EuroBusiness Media (EBM): Sanofi-Aventis, one of the world’s largest diversified healthcare companies, reports earnings for its second-quarter. Chris Viehbacher, welcome. As the CEO of Sanofi-Aventis, what were your comments on the Group’s overall performance in Q2 2009?
Chris Viehbacher (CV): Well, we had a great quarter. Sales up 6.5% at constant exchange rate, which led to EPS growth of 17%. That was largely driven by our core products, Plavix and Lantus, and Taxotere. So we had very good growth with our core brands, but also very good growth in our core markets: clearly, the United States up, almost 5%. But we’ve talked an awful lot about emerging markets, and here we saw growth of close to 20%, in emerging markets. So, sales performance very strong, very tight control over costs, so we saw an increase in our margins, and that’s what allowed us to leverage the bottom line with a 17.5% increase. We had a very strong quarter in terms of performance, but we also made a lot of progress on transforming our company and building that vision for sustainable growth in 2013. The launch of Multaq and a number of acquisitions -- so a very satisfactory quarter.
EBM: At this point in time, you’ve now been on the job for eight months as CEO. Can you summarize the progress you’ve made in implementing your strategic vision over this amount of time?
CV: You know, when I started, most people thought about sanofi-aventis as, well, there’s Plavix, and there’s Acomplia… Plavix is going to go away, and Acomplia never came, and so, where’s the future of the company? The real objective, if you like, has been to say: the company is more than Plavix, the company is more than Acomplia, and we’ve got strong growth perspectives for 2013. Yes, we will lose major products like Plavix and Taxotere when generics arrive. But we also have a number of very core fundamental businesses that can double over the next five years: vaccines, our OTC business, Lantus, our emerging markets business, and of course, some new products, like Multaq which we’ve just launched in the United States. When we look at those businesses doubling over five years, we actually arrive at the same level of sales in 2013 as we achieved this year. So, if you like, we’ve been able to show that organic growth already is very powerful within the company. If you then take into account that we have €4 billion of free cash flow after dividends, we clearly have the means then to bolt on value-adding acquisitions that can lead to more growth. Now of course, the company is not managed in that way today, everybody is driving towards maximizing Plavix sales, and Taxotere sales, and that’s as it should be, and that’s why we had a great quarter. But we have to actually shift our focus, our competencies, our resources, to these new platforms of growth. And that’s why we launched a program in Transforming, that’s why we believe we’ve got confidence for the future. We could take some costs out of the business, so I think sanofi-aventis has got a very bright future.
EBM: The market has been eagerly awaiting for you to unveil today more details about your Transforming Program precisely. What can you now reveal to us? What will be the measurable contribution to earnings from the Transforming Program by 2013?
CV: There are a number of things that we could talk about in Transforming, in terms of metrics. Clearly, one is going to be the growth in our growth platforms. It’s obviously important to have an objective of doubling those businesses, but we clearly have to make that happen. A lot of the objectives that we’ve had are trying to really put the resources behind that. To give you an example of that, we’ve talked about our over-the-counter medicines business. Well, right now, that business is actually split up into a number of different countries. Yes, it’s €1.5 billion, but I don’t have anybody really looking at that business today. It’s not a division in its own right. Nobody’s looking at how I can take those products and launch them in other markets. Nobody’s looking at what other acquisitions I could do. Nobody’s really looking at lifecycle management. So we are starting to ‘divisionalize’ our business. We’ve made acquisitions in generics. Well, suddenly we go from a few launches per year to a hundred launches per year, because of course we are now in the entire pharmaceutical market. That requires us to be much quicker, much more responsive, have different regulatory affairs, different capacity and flexibility in our manufacturing processes. It’s one thing to say, hey, you’re going to be diversified in generics, but you actually have to make that happen, and that’s part of what we’ve been doing. Now, there are obviously some quantitative measures. As we try to change the model in research and development, which is obviously a key objective for us -- because innovation will always be at the heart of this company -- and as we look at moving our businesses, we are going to have some cost savings and we announced that we would be able to achieve at least €2 billion of cost savings between now and 2013.
EBM: The recent Lantus scare has created uncertainty in the market about its future sales. Are you still sticking to your initial target and guidance of doubling Lantus sales in the next 5 years? By the way, the CHMP (Committee for Human Medicinal Products) concluded last week that the available data does not provide a cause for concern and that changes to the prescribing advice are therefore not necessary. They also asked sanofi-aventis to develop a strategy for generation of further research in this area. What are the initiatives that you're developing?
CV: You know, any time something comes along with one of your medicines, our first priority is to think about how do we reassure patients, how do we make sure that we are confident in the safety of our product. So, immediately after these articles were published, we gathered a group of some of the world’s experts in diabetes and oncology and epidemiology together, to really understand what these studies were suggesting. And very quickly we realized that these were studies of poor quality and that really were making assertions around links of Lantus and cancer that were not at all justified. And then we had something extraordinary, where these experts decided that they would publish a declaration saying that these studies did not show any link. I’ve never seen that in my 20 years in the pharmaceutical industry. We also found it extremely important to work with regulatory agencies. We immediately had contact with regulatory agencies in Europe and the United States, informed them about the studies, informed them about the consultations we were having with the medical community. You saw an editorial published in The Lancet by an independent epidemiologist calling into question the methodology of the studies. That means that, actually, our assertion that we stand absolutely behind the safety of Lantus was not just our declaration, this was a declaration on the part of the medical community and on the part of the regulatory agencies. But we want to go that extra mile. We want to take the scientific high road. We are now working with the medical community in both Europe and the United States, to think about what good studies we could do. You know, there’s been a long history of wondering whether there were links between diabetes and cancer. Could we do studies that actually intelligently look at this question, in collaboration with the medical community, in full transparency, and in full consultation with regulatory agencies? So that’s what we are in the process of doing. We will be launching those studies in the third and fourth quarter of this year. The result, I think, of all of these declarations is that I don’t see anything that has any effect on the long-term potential of Lantus, so I’m sticking by our view that this will be an important medicine for patients and an important growth driver for sanofi-aventis.
EBM: As you mentioned earlier, Multaq has just recently been launched commercially in the US, paving the way for it to become your next big blockbuster. So now that the product has been commercialized and that this milestone has been crossed, is there anything you’d like to add today about the outlook for Multaq?
CV: First, this is an extremely important medicine for patients. This is the first new medicine approved for atrial fibrillation in over ten years. And you know, there’s nothing more fundamental to life than your heartbeat. And with atrial fibrillation you’ve got an irregular heartbeat. This can help so many patients. And the company actually did the outcome study that showed not only a benefit short-term, but over the longer term, we can reduce hospitalizations as a result of cardiovascular disease by 24%. That’s a real benefit for patients, but it’s also a real benefit for payers. So, we actually believe that this medicine has extremely important consequences and benefits for patients and for payers and will be an important growth driver for our company as well.
EBM: Beyond Multaq, which was developed in-house, you’ve already stated that future blockbusters may require you to open up your R&D to the outside world through partnerships, acquisitions or other efforts to drive R&D innovation. What are your next steps in this direction? And what are the next promising products that we should begin to turn our attention to?
CV: Well, first I think we’ve already put words into action, if you look at the first 6 months. We have made an acquisition of BiPar, which brings us an important new medicine in the treatment of triple-negative breast cancer, for which there is no treatment today, which was the star of the international Oncology conference (ASCO) this year, and which has just entered into Phase III. We also signed a relationship with Exelixis, with Kyowa Hakko Kirin, and with the Salk Institute. So we are already seeing that there is more of an openness to partnerships with other companies. Clearly, that’s something we want to continue. With our BiPar acquisition, we decided to keep the company independent. We didn’t want to, as we like to say sometimes, ‘sanofize’ the company. And we did that because this is a team that has been extremely effective at bringing this product from zero to Phase II. And we didn’t want to lose that momentum. But clearly, they can work very effectively with our team. So we’ve found a demand-driven integration, if you like, where they decide which parts of the sanofi-aventis organization they want to work with, to be able to speed the process without being, if you like, submerged by the size of a big pharma organization. Well, this has caught the attention of other companies. People like this model. People want to work with a big pharma, because big pharma, despite all of our criticism, we have an awful lot of legitimacy and competencies in a number of areas where biotechs really aren’t big enough to have. But they’ve always been afraid of being submerged by big pharma. So I think we’re finding a model that is extremely attractive to other companies, and I can tell you, we’ve got a pipeline of contacts that we’re looking at, and I would suggest that what we’ve done in the first 6 months is just the beginning. You’re going to see more of this going forward.
EBM: Now, concerning the H1N1 Virus, or 'Swine Flu' as it's called, where do you stand in your efforts to bring a vaccine to market? Do you think that you'll be able to cope with the demand? And are you currently signing major agreements with many different governments throughout the world, and do you expect more to come?
CV: I think, first of all, it‘s very clear that demand is going to outstrip supply for everybody in this market. So, yes, we are in discussion with over 30 countries; we‘ve had major orders obviously from the United States and France. But I think we shouldn‘t lose sight of the fact that this is a major public health issue. Our first concern has really been to work very closely with the WHO (World Health Organization) and with national public health institutions, because there are really decisions to be made as to whether we continue to make seasonal flue vaccine, both for the Northern hemisphere, but also in the Southern hemisphere, which is traditionally made in the autumn. And there‘s also going to be a question of who should get the vaccine, and I think it would be dangerous to say that only the richest countries should be able to get this vaccine. And that‘s why, when we talked with the Director General of the WHO, and she said "You know, there has to be solidarity, there has to be a common call for action," that we responded to by saying that not only would we provide a donation of 100 million doses of vaccine but to say, from the very first week of production, we would allocate 10% of our production to the WHO so that they had a supply of vaccines to provide to the countries who perhaps couldn‘t afford to have stockpiled this [vaccine]. So this is an extremely important public health issue. I think sanofi-aventis can play a major role in it, as the leading supplier of flue vaccine, and in it‘s one way we‘re very conscious of the need to work in full collaboration. We shouldn‘t look at this just as business; this is a real public health issue, and we want to play our part.
EBM: How much do you expect H1N1 vaccine sales to contribute to your earnings this year, and into next year?
CV: Well, first we have to remember, sanofi-aventis is the world leader in vaccines and, clearly, the world leader in flu vaccines. So, we have a very important role to play in H1N1. Now, we, like other companies, are working full tilt to produce as much H1N1 as we can. But we’ve also tried to make sure we respect our commitments to making, for example, seasonal flu vaccines for the Southern hemisphere. Now, exactly how much we can produce nobody really knows. We will get from global health organizations this week reagents which will tell us how much of a yield we’ll be able to have. That will give us a sense of how much we can produce and how fast. At the moment, we don’t think the H1N1 sales will necessarily be that significant this year, but a lot depends on those yields and how this turns out. Remember, when you sell to the government, you can’t just book the sale when you ship the vaccine. There is an acceptance process that can take 3 to 4 weeks. So, until we see more, we’re not really committing yet to exactly a forecast of how we’re going to sell. What I can tell you is that supply is not going to meet the full demand and, therefore, we have to continue to work with public health authorities to make sure that those who need this vaccine the most get that vaccine.
EBM: Speaking of vaccines, what is your strategic intent with the recent acquisition of Shantha Biotechnics? Could you expand on how you would like your vaccine business to evolve in the coming years? What are the growth levers?
CV: This was an extremely important acquisition for our company. If you think about countries that often have less than $500 per year per person to spend on health care, there is no better investment than in vaccines. Now, to be able to achieve that potential, you’ve got to have a portfolio of vaccines that are adapted to the infectious diseases that are prevalent in emerging markets, and also to have the production capacity. With the acquisition of Shantha, we enter into a partnership with a Group that has a world-class quality manufacturing facility in India, but, even more importantly, has a portfolio of new vaccines in things like rotavirus, in terms of cholera vaccines, we can probably create in a very short time a new hexavalent paediatric vaccine. So, this is very complementary to the portfolio of vaccines that we already have and will enable us -- with these manufacturing capabilities -- to really accelerate our growth in a market where the potential is enormous and where, actually, the healthcare benefit of vaccines is very significant as well. So, it’s very much consistent with the vision that we’ve created of a global health company.
EBM: You've stated that the target of 7% EPS growth is a floor target for this year. At the mid-year point today, are you in a situation to revise that guidance upwards?
CV: When you look at our results for the first-half of the year, clearly we’re at +13%. The business is robust. We’ve got very good trends. We’ve actually increased our guidance to around +10%. Again, that depends on how much H1N1 will factor in. We haven’t completely taken that into our guidance. At the same time, sanofi-aventis over the next 2 to 3 years is going to be subject to losing a few products to generics -- that’s all what we’ve forecast already -- and that will start to have an impact on our results as well. Nonetheless, we feel very confident in saying that we can achieve around +10% EPS growth at constant exchange rate for 2009.
EBM: Employees who are listening to you today are waiting for information about the next steps in the Transforming Program. Which activities will be affected? When? What do you want to say to people who are afraid or apprehensive about the changes?
CV: We’re going to have more information rolling out, not only just from me, because Transforming now has to be part of our business. And so, if you’re in Industrial Affairs, you should be hearing from your leaders in Industrial Affairs about what’s going to happen. And there is a communication program that will start again in September. The same is true for Research & Development. Now, in R&D we are probably making the most dramatic changes. We think those are necessary because, when you look at other companies in our sector, people have tweaked the model, they’ve made small changes, but it hasn’t really done anything. We have to completely change our mindset, our culture, give our own researchers the same opportunity and chance that biotech companies have. That is to say, we need to have less management and more research, we need to have the same ability to have flexibility, latitude, perhaps multi-year funding. We need to allow our researchers perhaps to take sabbaticals for a year every five years to refresh their knowledge, to build relationships with universities, with biotech companies. We need to really have a culture where we can work – particularly in early stages of discovery – between the worlds of academic research, biotechnology and our own teams. So, we’ll be implementing a different structure, one that’s more based around new medicines, around competencies. It’s not going to be the traditional triangular hierarchical model, but one which is much more empowering, which is more science-based, and we’ll be outlining that. We are, of course, trying to work with our social partners and do the full consultation, we need to respect that. And therefore the communication, if you like, has to follow that. So, you’ll see more about that in September. Pretty much everybody is looking at this in the company. Commercial operations – as we look at getting into new businesses, we need to think about what’s the model. When we bought Zentiva, for example, first question is: where does the generics business report to? Is it going to stay a separate division or is it going to be integrated in our countries? How do we make sure that what made Zentiva a success stays a success, and yet realize the full synergies with the company? That’s why we’re going through regional strategic exercises to say: where do we build upon the growth of our business? What new businesses can we acquire? What new businesses can we get into? Everything is designed around making this business a sustainably growing business in 2013, and we need to shift our resources, our focus, our competencies. What we don’t want to change are the values of the company. They have to be constant. And so, whatever we’re going to do and change, we’re going to do this right. We are fortunate enough to have the means to do that, and my personal commitment is that we have the ability to accompany every one of our employees through this process.
EBM: Chris Viehbacher, CEO of sanofi-aventis, thank you very much.
CV: Thanks Adrian.
