As big pharma looks to sustain growth as big-selling drugs go off-patent, Sanofi-Aventis and Merck & Co have said they are combining their animal health units in a move that will create a global leader in that field.

A 50/50 joint venture will see the French drugmaker combine its Merial unit with Merck's Intervet/Schering Plough business. Sanofi will make a “true-up” payment of $250 million to Merck to establish the JV, plus $750 million under the terms of an agreement signed in July last year when the Paris-headquartered company bought Merck's stake in Merial for $4 billion. The latter agreed to that sale to speed up the approval process for its acquisition of S-P.

The companies noted that the worldwide animal health market reached $19 billion in 2008, with pets accounted for 40% and production animals making up the remaining 60%. This sector is expected to grow at around 5% per year over the next five years.

Sanofi chief executive Chris Viehbacher said the transaction “represents another consistent milestone in our diversification strategy to bring sustainable growth” to the firm. His counterpart at Merck, Richard Clark, added that the JV will create “ one of the broadest portfolios of animal health products and services in pharmaceuticals and biologics for millions of customers”, noting that the link-up will have “an attractive geographical network of global technology and expertise”.

In its current shape, observers believe the JV would have an estimated 29% market share compared with Pfizer's 20%, with combined sales of $5.3 billion and staff of some 13,600. However the link-up will be closely looked at by competition regulators and Merck and Sanofi may have to divest certain businesses. The agreement is expected to close in the next 12 months.

Meantime, Eli Lilly’s Elanco unit is to buy the European rights to a number of animal health products from Pfizer in a deal which also gives it a manufacturing facility in Sligo, Ireland..The deal is part of Pfizer’s commitments made to antitrust regulators before it acquired Wyeth for $68 billion last year.

Financial details were not disclosed