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Sanofi-aventis outlines R&D changes, eyes acquisitions
PARIS—Reporting a nearly 14 percent profit in the fourth quarter of 2008, Sanofi-aventis recently outlined several new initiatives aimed at growing its R&D division, namely focusing on key technologies and diseases, putting new leadership in place and pursuing acquisitions.
While the company seems unlikely to pursue the latter on the same scale as Pfizer's recent Wyeth merger, Sanofi immediately acted upon its stated goal last week when it secured the majority it needs for its takeover bid for Czech generics firm Zentiva, offering 1,150 crowns per Zentiva share, valuing the firm at 43.9 billion crowns, or $1.93 billion. The acquisition is expected to take Sanofi deeper into the field of generics, an investment CEO Chris Viehbacher identified as a growth strategy for the company, particularly outside of the United States.
Two months into his time at the company, Viehbacher said Sanofi will pursue what he considers "small acquisitions"—those valued at as much as €5 billion, and mid-size acquisitions valued at as much as €15 billion to "develop new growth platforms in light of the important challenges of patent expirations and declining R&D productivity facing the pharmaceutical industry." During Sanofi's quarterly earnings presentation earlier this month, Viehbacher said he would like as many as half of Sanofi's drugs in development to eventually come from outside companies. Currently, about 10 percent of Sanofi's drugs come from outside partners.
"Becoming too big has hurt our R&D capability," Viehbacher, who ran GlaxoSmithKline plc's North American unit for eight years, told analysts on a conference call. "I've been there, done that on big pharma transactions. I'm not keen to revisit that experience." Although he said Sanofi will be "disciplined" on acquisitions, he added, "I am not very hot for big deals, but you can never say never. Ten weeks in the job, I don't see a reason to take any strategic options off the table."
Sanofi has also launched a full review of the 65 products in its R&D portfolio to "reassess the allocation of resources and distribute them to the projects with the highest potential in the currently prevailing health care environment," the company said. Based on an initial evaluation, Sanofi has already discontinued a number of projects due to an unsatisfactory benefit/risk ratio or inadequate additional clinical benefit, or because of an expected sub-optimal return on investment. The review is expected to be complete in April.
In addition, Sanofi said it has restructured its R&D decision-making process, creating two new positions: chief medical officer, who will monitor the balance between benefit and risk in both marketed products and those in development; and the position of scientific advisor, who will oversee the creation of partnerships. Viehbacher promoted Chief Financial Officer Laurence Debroux to the new post of chief strategic officer and said the company would name a new chief financial officer in the next few weeks. He also announced the hiring of Elias Zerhouni, former director of the National Institutes of Health, to serve as his scientific adviser, and Marc Cluzel as head of Sanofi R&D.
"Sanofi-aventis has core strengths in the field of healthcare: a global presence, market leadership in vaccines, major biological products and a strong and long-established presence in emerging markets, not to mention a track record of adapting cost structures and a solid financial situation," the company stated. "But although these are solid foundations, our response to these challenges is an ambitious one: to deliver sustainable growth, we need to transform ourselves into a diversified global healthcare leader. This is why we have initiated a wide-ranging transformation program."
Sanofi said its fourth-quarter 2008 profit dropped, mainly on charges for the discontinuation of two developing cancer drugs. Without those costs, the company said its profit jumped 13.9 percent to €1.63 billion. The company said it expects to see at least 7 percent growth in adjusted earnings per share in 2009.
Sanofi shares jumped as investors and analysts gave the company's results and restructuring plan a thumbs-up. On the news, the stock gained $2.12, or 7.5 percent, to $30.43 in afternoon trading. Shares have traded between $23.95 and $39.70 over the last 52 weeks.
Carol Matlack, BusinessWeek's Paris bureau chief, pointed out that Sanofi has been a major victim of the blockbuster race and faces patent expirations of several of its best-selling drugs, but added that the company's finances "look fairly solid."
"It spent lavishly to develop an obesity-reduction drug, Acomplia, only to have it blocked by U.S. regulators and pulled from the European market last year after patients in trials suffered psychiatric side effects, including a few suicides. And while Sanofi reaped rich profits for years from the sale of a blockbuster, blood-thinner Plavix, its patent will soon expire," Matlack noted, but added, "for 2008, it posted earnings of $9.3 billion from continuing operations—ahead of market expectations—with a total $35.6 billion in sales. It probably won't be the kind of champion the French envisioned, but Sanofi-aventis still could emerge a winner."