Sanofi CEO pledges disciplined M&A, silent on Genzyme

PARIS Thu Jul 29, 2010 3:02pm IST

Logo of the French drugs group Sanofi Aventis company seen at the shareholder's meeting in Paris April 17, 2009. REUTERS/Charles Platiau/Files

Logo of the French drugs group Sanofi Aventis company seen at the shareholder's meeting in Paris April 17, 2009.

Credit: Reuters/Charles Platiau/Files

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PARIS (Reuters) - Sanofi-Aventis(SASY.PA) Chief Executive Chris Viehbacher pledged on Thursday to remain disciplined on mergers and acquisitions and stayed silent on plans to buy U.S. biotech GenzymeGENZ.O.

His comments came as Sanofi's second-quarter earnings exceeded expectations, thanks to tightened spending and with sales driven by demand for its diabetes drugs, growth in emerging markets and a weaker euro.

Sources told Reuters late on Wednesday that Sanofi plans to make a formal offer of up to $18.7 billion, or $70 per share, for Genzyme as it seeks to replenish its drug pipeline and make up for the loss of patent protection on blockbuster drugs in the years through 2013.

Buying Genzyme, which is specialised in rare diseases, would be Sanofi's biggest acquisition since 2001 and Viehbacher's biggest move since he became CEO in late 2008.

"We are under no pressure to do a deal," Viehbacher said on a conference call on Thursday, adding Sanofi would only do a deal if it "sees opportunity to achieve growth".

A big move could be on the cards as more than a fifth of its 2008 drug sales -- excluding the sooner-than-expected generic threat to its bloodthinner Lovenox -- face patent expiries to 2013 and its drug portfolio can't offset that loss.

Viehbacher said Sanofi would remain "disciplined" in its merger and acquisition strategy, doing small to mid-sized acquisitions of up to $20 billion and rejecting mega-merger deals. Still, he reiterated he didn't rule out the possibility of a bigger move.

"We are obviously opportunistic, the group has the financial muscle," Viehbacher said.

Graphic comparing Sanofi-Aventis to its global sector, click here

SALES UP DESPITE GENERICS COMPETITION

Quarterly earnings beat Reuters poll forecasts as Sanofi tightened spending and sales were driven by its diabetes division, emerging markets and consumer health. The weaker euro also helped.

Business net income rose 7.6 percent to 2.48 billion euros ($3.22 billion) versus the poll's average of 2.32 billion euros. Earnings per share climbed 8 percent to 1.90 euros versus the forecast 1.78 euros.

Sales increased 4.6 percent to 7.78 billion euros even as competition grew from generic copies of bloodthinner Plavix and cancer drug Eloxatin, and as vaccine sales declined.

The U.S. health regulator's approval of a generic competitor to bloodthinner Lovenox led Sanofi last week to cut its earnings per share forecast to between stable and 4 percent lower at constant exchange rates from 2-5 percent growth against 2009.

Sanofi expects 2013 sales to reach at least 2008's level of 27.57 billion euros, and business net income to be similar to the 2008 level of 7.314 billion euros.

Those forecasts take into account the arrival of a Lovenox copy as well as government healthcare spending cuts, and exclude acquisitions of above 1 billion euros, like consumer health company Chattem and a stake in Merial animal health that Sanofi did not already own.

Sanofi expects cost savings, including on R&D, to exceed 1 billion euros at constant exchange rates this year from the 2008 level and compared with a 2013 savings goal of 2 billion euros.

Analysts welcomed Sanofi's strong quarterly numbers, saying they might have overlooked the impact of a favourable currency effect on Sanofi sales in their estimates and were not surprised the company had refrained from commenting on Genzyme.

"It's not that surprising, after all they haven't made a formal offer. It might be coming in the next couple of days," a London-based analyst said.

"Overall, a solid quarter, but with uncertainty over a potential Genzyme acquisition the stock may languish," Bernstein analysts wrote in a research note, rating Sanofi shares "market perform" with target price of 61 euros.

Last year, Sanofi invested 6.6 billion euros on 33 new partnerships and acquisitions and has said it would do a similar number of deals this year to further branch out its business and address unmet medical needs.

Sanofi's net debt rose to 6.17 billion euros in the first half from 4.14 billion euros at end-2009, while net cash from operating activities stood at 4.2 billion euros.

Sanofi shares were down 0.2 percent at 45.3350 euros by 0921 GTM, having risen to as high as 46.20 euros. The stock is down about 17.5 percent so far this year, underperforming a 1.9 percent dip in the STXE 600 European health index.

(Reporting by Caroline Jacobs; Editing by Geert De Clercq and Erica Billingham)

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