, posted revenues of $454.9 million in 2008.

The deal continues a trend of big pharmaceutical companies diversifying to reduce their dependence on branded prescription drugs, which have been hurt by generic competition and research setbacks. The drug makers have increasingly expanded into areas such as vaccines, over-the-counter medicines and generic drugs to provide more steady sources of cashflow and help guard against fluctuations in the prescription drugs business.

Sanofi Monday said it is discontinuing development of two products in late-phase development that could have become new prescription drugs.

Chattem has seen earnings and sales rise since it acquired several former Johnson & Johnson (JNJ) brands in 2007 for $410 million. The brands, including Kaopectate diarrhea treatment and Balmex diaper rash cream, were sold to satisfy antitrust regulators when Pfizer (PE) sold its consumer healthcare division to Johnson & Johnson. The deal is now seen as bad for Pfizer because it made it more reliant on branded prescription drugs, although the company partly remedied the situation when it acquired a large over-the-counter portfolio as part of its $68 billion acquisition of Wyeth.

Sanofi, which is already facing stiff generic competition to its Plavix heart drug and Eloxatin cancer drug, said the Chattem acquisition will propel it to become the world’s fifth-biggest over-the-counter drugs company by sales, from number six. It estimates the world market to be worth about $20 billion a year and executives said they expect the company to outpace the market’s expected annual 3% growth rate.

The French company said most of the benefits from the deal would come from expanding Chattem’s products outside the U.S. Chattem currently only has small operations in Europe and Canada.

Sanofi will also hand its Allegra antihistamine prescription drug to Chattem to be converted into an over-the-counter product.

Sanofi has offered $93.50 a share for Chattem, a 34% premium over Chattem’s closing price Friday. The tender will start in January and Sanofi expects to complete the transaction in the first quarter of 2010.

It expects the deal to be earnings accretive in the first year and the top Chattem managers will keep their jobs.

Sanofi wants to match 2008 sales in 2013, despite facing falling prescription drug sales as other key drug patents expire in the next few years.

As well as expanding into over-the-counter medicines and vaccines, Sanofi Chief Executive Christopher Viehbacher has said the company will look for partnerships and acquisitions to bolster its research and development pipeline for prescription drugs.

At 1530 GMT, Sanofi’s shares were trading up EUR0.18 or 0.3% at EUR54.88 in Paris, while Chattem shares were up 33% at $92.83 in New York.

- By Mimosa Spencer, Dow Jones Newswires; +33 1 40 17 17 73; mimosa.spencer@dowjones.com

(Peter Loftus contributed to this article.)

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