Sanofi CEO Talks Merger Philosophy
July 29, 2010 - 3:29 pm
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Matthew Herper is a senior editor at Forbes
Sanofi-Aventis posted earnings that beat analyst forecasts by 8%, bragged about a growing pipeline of new medicines, and predicted it could navigate a wave of upcoming patent expirations.
Nobody really paid any attention to all that boring stuff, though, because all anyone really wants to know about now is Sanofi's widely reported informal merger negotiations with Genzyme, the Cambridge, Mass.-based maker of drugs for rare diseases.
Sanofi chief executive Christopher Viehbacher was cool and collected in a phone interview this afternoon, twice refusing to comment on "rumors and speculation" related to a Genzyme deal. But he did talk about his general philosophy about pharmaceutical deals, which he says has not changed in several years. The only thing he has ruled out are mega-mergers, like those done by Pfizer and Merck, and that leaves small (less than $5 billion) and medium (less than $20 billion) acquisitions.
"I've been hunting for three or four years -- long before I came to Sanofi," Viehbacher says. "It's very curious, because there are things you want to buy and things you can buy. The things you want to buy, often the numbers don't actually work." The trick? "Finding deals that do both."
He said that too often, desperate drug companies do deals just because they can get done. Viehbacher says what he really wants are deals that increase not only earnings, via cost-cuts, but also sales. Only by creating better growth, he says, will pharmaceutical firms boost their price-to-earnings ratios and, therefore, their share prices.
He also says he wants to find businesses where products are protected by forces other than patents, in order to alleviate the rapid drops in sales that are creating problems for drug firms in general.
When asked how much price matters when considering a potential deal, Viehbacher said "value is always going to have a relationship to price" but that "you can't just do an acquisition by the numbers." What he is really looking for are opportunities where there is something important the current management is not doing, or where Sanofi can bring resources to bear that the smaller company lacks, like capital, regulatory expertise, or marketing power.
For example, he says, Sanofi's acquisition of over-the-counter marketer Chattem combines consumer-marketing prowess with Sanofi's allergy drug Allegra, which could become a big consumer product in the right hands. "I've seen too many deals where a lot of money is spent and no value is created."
A Genzyme deal would fits both of these criteria. Fixing its manufacturing problems could lead to rapid revenue growth just as Sanofi is losing sales to patent expirations. And the manufacturing problems certainly represent the kind of problem a new management team might think it could fix. The big questions, then, are whether Sanofi can get it for a reasonable price -- and whether another bidder emerges.
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