EuroBusiness Media (EBM): Sanofi-Aventis, one of the world's largest pharmaceutical companies, just reported earnings for 2008. Chris Viebacher, welcome. You are the newly appointed CEO of Sanofi-Aventis. To begin, what are your key take-aways from the 2008 performance of Sanofi-Aventis?
Chris Viehbacher (CV): Great results today. And I think what's nice about them, is that we saw growth across a range of products. Starting with the bottom line, we showed double-digit growth at 11%, that's at constant dollar exchange rates, that's very strong and puts us well in the top tier of our industry.
What's exciting to see, is that a lot of our core franchises scored very strong double-digit rates. Whether you're looking at Lantus or Plavix or Lovenox, or the vaccines portfolio, with vaccines like our pediatric range of vaccines. Our emerging markets grew at very strong rates. Japan, which is a core strategic market for us, grew at very strong rates. I really liked to see the launch of Pentacel this year, that went exceptionally well, you know. I was on the other side, and was afraid of that launch, I'm glad I switched before it came, because our team has already gained over 50% market share in a few months after launch. So fabulous performance there. So as you look across the range of business, we saw a lot of strong growth. So I think we had a fabulous year, and I'd like to thank all of the teams who were involved in that, for delivering such strong results.
EBM: After almost two months now as CEO, what do you think are the strengths of the Company?
CV: I think there's a lot of strengths of the company that aren't really well appreciated outside the company. In fact, one key analyst told me, "You know, people outside the company, they think of Plavix, and they think of Acomplia.” And Plavix is going away, and we clearly won't have Acomplia going forward. So what's left? So when you come into the company, you discover all of the strong fundamentals of it. Most companies are already announcing strategies to get away from small molecules in the rich countries. We're already there. We're already the leader in emerging markets. We have about a third of our sales in North America, about a third in Europe, and about a third in the rest of the world. We have a better spread of sales than any other company in this industry. We're the leaders in the vaccines business. This is a business that's very difficult for someone to come into, but at the same time, it's a great product in terms of cost-effectiveness for governments.
You know, I'm discovering things like our OTC business. We're Number 6. Now we've got a long way to go, because we're kind of concentrated in a just few markets, and we need to build upon that. But the good news is we've got something to build upon. So I think that's very important. We have a very strong financial base, we'll be virtually debt free by the end of this year, and we have a very strong cash flow. And you know, in an economic crisis, cash is king. That really allows us to have the strategic flexibility to go out and seek external growth opportunities up, on which we can build on these growth platforms that I've mentioned. So I think we're really well poised for the future.
EBM: Now, R&D productivity has been a source of concern. In view of your ongoing pipeline review, what are your plans to enhance R&D productivity and to restore confidence in sanofi-aventis' pipeline?
CV: Well, you know, R&D productivity has been an issue for this industry for some time. And I think part of the problem comes back to the fact that, as we created these big companies through mergers, we didn't pay enough attention to the very human aspects of R&D. Now, I'm not going to prescribe how we do R&D. But I have asked 5 questions of R&D teams, and I want 5 answers to come back to the Executive Committee. The first is: I want a complete review of our portfolio, with the view of the customer being included. Because I think we haven't done that well enough in the past. Our commercial teams haven't been involved. People like external payers have not been involved. And in today's market, where there's so much choice, you absolutely must bring a value in new medicines. And the people who know about that in our teams need to be at the table, while we make those decisions. So we need to go through, project by project, and decide which ones of those are really going to meet the test of the market place.
The second question is then to make sure we don't end up in that situation again. How do we evolve our decision-making process. How do we make sure we've got enough challenge in the process to make sure that, as we advance a project, we all believe in it, we're all behind it, and we really want to go forward with it.
The third thing is really to look a little bit at structure. You know, if we created these big structures, and we've lost the human aspect, how do we put the people aspect back into R&D? How do we create an organization that's innovative, that's dynamic, that is curious about what's going on in the world, and bring back the heritage that we had for so long, of true innovation?
Fourth question is: what technologies do we need to be in? The world is changing, and there are emerging technologies like nanotechnologies, and of course the whole bio-marker approach to developing new therapies. We need to be front and center on those, we need to know which choices to make, with whom we need to partner, whom we may need to acquire. But we need a clear element of which of these technology platforms do we really want to be a part of? And are we really strong enough, for instance, in bio-technology? And there, that's another thing people forget. 30% of our sales are already in biotechnology. So is that enough? Do we need to do more? I think we do, but we need a clear strategy.
And really then you come back to the fifth question which is: how do we make sure that we're not limiting ourselves to just what we do within the four walls of sanofi-aventis? There are 6,000 biotech companies out there. There are universities in every country. There's research institutions. There are specialty pharma companies. We need to be able to tap into the best science that 's around the world, bring it into the company and develop it. And when we diversify that, we're going to have all kinds of opportunities to bring in future innovation. But you know, there's a cultural aspect. People don't always like someone else's science. So the “not invented here” syndrome is a function of every company. And we need to fight that, and we need to think about how do we value what we do, but how do we also make sure we're welcoming to the rest of the world in terms of science?
So I think those questions are fundamental questions, that our R&D teams need to come to grips with, and need to come up with answers themselves. Because, let's face it, at the end of the day, they're the ones that have to live with that organization, they need to have a voice in the process of coming up with these answers.
EBM: The financial markets are expecting continued improvement of productivity, including cost-cutting measure such as plant closings, as well as possibly the outsourcing of production. What can you tell us today about possible cost-cutting measures at sanofi-aventis in the near to medium term?
CV: You know, some of the efforts at efficiency is something that sanofi-aventis has been very good at, but just never really talked about. If you look at our SG&A ratio to sales, we've got the best in the entire industry, already. Now that doesn't mean we can't go further, and we should go further, that's really part of good, day to day management of the business. At the same time, I think if you're just focusing on restructuring programs, I get a little bit concerned, when I just see a lot of our competitor companies, just doing one restructuring program after another. They're not really thinking about, “How do we change the model? How do we actually create more sustainable growth, going forward?” So that's why we really launched these transformation projects, which are to say, “Here's where I think we can grow. Here's the resources we're going to need, here are the competencies we're going to need.” To the extent they don't match up with what we're doing, we'll have to change. And there may well be cost implications of that. But I really do want to focus the company on growth. But we've been very astute managers of our cost bases, and we will continue to do that going forward as well.
EBM: You told the financial community that you intend to transform sanofi-aventis into a diversified healthcare company. What are your possible axes for diversification, and what is your strategic approach to build or strengthen new growth platforms?
CV: “Why do you want to diversify?” is the question. The first reason you want to diversify is that we know that our core business is very susceptible to patent expiry. And it has been very difficult for this industry to come up with new medicine. So you want to get into businesses that aren't as susceptible to those threats. So businesses like vaccines, like OTC, like branded generics, they have to compete on a different basis. And there are barriers to entry, related in some cases to massive capital investment, to competencies, but those businesses create a more sustainable growth basis. We're not going to abandon our pharmaceutical business by any means, that's an important business, for this company, the core is always going to be a research-based company. But, you know, if you think about all the healthcare needs that there are in the world, we can respond to those with a broader platform of offerings. And so we will look at OTCs and vaccines, and generics, and perhaps some devices, and we'll really put the patient at the center. So we're not going to start just with the medicine, and go find the customer. We're starting with the customer, and say, how do we help that person. And those businesses will vary, region by region, but we're going to be a lot more open and creative than I think this industry's been in the past.
EBM: Following up on the previous question, there is an expectation that you will continue to pursue small to medium size acquisitions. What is your acquisition strategy today, and has it changed following the recent announcement of the Pfizer-Wyeth mega-merger?
CV: Let's not forget we have to grow out businesses ourselves. Let's not just wait for the next acquisition to come along. We've got plenty of opportunities. Vaccines in Asia is a fabulous opportunity. It could represent billions in potential for us, as an example. But clearly, if we want to continue to grow our platforms, such as OTC, where we're not as strong as we could be, we could have bolt-on acquisitions that really allow us to grow in targeted areas, in targeted geographies and markets, and so we'll be looking at a lot of small to medium-sized acquisitions that allow us to strengthen these growth platforms and become a more diversified healthcare company.
EBM: What is your assessment of the company’s financial flexibility for these external growth opportunities?
CV: Discipline has to be a part of the way we do acquisitions, it has to create value. But we have the means, and probably better means than most companies, to actually get out there and create our future, by being able to buy in what we need.
EBM: Historically, the base business has been declining year over year. Since the base business has been a significant contributor to the top line, how will you position it to capture and maximize growth opportunities in this part of the business?
CV: You know, that's an €8 billion business. But Hanspeter Spek (Executive Vice-President Pharmaceutical Operations) has got a very interesting slide that he shows to analysts, that actually segments those products. You've got some that are true tail products, which are really there to be milked. But within that, you have a number of diamonds, really. You've got some local stars, products that have strong growth opportunities in the markets in which they operate, because of particular competitive circumstances, or the reimbursement, or the culture, so we want really to continue to foster the growth of those local stars. We've got some of the OTC brands, which are really concentrated in 5 or 6 markets. So can we take some of those brands, and put them into other markets; or can we buy some companies, as we've recently done in Mexico, to reinforce that business. And then you've got a generics business, with Sanofi-Winthrop which is a nice business, it was very successful in Germany, for example, in winning one of the two tenders. We went up against the likes of the Ratiopharms of this world; and won. So it shows to me that we know how to do that, and we're just in the process of finalizing an acquisition of Zentiva on that basis. So within the base business, we know we've got some business where we know we've been trying to optimize them, but really what we need to do is think about how to invest in those, and how do we make some of those provide more growth for the business?
EBM: What is your strategy in emerging markets, and what role do you expect them to play in the future growth of the company?
CV: The more there's economic growth, the more an economy spends on healthcare. And we know that we're barely scratching the surface of being able to help patients in a lot of those countries. And we've ignored those countries, very often as an industry. We need to be concerned about global public health issues. We're going to be very much present, we're already the leader in emerging markets. Novartis is busy trying to catch up with us. And so we need to be focused on growing those businesses, and acquiring new businesses in those strategic markets.
EBM: In this new pharmaceutical "reality", will you be able to further improve the company's margins?
CV: Well today, we have a margin that puts us right at the top of this industry. Certainly among the top peer group. That's something we're very proud of, and it's not something we're particularly going to abandon, we're going to keep the discipline around cost management, the discipline around external growth opportunities. So we'll maintain that. But at the same time, you can't save your way to prosperity. You have to think about growth, and growth doesn't have to come at the cost of a margin. But margin isn't really what's going to do it for us. Our employees, our shareholders, they want to see a growing business, and that's what I'm focused on.
EBM: What is your guidance and outlook for 2009?
CV: We're projecting at least 7% growth for next year. A lot of factors go into the guidance, we're starting to see the first genericization of some of our products. Equally, we have these growth platforms, we've just come off a solid year. The economic crisis: it's still uncertain as to how it's going to affect us. But we're very confident of being able to provide that 7%, with perhaps some upside. The guidance does not assume that we get a substitutable generic for Lovenox, so in that sense, the guidance is qualified. But I think it's going to continue to demonstrate the underlying strength of sanofi-aventis. 7% is going to put us well up there, in the top tier of our industry, amongst our colleagues. I'm proud of what we achieved in the past, and I'm very confident that our teams are going to continue to outperform the rest of this industry..
EBM: What can you tell us about the key appointments that you've just announced?
CV: We have three appointments today. The first Laurence Debroux, as Chief Strategic Officer. Business development has to be part of our day to day business. This isn't something we're going to do now and then, when we think our pipeline's not strong enough. If we're going to build upon the growth platforms, we have to have a disciplined approach, we have to have the scientific, medical, financial, legal competence, to keep going after all these projects around the world. There's 6,000 biotech companies. We need people who can go and look at all of those and what they're doing. And so Laurence’s appointment really underpins the importance that I'm putting on looking for external growth as part of doing business on a day to day basis. The second appointment is our Chief Medical Officer. This is really to strengthen further our commitment to patient safety. Patient safety is something a lot of people have been responsible for. We need to make sure that the responsibility for that is clear, both internally and externally. And that's why I wanted to bring both pharmacovigilance and regulatory affairs for the global business, under one person, and that is Jean-Pierre Lehner, and I think that's an important message to give to the outside world. We created last year a benefit-risk committee, he will be the Chair of that committee. And that will also allow a certain objectivity and independence; which is very important in today's environment.
Now the third appointment gives us the opportunity to work with one of the world's leading scientists. And because R&D is so important for us, and because Marc Cluzel (Senior Vice-President R&D) and I share this vision of really becoming a leader in R&D, we thought it would be great if we could get someone who's done an awful lot, who's thinking about leading edge technologies around the world, who's been exposed to research and development around the world, and that person is Dr Elias Zerhouni, so we've asked him to be a scientific adviser to me and to Marc, personally. He will also lead a scientific advisory committee that we will also use to engage some of the world's top scientists. Really to make sure we're thinking out of the box, that we're as aware as we should be of what all of the best science is taking us, so I think it's an exciting opportunity to bring someone with such a rich background: he's led the $30 billion a year NIH, and brought new life to that organization. He's led one of the leading medical universities around the world, the John Hopkins University, he's been a very strong influence over the direction of INSERM, the French nationally financed research institute. And the fact that he's got a very multicultural, multi-lingual background, is so important, because as we look at the global healthcare issues, he understands those, and he understands what we want to achieve, and not just focusing on the health care of the richest countries in the word. I think it's a fabulous opportunity, I'm looking forward to it.
EBM: And finally, to wrap up, what would you say is your vision for sanofi-aventis?
CV: I want us to be a global health care leader. In the past, I think we started with a molecule, we started with a technology, and then looked for the customer. And I think to a degree, we've only really focused on the richest people in the world. And that's caused us both business problems, and reputational problems. What I really want us to do, is say: “There are 6 billion people out there who are potential patients of ours. How do we help them, what things can we do profitably, competently, to actually really affect global public health issues?” And that's why I want us to focus on really healthcare, and not just pharmaceuticals. You know, when you talk about health care, you talk about someone. And that's the perspective I really want to build in, everywhere through the company. Who are we trying to help? And how effective are we? And if we do that, the rest of it will all work out great.
