EuroBusiness Media (EBM): Sanofi-aventis, one of the world’s largest diversified healthcare companies, reports earnings for the second quarter of 2010. Chris Viehbacher, welcome. You are the CEO of sanofi-aventis. What are your comments on the Group’s performance in the second quarter, and can you provide us with some color on cost savings?
Chris Viehbacher (CV): In the second quarter, again, we are seeing the transformation of our group. As we’ve expected for quite a long time, we are starting to see the erosion of some of the main drivers of our products. Plavix®, for example, in Europe is now facing generic competition. We’ve seen this for Eloxatin® in the United States. But despite this huge impact of generics, the company has actually been able to certainly grow sales in the first-half and even in the second quarter, sales have been pretty solid, decreasing only by 1%. Of course profit was actually able to increase, even in the second quarter due to some very substantial cost control. Cost control is not something you build your business on, but it is an extremely important part of the transformation of the group, as we reallocate resources and we really try to simplify the organisation. And this has taken place at all levels of the company. No better place to start than with headquarters, where we have actually undergone a significant restructuring last year. In Research and Development, our objective was to have people work more closely together and to reduce the layers of management, so we’ve gone from eleven organisational layers to six, for example. And we’ve gone from 28 sites in 2009 and are driving towards having 16 sites in 2011. In manufacturing, we are also becoming much more attentive to costs, on purchasing and also site rationalisation. On the commercial front, what you see is actually a significant reduction in commercial resources in traditional markets, such as the US and Europe, but a significant investment in very strongly growing areas, such as emerging markets.
EBM: On Diabetes, you are posting double digit growth again this quarter. Given the ongoing development of potential future competitors in this space, are you still confident about reaching your target of doubling your Diabetes sales from 2008 to 2013? And also, could you tell us how significant you believe to be the partnership with AgaMatrix for Blood Glucose Monitoring systems?
CV: We are confident in achieving that goal. There is a significant opportunity here, over 280 million people worldwide unfortunately suffer from diabetes, either type one or type two. This is one of the biggest markets anywhere in the industry. Sanofi-aventis is uniquely positioned there as a leading manufacturer of insulin, but also products such as Amaryl®, which is still a very strong product in some parts of the world. And we are driving towards having a complete offering, if you like. We no longer just say that we are in the business of selling Lantus®; we are in the business of saying “How do we help the diabetes patients?” And from that point of view, the AgaMatrix arrangement helps us with that. If you look today, people who make blood glucose meters don’t make insulin. People who make insulin don’t make blood glucose meters. And as a result, you don’t really have a device that gives patients what they need. There is an opportunity for us to combine the technology to be able to provide education with devices and with insulin and, as we develop new medicines, to have a complete range of offerings. So that’s why we’ve transformed the business into a diabetes division, rather than just one more product in the portfolio. It’s a completely different approach, very exciting, and I think sanofi-aventis is placed for leadership in this area.
EBM: You are clearly building up a presence in Consumer Health Care as demonstrated by recent acquisitions. Where do you stand today with the Chattem acquisition, and how big is the opportunity for the Allegra® Rx-to-OTC switch in the US?
CV: We’ve seen significant growth, if you look at sales last year, around 320 million euros jumping to over half a billion euros in the second quarter of this year, partly driven by organic growth of strong double digits - around 15-16% - and then obviously the rest coming from external growth. The acquisition of Chattem has been a very strong success. The main rationale was obviously for us to have a platform in the US to be able to launch Allegra® in the over-the-counter market. We were able to file the switch dossier back in March. Everything is progressing on that front. We are also acquiring businesses and building our presence around the world; we announced a new partnership in consumer healthcare, for example, in China. This is a very important business, because it puts us in direct contact with customers. We have brands that have grown for decades, and therefore offer us that sustainable growth and it also offers that concept of affordable medicines, no matter what the income range is. So I’m very strongly in favour of consumer healthcare, and you’re going to see us build that business further.
EBM: Oncology has come up on the radar with the recent approval of Jevtana® and the progress into Phase III of iniparib, also known as BSI-201, and the return of Eloxatin® in the US market. What is your outlook in Oncology?
CV: I’ll tell you, Oncology is one of those areas that I’m most proud of. Not just from a business point of view, but I really want our company to be actively involved in the fight against cancer. A year ago, we really weren’t equipped to do that. Now, just one year later, we’ve had a fast-track approval, one of the fastest approvals of any cancer medicine with Jevtana® – 30% survival rate in advanced prostate cancer. This is huge, unmet need and a very significant new medicine coming right out of sanofi-aventis’ own labs. Iniparib is off to a huge start on its clinical development programme. I attended ASCO, I went to the investigators’ meeting. People have never seen anyone be able to put together such an extensive clinical development programme in such a rapid period of time, and we attribute that to having kept BiPar, the developer of iniparib, as an independent unit. So, a year ago at ASCO, we had one Phase II results showing very significant 60% improvement in survival in triple-negative breast cancer. We have since moved into Phase III with that product, in triple-negative. We have commenced a Phase III study in squamous cell lung cancer. We have two studies going on in ovarian cancer. We have a new study in Europe, actually on dosing, so we’ve got an awful lot of patients involved and we are looking forward to rolling that product out over the next 18 to 24 months around the world. In the meantime, of course, we have continued to do a number of partnerships to be able to bolster that pipeline. I would argue – and this is the view I’ve heard from a number of key opinion leaders – that we have one of the best and most promising oncology pipelines anywhere in the industry today, and that has really been built over the last 12 to 16 months. So I’m very happy with the progress in that area.
EBM: You have the largest footprint of any pharma company in Emerging Markets and you report double-digit growth again this quarter in this part of the world. Is this growth sustainable?
CV: I was just in China last week, and every time, whether I’m in Brazil, or in India or China, it is amazing to see the significant economic growth. This industry has been focused traditionally on Europe, US and Japan, where you have about a billion people. Big market. But there are 6.7 billion people in the world, so 5.7 billion that we haven’t ever really addressed as customers. We have now over 30% of our sales in those markets, more than any other major pharmaceutical company. The opportunity is huge, it’s significant. And the fact that we have been there for so long means that we have built management, we have built an understanding of the local culture and customs in those market places, we’ve got strong field forces, we’ve built relationships with universities and other academic institutions. So I think we actually have a lead that is going to be difficult for others to catch up to, but this is a significant opportunity for our industry and often one, I think, most seriously underestimated by our investors.
EBM: Animal Health has become another significant growth platform for sanofi-aventis. Following your initial announcement for a new JV between and Merial and Intervet, do you have any progress to report today?
CV: Well, we have just announced a new CEO and the name of our new company is Merial-Intervet. We are making very good progress on the integration and would expect to close the transaction sometime in the first quarter of 2011. As we’ve talked before, our whole objective is getting sustainable growth. And when you look at the fundamentals of the animal health market, even through the economic crisis of 2009, we saw sales being very resistant, both on the pet side as well as the production animal side. When you look at medium- to long-term fundamentals – the growing population, emerging markets, growing middle classes – you see a very strong underlying growth potential in the animal health business. So we are very excited about being able to create, with our partner Merck, the new global leader in animal health. This is a business that today, before divestments, has over 5.3 billion dollars, and the implicit underlying value is somewhere between 16 and 17 billion dollars, if it were quoted on the stock exchange. So, a very important business for us, and we are making very strong progress on integration.
EBM: Last Friday, the FDA approved a generic of Lovenox® in the US. Some analysts have actually seen this decision as the removal of an overhang on your shares. Does the low end of your revised guidance factor a worst case scenario in terms of Lovenox® US sales erosion? And what about the situation outside of the US?
CV: First, the generic erosion is going to take place strictly in the US as we speak here today. Most other countries have actually implemented guidance saying that to launch a generic one has to do clinical trials. This is a position, we believe, that the US should also adopt. As we look at what could potentially happen in terms of erosion, we have tried to provide a range. Right now we don’t know exactly what the price levels will be and how much erosion and that’s why we have given a range on the guidance, and we’ll try to narrow that as we go through the year. The rest of the business was completely in line with the guidance that we originally gave, which to remind everybody, was not assuming any Lovenox® generic, and that rest of the business is performing in line with expectations. We’ve now calculated a range of what the impact of generics in the United States could be, and we’ve taken, obviously, all the other things that are going on in our industry into account: the US healthcare reform, European price decreases. So, we feel very comfortable that we can achieve that range of flat to a decrease in 4%. We should remember that Lovenox® is still going to be a very important product for the company. Most of the volume that we sell is outside of the US. It still remains a blockbuster product, even without the US sales. So, we are going to continue to make sure that we support strongly Lovenox® in the rest of the world.
EBM: Now that the pruning of the R&D pipeline is over, what is your update today on the transformation of your R&D? What are the next big drugs that you would like to spotlight in your R&D pipeline?
CV: Today, we’ve clearly got, I think, best-in-class portfolios in oncology and diabetes. We’ll have an opportunity to share those with investors towards the end of September. We want to do a little deeper dive in an investor seminar. Not just to talk about the products, but to talk about the approach, and more of the patient approach versus strictly a medicine approach. I’m very excited about a number of other products that are coming through. You know we have a new product called Temusi®, which will get Phase III results in the second half of this year. This is really one of the first gene therapies that will potentially come to market. Indication is in lower limb ischemia. We have a multiple sclerosis drug called teriflunomide, which will also see some Phase III data. The VEGF-Trap will also provide data for us in the second half of this year on colorectal cancer. We have a new GLP-1 called lixisenatide. We’ll see some further data for that. The real promise obviously of that drug is in combination with Lantus®. And we’ll likely be the very first company to be able to launch a true combination of a long-acting insulin with a GLP-1. The ophthalmology portfolio is developing very nicely, and that’s a new division for us as well. Expectations about Research and Development for sanofi-aventis are low, and that’s not necessarily a bad thing. What I’m also hearing from some of our investors is “You guys are building a stealth R&D portfolio.” And I’m very happy to see the progress we are making. We’ve got a long way to go yet. But last year was all around weeding out the portfolio. This year has been about rebuilding it. And we have a strong reputation and partnerships. I’m pretty positive about where we are going on R&D.
EBM: Investors worry that combined US healthcare reform and recent price cuts in Europe will generate more pricing pressure. Is this more than what you’re generally accustomed to and are these already factored into your guidance?
CV: All of the effect of both the US healthcare reform and what is going on to date in Europe is factored into our guidance. In the second quarter of this year, we recorded a cost for the US healthcare reform of around 68 million dollars. And again, we took that into account in our original guidance. We assumed that healthcare reform would come. I think there is certainly a short-term cost in the US, but having increased coverage is something that this industry has very strongly supported and that, fundamentally, I think, is a good thing for the US market place, and therefore for the industry as well. In Europe, there has clearly been significant pressure on governments. What we are trying to do is really have governments focus on where they have to save money, on perhaps older medicines and still make sure that there is reward for innovation. The cost-to-date or expected for this year for the European price cuts is around 150 million euros. That’s not completely different from what we have seen in the past, and it’s certainly something that is manageable within our financial context.
EBM: In 2009, you did about 6.7 billion euros worth of bolt-on M&A transactions, but since the beginning of this year you have only done about 2.3 billion euros worth, and recently there have been some rumours in the media saying that you are interested in Genzyme, the US biotechnology company. Now, obviously, while you are unlikely to comment on market speculations, could you nevertheless remind us of what your acquisition strategy is today?
CV: You are right. We never comment on specifics. I think, though, we have been extremely clear about what our M&A strategy has been. It has been very clear that one of our top three priorities is to pursue external growth. We did over 30 transactions last year, really looking for small to medium-sized companies – small being up to 5 billion dollars in market cap, medium up to 20 billion dollars. We have not wanted to go down the path of the big mega mergers, but really to build on sustainable growth platforms. We have acquired in consumer health; we have acquired in emerging markets; we have acquired in vaccines. And for the most part, what we have really wanted to do is not to use our capital for acquisitions, but to do partnerships and collaborations. And, I think, we have been very consistent on that in the 18 months that I have been CEO of the company, and I think you are going to see further consistency with that strategy in the way we execute.
EBM: Chris Viehbacher, CEO of sanofi-aventis, thank you very much.
CV: Thank you Adrian.
