EuroBusinessMedia (EBM): Sanofi-aventis, one of the world’s largest diversified healthcare companies, reports its annual results for 2010. Chris Viehbacher, welcome.
Chris Viehbacher (CV): Good to be with you again Adrian.
EBM: You are the CEO of sanofi-aventis. What are your comments on the Group's financial results in 2010? And more generally, how did the transformation of the company progress in 2010?
CV: As expected, the company was affected by generic competition. This is the emergence of the so-called patent cliff that we have been predicting now for some time. I think what’s satisfying to see though is that the transformation is really taking root and starting to have a very positive impact on the company. So even though we face things like significant generic competition - over €2 billion of sales lost to generic competition – and of course even though we faced US healthcare reform and price cuts in Europe as Governments try to balance the books as a result of the economic crisis, sales only declined by less than 1%. So you’re seeing really two phenomena, on the one hand the erosion as a result of old products going off patent, but we’re seeing the growth platforms really becoming quite strong in the company. Over €16 billion is now related to these growth platforms and they grew at 12.5%. So if you like, over half of the company today is growing at double digit rates. Now, through that year of course we also managed to reduce our cost base and generate significant cash flow. So I think as a whole when I look at this company - yes, there are a lot of challenges -but this is a company that’s really facing up well to those challenges.
EBM: In 2010, did your cash generation and cost cutting efforts deliver in line with your expectations?
CV: Actually ahead of expectations on cost reduction. Two years ago we announced a major cost reduction programme to deliver €2 billion of cost savings by 2013. In the year just ended we accomplished about €1.3 billion and we would expect to actually complete the €2 billion cost reduction programme two years early, by the end of 2011. We pay also an awful lot of attention to cash flow and in fact we saw an increase in operating cash flow of 27% this year to €9 billion. And actually if we were to project that at the debt level we are now down to a debt level at the end of 2010 that is less than where we were at the end of 2008, despite the fact that we have paid over €6 billion in those two years in terms of dividends and we have invested €9bn in acquisitions. So it demonstrates the strong cash generative nature of this business and really our attention to working capital management and capital expenditure.
EBM: What is your progress report on one of your most important growth drivers, Emerging Markets? How would you compare yourself to your Pharma peers in those markets?
CV: Well, Emerging Markets really is becoming a strength of the company. Imagine a business; €9 billion, it’s growing at double digit rates, we’ve got close to 19 thousand reps, close to 40 thousand employees, there are 38 plants that can produce at lower cost, these are businesses where we have been for decades, so we have got depth of management, understanding of customers, we have a product portfolio that manages that. And what no other company in this industry can say, in 2010 we sold more in emerging markets than either of the US or Europe. So that gives us a nicely diversified base regionally, and I think really positions the company for growth long-term. Every business that you can talk about looks to emerging markets for growth and those companies that really have the strongest exposure, who have been able to create infrastructure, who have been able to create a strong presence, will really be able to benefit from that economic growth. So I think this is one of the strongest points of sanofi-aventis today.
EBM: Diabetes is a key area for you. What are the foreseeable evolutions of the competitive landscape, and what is your outlook for your Diabetes division in 2011 and beyond?
CV: Diabetes is clearly one of the biggest markets therapeutically today. Over a quarter of a billion people suffer from type 2 diabetes, unfortunately. We are extremely well positioned, there are really only going to be a couple of companies that are going to compete in this space. Our business was about €4.3bn, grew at 9% last year. Our core brand, which is Lantus®, is now the number 1 selling brand in the entire diabetes market place today. Clearly we are developing new products in this area; we have a new GLP1 called Lixisenatide, coming along. We are looking at a combination of Lixisenatide with Lantus®. So we are developing products for this market. The fact that we have such a strong global presence in emerging markets is also extremely important, because diabetes is a disease that is affecting pretty much every country on the planet. So I think sanofi-aventis is well positioned in diabetes – we have exhibited strong growth - and we are looking to an acceleration of that growth as we look towards the future.
EBM: 2010 -- a year which includes H1N1 vaccine revenue -- was indeed a solid year for your vaccines business. But how will your vaccines revenues in 2011 be impacted by the absence of H1N1 vaccines sales this year?
CV: We didn’t really see much impact on growth between 2009 and 2010, because sales of H1N1 vaccines were more or less the same in the two years, although on a quarterly basis we have to remind everybody that that’s not the case. We had very strong sales of H1N1 in the fourth quarter of 2009, which negatively impacts the comparator of the quarter that just finished in 2010. And we had very strong sales in the first quarter of 2010, which will have an impact on the comparator of the first quarter of 2011. But fortunately, in terms of public health, we don’t have any more pandemic and so we’re not expecting any sales on that front. What I think we did see though is a very strong performance of our seasonal flu vaccine and H1N1, although it had a different experience around the world, has clearly awakened people to the risks of pandemic and one of the best ways of fighting pandemic is to have the capacity to deal with that and you have the capacity to deal with that if you have a very strong programme of seasonal flu vaccine. So we have seen some very strong rates of seasonal flu vaccination in a number of countries and sanofi-aventis clearly benefited from that. As we look across the world, vaccines still represent a very strong opportunity. Vaccines are well developed in Europe and the US. There are strong programmes of childhood vaccinations in various countries, but given the potential in emerging markets, this is a business that has important strategic implications for sanofi-aventis. It’s going to be important that we have a low cost manufacturing facility and we have that with Shantha and we are working hard to bring that on line. Shantha also brought us a portfolio of new vaccines that will be very important to achieve the growth that we are looking for and we are also working as quickly as we can to bring those vaccines to market.
EBM: How did your Consumer Health Care division perform in 2010? And how hopeful are you for the upcoming launch of Allegra as an OTC brand in the US?
CV: Three years ago nobody would have even thought about sanofi-aventis in consumer health. So we have gone really from nowhere to a business that is doing €2.2 billion and growing at double digit rates. We started off the year in 2010 with no presence in the United States, no presence in China. We finished the year having finalised the Chattem acquisition, which give us a very strong consumer base in the US. We’ve been able to complement that now with the recent (OTC) approval for Allegra®, the most prescribed anti-histamine in the US. So we have the opportunity now to switch that business to OTC status before the season starts, so we’ll be launching that in the next few weeks. That’s a very exciting opportunity for us because, as head of one major pharmacy chains in the US, this is the most exciting OTC switch that we’re going to see over the next five years. Equally in China, we started off the year again with no presence. We completed a majority owned joint venture in consumer health and we also completed the acquisition of BMP Sunstone, so there again we’ve gone from nowhere to a fifth place in the over-the-counter market in China. So I think we’re building up this business – we are not a business with big global brands - but really the consumer health business is a local business and so we have very strong positions in Europe, very strong positions in Latin America and now were building good positions in Asia and the United States as well.
What are your comments on the launches of Jevtana® in the US and Multaq® in Europe? And what should we make of the recent Phase III results of Iniparib?
CV: So I think first we can say we are seeing green shoots coming out of research and development. We’ve got a long way to go yet on that, but we’ve got our first launches. Jevtana® exceeded the expectations; we sold over €80 million really with a launch just in the United States in late August. An important medicine showing a 30% survival rate in advanced prostate cancer. So I think from a patient point of view as well as from a financial point of view this is a very good proposition. Multaq® actually has gone extremely well, particularly in Europe. We have been able to launch Multaq® in all major European markets really within the first year following approval, so now we have Multaq® widely available throughout the world. We achieved sales of some €172 million in 2010, so we’ll continue to build on that and I think we are satisfied with the progress of Multaq®. On Iniparib (BSI-201) we had a setback. The Phase III studies did not come out as we had expected. Equally, as we have worked with experts to look at the results, we realise that actually patients in second and third line are having very similar results to the exciting results we saw in Phase II. So we believe that there is an active drug here. We know it’s a very well tolerated drug. We are continuing our studies in ovarian cancer and in lung cancer and we are going to continue to actually pursue this in triple-negative-breast cancer as well. It’s unfortunate, but it’s not uncommon in oncology studies that the first studies are not as successful as one would like, but we remain very much committed to Iniparib.
EBM: What is your situation update today on Merial, your Animal Health Care division, which is in the process of merging with Intervet?
CV: Merial-Intervet remains an extremely exciting opportunity for us. When you look at the macro trends in this world, an increasing population, the need to find food supply; as you see economies doing better in emerging markets, you see a trend to more pets and the merger of Merial and Intervet allows us to play not only in all of the major segments of the animal health market - so both pets as well as production animals - but also to have a very good geographic split. Emerging markets is equally important for animal health. And in fact Merial in 2010 had double digit growth of just over 10% in emerging markets. Overall, the business performed well, with a growth of about 2.5%. We were very happy to see that Frontline continued to progress, particularly in the US, despite the emergence of some first generics for this product. Frontline is the only billion dollar blockbuster in the animal health business and very important to this franchise. So we continued to progress our work with Merck to create a new joint venture, a new leader in animal health, and we would expect to be able to close that transaction sometime in the first half of 2011.
EBM: Genzyme has now allowed you to conduct due diligence. What would this deal potentially mean to sanofi-aventis, and what are the next steps?
CV: We’ve made some very good progress on Genzyme. We’ve been able to engage management in discussion to the extent that now we have signed a confidentiality agreement and we are doing due diligence as we speak. I think the transaction continues to be strategically very attractive for this company. It accelerates our move into biotechnology. I think the rare disease segment is an important segment in itself, because of the unmet need. But also because of the necessity to really understand the genetics of these diseases, which I think could have some transfer of knowledge to other sectors. Some people might say that if you follow personalised medicine to the extreme, every disease is going to be a rare disease. So I think there are some learnings we can gain out of that business. We believe that there are some significant synergies to be had as we combine the two businesses. Clearly if you take sanofi-aventis’ global footprint, our very strong presence in areas like oncology, we believe that this will be attractive both financially as well as strategically for sanofi-aventis.
EBM: And lastly, you will be facing more generic competition in 2011, as well as European austerity measures and American health care reforms that are likely to impact sales. In this context, what is your guidance for 2011?
CV: I think we are going to see a lot of the same trends continuing from 2010 to 2011. As you point out, we are going to see generic erosion pick up a little bit more. That’s something that we have been predicting now for the last two years. Equally, I think we are very confident in these growth platforms continuing to really drive an awful lot of the growth. The growth platforms which now represent over half of the business I think are really what sanofi-aventis is going to look like going forward. There are still some uncertainties, clearly about when we are going to see generic competition for Taxotere® and Lovenox® increasing in the US and of course the guidance assumes that we maintain Eloxatin® sales in the US for 2011. But on that basis and despite healthcare reforms in the US and Europe, we actually think we can hold business EPS to a decline at no more than 5 to 10% for 2011.
EBM: Chris Viehbacher, CEO of sanofi-aventis, thank you very much.
CV: Thank you Adrian.
