EuroBusinessMedia (EBM): Sanofi, a global and diversified healthcare leader, reports full-year results for 2011. Chris Viehbacher, welcome. You are the CEO of Sanofi. What are your comments on the Group's full-year results for 2011 and 2012 guidance?
Chris Viehbacher: 2011 was a pretty important year for Sanofi. Obviously, we had the Genzyme acquisition, but more importantly, the integration of Genzyme afterwards. We also decided to fully integrate our animal health business, Merial. A very successful launch of Allegra® in the United States, which really validated our acquisition of Chattem two years ago. We took the opportunity with these acquisitions really to think about the productivity of the company, so we completely restructured our support functions in the US. We’ve engaged upon an ambitious plan to restructure our research operations, we’ve restructured our European commercial operations, and in all of that we’ve still managed to find time to file five dossiers for new medicines, which is pretty much without precedent in our industry. So, it was an enormous year in terms of how we have transformed again towards our growth platforms, but also were disciplined on costs and made sure we advanced on R&D. When you look at all that in terms of numbers, we were able to grow our sales at constant exchange rates at over 5%. We weren’t completely able to offset the effect of generic competition, we had another €2.2 billion go, as expected, because of generic competition, but nonetheless we held that decline to only 3.8%. So I’m actually very pleased with the results of 2011. I think our teams have really worked hard and I think we’ve made a lot of progress within the company. 2012 is going to be another challenging year, because this is the year that we’ve all had circled in red in our diaries for a number of years now. This is the year we lose Plavix® and we lose Avapro®, but we’ll also lose Eloxatin®, we’ll have a full year of Taxotere® in the United States. So we have a number of headwinds facing us. Equally we continue to see the strong performance of our growth platforms. We’ll have a full year of Genzyme and we continue to be very disciplined on costs and we’ve already launched another cost reduction programme of a further €2 billion. So when we put all that together, we would expect a decline in business earnings per share of between 12 and 15%. Now this is, again, completely consistent with the guidance that we gave back in September - looking forward to 2015 and I think as I look at the business today, I’m completely confident in our ability to continue to grow back the business and really, I think, present one of the best growth pictures in our industry. We’ll have one of the lowest exposures to patent expiry coming from that. So it’ll be a challenging 2012, but most of us in management are now focused on growth post the patent cliff period.
EBM: What should we expect to see from Genzyme now that you’re resolving the manufacturing issues that were holding back production?
Chris Viehbacher: The integration of Genzyme was clearly extremely important. You bring a biotech culture together with a big pharma culture and this is something where I spent a lot of time, personally. Obviously the most important aspect of this was re-establishing the production of medicines such as Cerezyme® and Fabrazyme® in important rare diseases. And here I think we made significant progress. We’ve recently seen the approval by both the European Medicines Agency as well as the FDA for a new Framingham facility. So when you look at where we were just a year ago, at the time of the announcement of our acquisition, Allston - the facility that had been subject to a consent decree - was still making four products, was doing fill and finish and doing all of the purification. As we fast forward one year, we now see that the new facility will be able to remove some of the production burden on Allston, so we will produce Fabrazyme® there, and we will be down to producing only one product and not four. All of the fill and finish was outsourced in April of last year and even the purification will be gradually phased out. So I’m very confident in our ability to re-establish production and therefore to gain back market share, particularly of Fabrazyme®. When you look at the broader picture, I think we brought our two companies together in a very sensible way and I’m very excited about some of the new possibilities that Genzyme has brought. Lemtrada™, for example, has demonstrated very robust Phase III results and we have an opportunity with Sanofi’s Aubagio™ to bring that into a new portfolio. I’ve never personally had the experience of being able to launch two major products in a disease area almost simultaneously. And we’ve seen that the next generation of Gaucher treatment, with eliglustat, has had very positive Phase II results and the Phase III is actually fully recruited already. So when I look at it, we’ve got production I think now pretty well on track; we’re able to launch some new products. So at the time of the transaction, we announced synergies of around $700 million. So we’re well on track. In 2011 we’ve already been able to achieve $230 million. So that’s been an important sign of the progress that we’ve been able to make. The final point is that one of the main reasons for Genzyme was that we wanted to have a much more significant research presence in the United States and particularly in Cambridge. We’ve been able to achieve that and we have made Genzyme our principal research platform in the US. And at the end of the day, when you look at integration, yes, you have synergy targets, you’ve got to think about IT systems, but the most important is that you get people working effectively together. And personally, when I walk around, both in Europe as well as in Boston, I feel a growing sense of confidence and trust amongst people and that gives me the confidence to believe that we will be able to achieve significant value with Genzyme.
EBM: What’s your update on the growth of your emerging markets business? Did you meet your target of double digit growth for 2011?
Chris Viehbacher: Presence in emerging markets is a true strength of Sanofi. And this year was no exception. We achieved sales of over €10 billion in emerging markets – that’s a growth in excess of 10%. This is where I think the greatest opportunity for growth is in the pharmaceutical spectre. The thing about emerging markets is that you’re always subject to the variations in over 80 countries. You’ve got political turmoil, you’ve got macro-economic factors and so we don’t always have the nice smooth growth that we’ve seen in traditional markets. But I was very pleased to see in the fourth quarter that there was again a strong return to double digits and for me this is where the future is. There are 7 billion people in the world; our industry has traditionally focused on 1 billion of those people. Sanofi has local production. We have a product portfolio that’s adapted to those markets. In most cases we’ve been there for decades, so we have depth of management and a true understanding of the culture and needs of customers and patients in those countries. So this is, I think, a truly fabulous strength of the company and I think a very strong result.
EBM: Regarding your diabetes franchise, how pleased are you with the performance in 2011 and how confident are you in your ability to hold up in the competitive landscape?
Chris Viehbacher: Diabetes is an extremely important growth platform for us, so I was extremely happy to see that we had double digit growth in all four quarters this year. Diabetes is a disease that is now afflicting over 350 million people worldwide. So this is an important disease franchise for the whole industry and particularly for Sanofi. When I look around the world, I think we’ve seen success everywhere. In the US we actually saw growth in excess of 16% that was principally driven by a switch to SoloSTAR® and in the fourth quarter of 2011, we actually achieved 50% of our sales with SoloSTAR®. That’s up 9.8% versus the fourth quarter of 2010. Emerging markets - growth of over 30%. We continue to build upon the franchise. Most importantly we have filed in Europe our GLP-1, called Lyxumia® and we expect to file in the US this year. We’re rolling out our iBGStar® in blood glucose monitoring and we have also begun Phase III studies for a new glargine formulation. So I think we are making strong progress and this is an area where Sanofi is really positioned to succeed.
EBM: After another year of solid growth, how sustainable is the growth rate of your vaccines business?
Chris Viehbacher: We always have to remember when we’re looking at 2011 vaccine sales, that we had exceptional sales in 2010 of H1N1. Those were one-off, so when we strip those off, we see an underlying growth rate of over 7%, which is very strong and particularly driven by emerging markets, where sales grew by over 10%. We had another record year in flu, selling over €800 million of flu vaccine. What I think is particularly interesting is that Sanofi has been able to innovate in this area. We’ve been able to successfully commercialise a high-dose flu shot for people over the age of 65 and we’ve developed a new flu intradermal, so you can barely see the needle and this is a much more patient-friendly formulation that has had very good acceptance in the market place. As we look around the world, our Pentaxim® vaccine has had very strong success in emerging markets. In the US, Menactra® sales were strong on the back of new recommendations. What particularly excites me is the new dengue vaccine. Wherever you go, in particular emerging markets, people are very keen to see the launch of the dengue vaccine. This is the second biggest disease in terms of epidemiology after malaria. There’s currently no treatment for dengue, so this offers extremely high hopes and I think meets a real public health need. I think it could be an extremely strong commercial opportunity for the company as well. We’ll have data later on this year from the Phase II B study and we’ll be able to better measure the potential of that vaccine then.
EBM: Some companies are spinning off their CHC and animal health business. What strategic value do you see in those activities?
Chris Viehbacher: Both CHC and animal health are fundamental to really our philosophy of trying to build sustainable growth. When you look at CHC businesses, they are long lasting assets, really because of people’s loyalty to a brand. And I think we’ve become extremely strong in this area. About three years ago, we acquired a company called Chattem and the objective really was to have a platform for consumer health in the United States. But it was really only going to be a value if we could successfully launch Allegra® in the OTC market, and that has occurred. Within weeks of launch, Allegra® has overtaken Zyrtec® and become the number two product and is busy trying to become the number one product in the category. So that has driven very strong growth and in fact now Sanofi is one of the top five players in consumer health. Equally in China, last year we acquired a company called BMP Sunstone. This is the first time we’ve been able to move into traditional Chinese medicine. We acquired a brand called “Good Baby", which was one of the few national brands in China. It opened up new distribution channels, which is very strategic in China. So, we have been steadily growing our business both organically and through acquisition. I love this business, just simply because it is an opportunity for us to really have a true relationship with the customer, without the usual intermediaries that you sometimes find in the pharmaceutical industry. Animal health is the same way. We have a growing world population, therefore food supply is important. As we see emerging markets develop and emerging middle classes, people are starting to have pets and this becomes actually an even greater trend as people move from villages and rural areas to cities and Merial is extremely well placed to capture that growth. We have been traditionally strong in the pets sector and that is performing well, despite the presence of a temporary generic in the US. So overall, we had growth of over 4%, but double digit in emerging markets. And even in production animals, where we would like to be stronger, we still had over €750 million of sales and close to double digit growth. So I think as I look at the fundamentals of this business, this is a business that’s going to continue to grow into the future. We will continue to do bolt-on acquisitions and business development to further strengthen that, but I think this is again just a demonstration of how the growth platforms really provide sustainable growth for Sanofi going forward.
EBM: 2012 is the last year of the patent cliff and perhaps the toughest year yet, with the loss of Plavix® and Avapro® in the US. How are you coping and what are your priorities as you aim to return to growth?
Chris Viehbacher: Of course, the patent cliff is not a surprise. This has been seen by markets and obviously by us now for some years and really the last three years, in fact, the whole fundamental strategy of the company has been really designed, not to just compensate for the loss of sales as a result of the patent cliff, but to develop new platforms of sustainable growth. Now, the impact is significant: Plavix® and Avapro® will have a negative hit on earnings after tax in the order of €1.4 billion this year. The full-year effect is around €2 billion. In addition we have a few other headwinds; we will lose Eloxatin®, probably in the late summer of 2012; we’ll experience a full year of generics for Taxotere®; we’ll have increased competition for Lovenox® in the generics space and of course, we have a difficult macro-economic environment in Europe which has caused some pressure on pricing. Equally, I think Sanofi is well positioned coming out of the patent cliff. If you look at the patent exposure for small molecules in Europe, the US and Japan, we only have 6% of our 2012 sales that are still vulnerable to that. That’s one of the lowest patent exposures in the whole industry. As I look at our growth platforms, they’re clearly performing robustly and would be expected to continue into the future. I think we’ve made very good progress on Research & Development. I’ve already said we have filed five new medicines with regulatory agencies in the US and Europe. We have 18 potential new medicines to launch between now and 2015 and we are starting a number of late stage development programmes such as our PCSK9, which look very exciting. Clearly there is pressure on the margin by losing blockbusters, so we’ve launched an ambitious programme to further reduce our cost base by €2 billion, including synergies from Genzyme, between now and 2015. So we feel very confident in our medium-term guidance - which we gave in September of 2011 - and that was really to come out of the patent cliff with compound average sales growth of about 5% between 2012 and 2015. We would expect to have a leveraged P&L and of course we’re going to continue to think about returns to shareholders in that period. So as I look at it, 2012 is going to be a challenging year – we’re going to have to work very hard – but equally I think Sanofi is very well positioned coming out of the patent cliff.
EBM: Shareholder returns have become an important element in driving a rerating of the healthcare sector. What importance do dividends and share buy-backs play in your equity story?
Chris Viehbacher: Clearly, shareholder returns are extremely important and our preferred method of achieving that is through an enhanced dividend policy. When I look at the dividend that we paid last year in respect of 2010, we achieved a pay-out ratio of 35%, but we believe we can do better – and should do better – than that. So we have committed to increasing the pay-out ratio to 50% by the time we pay the 2013 dividend in 2014. So when we look at the dividend now, in respect of 2011, we’re proposing a dividend of €2.65. This is an increase of 6% and improves our pay-out ratio to 40%. In addition to that, we’ve also said that we believe in opportunistic buy-backs and in 2011 we actually achieved €1 billion of buy-backs. That programme of opportunistic buy-backs will continue into 2012. So between an opportunistic share buy-back and an enhanced dividend policy, we believe that we offer an attractive investment opportunity for shareholders.
EBM: Chris Viehbacher, thank you very much.
Chris Viehbacher: Thank you, it’s a pleasure to be with you.
