EurobusinessMedia (EBM): Sanofi-aventis, one of the world’s largest diversified healthcare companies, reports full-year earnings for 2009. Chris Viehbacher, welcome. It has been exactly one year since you made your first presentation to the financial community as CEO of sanofi-aventis. How is the transformation of the company progressing?
Chris Viehbacher (CV): I think we’ve made enormous progress this year - it was really a pivotal year for sanofi-aventis. Really what we set out to do was to establish a new path to sustainable, long-term growth. To do that, we had identified three areas. One was to bring back innovation to research and development. The second was to be realistic and recognize that we didn’t have enough new products to fill the gap that would be created by generics, therefore to seek external growth. And the third was to transform the business to new growth platforms. And I think we’ve had a very successful year on all three fronts. Certainly, in terms of research and development, the first effort was really to clean up the portfolio and to make sure that we all believed in the products that would be there and that they were robust and would meet a market definition of value. We have started a process to launch a new organisation and we’ve also, I think, really opened up the organisation to external partnerships. We’ve signed partnerships with prestigious institutes, like the Salk Institute, like Caltech, with INSERM. We have brought some new products into the portfolio, so that’s very good. On external growth, we were able to do 33 deals and acquisitions, which really are very coherent with the strategy that we laid out and really, I think, add to those platforms of sustainable growth. And the last one is really to say that the fundamentals of sanofi-aventis, which have not really been well appreciated, I think are now very clear to everyone, in terms of our vaccines business, being a leader in that area, a leader in emerging markets, we’ve made steps to strengthen our over-the-counter business, we have launched a new product called Multaq, so I think we’ve really made progress.
EBM: Now, regarding your full-year 2009 results, what are your general comments on the Group’s performance? And what is your outlook and guidance for 2010 as we begin the year?
CV: 2009 was clearly a very strong year; we’ve just announced sales up for the year by over 5%. In a year when we faced generic erosion for Eloxatine in the United States and for Plavix in Europe, profits were up 13% on a constant exchange rate basis - so a very creditable performance and much better than the guidance that we had foreseen at the beginning of the year. I think as we look at 2010, we actually see the trends of the business continuing along. What will really determine the outcome of the results is exactly the timing of generics. We know that over the next two to three years we are going to lose a certain number of sales as a result of generics. Exactly when and how they come in, we don’t always know. So, on a year-to-year basis, the guidance of the beginning of the year tries to take in some of those hypotheses. What we’ve done is we’ve looked at the probabilities and - ignoring a generic for Lovenox, which is very difficult for us to estimate at this stage - we believe that the business will grow at 2-5% in terms of earnings-per-share growth. What’s most important is to say is that we believe that actually the business will over the long-run will be stable to 2013 and grow from there. And that’s why this past year, we put a marker down saying that we believe that we can achieve a minimum level of performance in 2013 which is the same level of sales and the same level of profit as in 2008 and we are certainly validating that longer-term guidance today as well.
EBM: A year ago, you made a clear commitment to external growth. With 33 deals completed these past 12 months, including 20 R&D transactions, you have demonstrated that a lot can be achieved in a short space of time. Will you be continuing Business Development activities at the same pace as in 2009, and what are the priorities today for your partnership and acquisition strategy?
CV: You know, anybody can do 33 deals. I think what I feel good about is that actually we did 33 deals that have been very well received by the market and, I think, are perceived as really adding to the growth of the company. But clearly we have to continue that pace. I think we have a couple of things going for us. The first is that we have created a very strong team under Laurence Debroux, as our Chief Strategy Officer. We have, I think, probably the best team now in the industry in terms of being able to identify partnerships and being able to do transactions. This is a company also that has built is history on integration, I mean, there are over 250 companies already in sanofi-aventis, so when we do a deal we can actually make sure that it’s a success afterwards. And by doing deals of smaller-to-medium size, you can multiply them, so we can buy a vaccine factory in India, we can buy an insulin plant in Russia, we can buy a branded generics and OTC company in Brazil, and have management be able to take on those transactions afterwards and really drive value, while our teams go out and look for more. I think external growth is always going to be a part of our business. This isn’t just something you do when your pipeline’s not strong enough, and I think we have demonstrated that we can do it and I think you can expect us to be continuing through 2010 at pretty much the same pace as we did in 2009.
EBM: One of your goals is to bring more products of value to patients. What progress was made in 2009 towards this objective? What are your next steps towards increasing innovation at sanofi-aventis, and what are the next promising products we should begin to turn our attention to?
CV: Well, this is an area I’m actually very excited about, because it goes to the heart of what this company is all about. We started off with the launch of Multaq in the United States and that’s rolling out now in Europe and it’s also been approved in Canada and Switzerland. A brand new medicine, nothing really launched in 10 years for atrial fibrilation and we have a study that actually demonstrates that taking this medicine can reduce hospitalizations due to cardio-vascular difficulties by 24%. So this is a very important medicine for many patients. We’ve also been able to put new medicines in the pipeline for cancer. With the acquisition of BiPar, we have a first-in-class PARP inhibitor for the treatment of triple-negative breast cancer, for which today there is no treatment available. And that medicine will likely also be tested in other cancers and we are already in trials for non-small cell lung cancer and also for ovarian cancer. We also have a fast-track approval for a new prostate cancer drug, cabazitixel. We have launched new vaccines; we have Pentacel in the United States, which is a new pediatric vaccine which took over 75% of the market. With the acquisition of Shantha, we also have now a source of new vaccines, such as rotavirus, and also an ability to produce at a price which makes these vaccines available to tens of millions of children everywhere. We also licensed a new vaccine for seasonal flu at an increased dose, because we know as people age their immune systems are not as strong and therefore a seasonal flu vaccine that is more efficacious is very important. And of course, the biggest thing that happened in 2009 was that we brought a H1N1 vaccine to market and we sold over 100 million doses of that vaccine and will continue to provide that as long as the H1N1 pandemic is with us. So a very exciting year and I’m looking forward to seeing us do even more in 2010.
EBM: 2009 was a record year for your vaccines business. But the end of 2009 and the beginning of this year saw governments around the globe cancelling their orders for H1N1 flu vaccines. Are your vaccine sales affected by this development?
CV: In 2009 our teams had to work around the clock to produce both the seasonal flu vaccine as well as an H1N1 vaccine and I’m very proud of what our teams have been able to achieve. Now, we were also very prudent in our presentation of H1N1 sales. We always believed that they were one-off revenue and we would see how long that revenue lasted. We made a strategic choice to say we would not sacrifice a single dose of seasonal flu vaccine to make extra H1N1, so we were able to fulfill all of our commitments and had a record year in terms of volume on our seasonal flu sales, and I believe that that will help us in coming years. Over 300.000 people die around the world of seasonal flu and that’s why we believe there was still a strong public health necessity to continue to make that vaccine. On H1N1, we sold over 400 million euro of H1N1 vaccine; we were mostly selling in the United States but we had also made a decision to try to make sure that as many countries had access for their at-risk populations as possible. So that’s what we have done – yes, a couple of countries have cancelled, but there’s still a significant demand and we were not actually affected very much, because we chose not to have all our eggs in the basket of a few countries, if you like. So we actually believe that we will sell roughly the same quantity of H1N1 vaccine in 2010 as we did in 2009.
EBM: Sanofi-aventis has a strong footprint in emerging markets. How is your business holding up in emerging markets today, and what trends are you seeing?
CV: Clearly 2009 was a year when the world faced economic crisis. But when you actually look at the economic growth of emerging markets, they were really not very impacted by that. Growth dropped maybe 1 or 2%. But India still grew at over 6%, the Chinese economy is growing at a similar rate. And actually, emerging markets - from a macro-economic point of view - is a bright spot in the world economy. And we know that as economies grow, people spend more on healthcare and so we actually have seen that business continue to accelerate. We had again double digit growth. 25% of our sales are in emerging markets today. We are everywhere in the emerging markets, not just in the big countries. And that’s a real source of strength for us, because when you have about or around 7.5 billion euro of sales growing at double digits, this is very helpful as a growth platform for us. And I think we’ve actually got a competitive advantage - it’s not going to be easy for others to catch up to. We’ve been in many of these markets for 20, 30, 50 years in some cases, so we’ve developed management, we’ve got strong field forces, we’ve got great relationships with governments and we have a portfolio of medicines which is large, which allows us to really be able provide affordable medicines to a broad population. So I think this is a core strength of sanofi-aventis and one which will continue to drive our growth over the coming years.
EBM: You’ve said that you intend to double your diabetes business by 2013 from 2008 levels. What is your vision for where this growth in diabetes is going to come from and is there any news to report today about the safety studies underway for Lantus?
CV: So when you look at Type 2 diabetes, this is a pandemic - if you like - that is in every country in the world. This is not just a western, industrialized disease. If you go to China, if you go to India, and you talk to healthcare authorities, their biggest issues are Type 2 diabetes, cardio-vascular disease and oncology. India has probably the world’s biggest population of Type 2 diabetes patients. So unfortunately as you look, this is related to people moving from rural areas into cities, people having more money and being able to eat differently, having more sedentary lifestyles. So the fundamentals of lifestyle changes are causing an increase in Type 2 diabetes around the world. In the United States, 1 million new patients every year are diagnosed with Type 2 diabetes. What’s important though, is to be able to say “How do you help a Type 2 diabetes patient?” Clearly with Lantus as the leading insulin treatment, we can go a long way. But our vision is actually to become a diabetes company. We want to have a broad range of products and services which can help patients. That may go from everything from nutrition, to helping them monitor their glucose levels, to new treatments - in the past year we licensed-in a new first-in-class treatment from Wellstat and we want to build up a portfolio of medicines and services to actually help those patients. So, for us this is driven by the underlying healthcare need and is probably one of the most important in today’s society and we want to be front and centre on this.
EBM: And regarding Lantus safety?
CV: On Lantus, we clearly had obviously those four articles that were published in Diabetalogia. I’m very proud of the way our company responded to that. We worked very closely with all of the world’s experts in oncology, in diabetes and in epidemiology, we worked very closely with the regulatory agencies and everybody concluded that the studies that had been done were not of a very high quality and did not suggest a link between insulin and cancer. However, as a company, once a signal is raised we felt we have now an obligation to patients and to do absolutely everything we can to eliminate that risk. So we went back again, even after the initial studies had proved to be unfounded. We want to go that extra mile. We have talked with all of the world’s experts and with regulatory authorities about what studies should be done. So we initiated those studies and we’ll have results in 2011. We are absolutely confident in the safety profile of Lantus as are physicians around the world and I think that’s why we saw no change in the prescribing habits and why Lantus continues to demonstrate very strong growth.
EBM: Consumer Health Care is seen again as a “hot property” by analysts and investors. How did your main OTC brands perform in 2009? Can you share with us the rationale behind the recent acquisition of Chattem, your new U.S. Consumer Health Care platform?
CV: Consumer Health Care is completely in line with this strategy we have of long-term, sustainable growth. But we really want to move away from our sales that go in boom-and-bust cycles because of patents. In the Consumer Health Care business, what protects your business is a strong relationship with the customer and a strong brand in which consumers have trust. And you have businesses around the world where we’ve had brands for over 50, 60 years because of that trust and confidence that we’ve built up in consumers. So it’s a very strong business, we were already the number 6 player around the world, and that business grew at 26%, driven both by organic growth and by bolt-on acquisitions. But we weren’t present in the United States - this is of course the biggest Consumer Health Care market around the world - and how to enter was not obvious. And we had an interesting opportunity last year in that Allegra, a leading prescription drug for seasonal allergies, could be switched to the consumer market. We didn’t have the competency to do that - we could have done a partnership with other companies, but we actually identified Chattem as a potential acquisition which would give us a platform for consumer care in the United States and also give us the capacity to launch Allegra ourselves and provide substantial growth to Chattem. That was very attractive to Chattem management, and we’ve just completed that acquisition, so we now have a very strong foothold in the consumer market in the United States. We’ll be able to launch not only Allegra, but we have a number of other products that we can launch over-the-counter, so I think that’s going to be a very strong growth platform if we take some of Chattem’s products, sell them in Latin America and Canada and we’re starting to build, I think, a very nice consumer healthcare franchise around the globe.
EBM: The market is worried about seeing a generic for Lovenox in the US possibly as early as this year. What can you tell us about your best and worse case scenarios and estimates for Lovenox in the US? How does this affect your 2013 outlook?
CV: Well, before we talk about the financial aspects, I think we need to talk about the patient aspects. We are very concerned about- particularly a substitutable generic - or any generic which hasn’t demonstrated its safety and benefit through clinical trials. We’re not talking about chemical substances here that can be measured in the blood. We are talking about biological products which are very much characterized by the production processes. We have raised objections because we believe that the basis on which the filings have been made for generics do not provide the evidence that are necessary to assure patient safety and we will continue be very vigilant on that. I think the regulatory agencies share those concerns, which is why they have been taking an appropriate amount of time before approving any generic in the United States. It’s also worth noting that the European regulators have said that they would not approve a generic unless such clinical trials had been done. Given this whole concern around safety, it’s not clear exactly when - or if - a generic will ever be approved for Lovenox. What we have done as a company is, first and foremost, to say there is a risk- and as we build our plan for longer term growth, we decided that we would be prudent and take into account significant erosion to Lovenox, through not only a potential generic, but also through the launch of competitors. So, as we look out to 2013, Lovenox is not one of the growth drivers, and in fact, should a generic be approved for Lovenox, either substitutable or non-substitutable, this would not affect our guidance for 2013. Now, shorter term, obviously that could have an impact on our results for 2010. We are not actually able to calculate exactly what that is, it would depend on when a generic arrived, whether it’s substitutable or not, and whether there are a single generic or multiple generics. So our approach has been to give investors a view of how the business is performing without Lovenox - and that business would grow from 2 to 5% [EPS]- and let investors try to assess what they see as the risk, because we don’t have any further information than investors do, and everybody will make their own hypothesis about the potential impact of Lovenox. But as you look longer-term to the business, a generic for Lovenox will not affect our longer-term growth perspective.
EBM: You have exceeded your expectations for 2009, you are ahead of schedule on cost savings and you have announced several deals which are immediately accretive to earnings. Do you intend to revise your 2013 target upward? Are you in a position today to increase your savings target for 2013, on the back of what you’ve been able to achieve so far?
CV: The whole objective of the 2013 guidance was really to draw attention to the very solid fundamentals of sanofi-aventis. Our growth platforms already exceed 50 % of the business. Two years ago that was around 40%, so these businesses, which are growing at double-digit rates, are clearly going to power us through the patent expiry period. But equally, as we look to the long-term, this isn’t something that you’re going to start to revise every six months. I think we will take a view to 2013 in a year. We are clearly making very solid progress through the acquisitions, through our cost savings, but we don’t want to get into the game of changing this on a quarterly basis. This is a longer-term outlook and we will give regular updates, but not necessarily on a quarterly basis.
EBM: Chris Viehbacher, CEO of sanofi-aventis, thank you very much.
