Events accelerated at Sanofi in October. After months of rumors and two days of terrible turmoil at the top of the pharmaceutical company, the board took a decision. In the course of an emergency meeting called on Wednesday, October 29, before the opening of trading, the directors unanimously decided to dismiss immediately the current CEO, Chris Viehbacher. He agreed to resign.
Serge Weinberg, Chairman of the Board, temporarily resigned from his non-executive role and became CEO for several months. It was time to find a new senior executive from the pharmaceutical world, and after that to return to nominal presidency.
After the non-renewal of Proglio at EDF and the death of Christophe de Margerie at Total, Sanofi is the third heavyweight ACC with the head suddenly replaced within the course of a few days.
The ousting of Mr. Viehbacher was not appreciated by investors. On the following Tuesday the share of tricolor health champion had already shed 10.6%, its biggest drop in seventeen years, fears about the activity in the diabetes researching combining with concerns about the peaking crisis. On Wednesday morning, the share fell again, this time 4%. The value of Sanofi has melted by 15 billion euros in two days. As a result, the group had lost its crown as the leading French company by its weight in the stock market, passing on its supremacy to Total.
Fears of a takeover bid
It was then that there sprung the fears of a possible takeover bid for Sanofi from those wanting to take advantage of this slump competitor. “Especially if Elias Zerhouni, the special patron of the research who had been the right hand of Chris would embark on his own journey…” said a proxy of both.
On Rue la Boétie, in beautiful Paris headquarters of Sanofi, administrators were more reassuring. “There is no change in strategy,” shared a board trustee. “Chris did a good job, but he was not the man for the job.”
“It was too personal management,” says Weinberg to the Monde magazine. There was also a problem of strategy execution, we had already identified last year with problems in Brazil and China, and we have also identified in diabetes treatments. And then, relations with the board were not transparent enough, it was detrimental.”
This fire had been smoldering for months. Having come to Sanofi in December 2008 to get the company out of the rut, Mr. Viehbacher would probably have liked to enjoy unlimited power. But giving a French nugget entirely to the hands of a German-Canadian boss was tough. This native of Colborne, Ontario, was headed by Mr. Weinberg, a businessman passed by the cabinet of Laurent Fabius budget, appointed non-executive chairman.
Between them, the relationship had never been idyllic. In recent months, it had become frigid. In fact, during the summer, Mr. Viehbacher learned that Mr. Weinberg had begun to look for his successor. The Chief then tried to save his skin. In early September, he wrote to all directors to praise his merits and ask them for a quick clarification. He received no response. Meanwhile, his supporters have tried to mobilize Bercy, Matignon, and Elysee. “But no one lifted a finger to help,” admits a close source.
One must say that Mr. Viehbacher didn’t belong to the camp of socialists. He rudely confronted Arnaud Montebourg, the then minister of productive recovery, during the restructuring of Sanofi research in 2012 in France. The minister had slammed 2600 job cuts planned, and had them revised to lower figures.
On the Board of Directors, which includes two representatives of L’Oreal, the largest shareholder with a 9% stake, Mr. Viehbacher also had hardly any friends. Administrators certainly enjoyed the way he straightened the group, especially with the huge acquisition of US Genzyme intended to close the gap with Sanofi in biotechnology. But some were coughing skeptically when they learned in spring 2014 that Mr. Viehbacher had moved with his family to the United States, highlighting the US tilt of the group. Can one really run an ACC from Boston?
Some also had it stuck in the craw to have discovered in the press in July that the group planned to sell a portfolio of 200 older products valued at about 6.3 billion euros. This project called Phoenix had never been presented to them. “It’s normal, it was just a project among others,” as the justification went in the Viehbacher camp.
The Monday publication in Les Echos of the letter sent by Mr. Viehbacher to its board in September had given vent to accumulating tensions, and forced the council to decide in an accelerated manner, even though no successor had been chosen yet. “We have discussions with candidates, but they can be long,” says Weinberg.
“There is a pilot on board.”
With these few words Serge Weinberg, the acting president of Sanofi, welcomed analysts and investors on Thursday, November 20, in Cambridge (Massachusetts), at a meeting in the “headquarter” of Genzyme, the biotech acquired by the group in 2011.
The place is symbolic for American society, being set in the heart of Kendall Square, a former industrial area, that became the haunt of the global pharmaceutical research. Buildings of stone and glass with great architecture, gradually replacing the old warehouses and factories red brick. There, the elite of science and business, formed at MIT or Harvard, a few blocks away, invented the blockbusters of the future. With Genzyme, Sanofi has a ringside seat to get their hands on the brightest gems and defend its place in the top 5 in full redesign.
Accompanied by his generals, Serge Weinberg made the trip to present the future drugs of the group – those being in the pipeline, in the jargon – and to reassure his co-workers after the dismissal of Chris Viehbacher, in command since 2008.
In a dark suit and blue tie with red polka dots, he conceded with a touch of humor: “Investors do not like surprises. The board doesn’t, either,” in reference to the strategic thinking that led Chris Viehbacher to perform solo.
In perfect English, he reminded that it was not a decision taken by a Franco-French board entrenched behind its borders, but a decision taken after several “faux pas.” “Do not rely too much on the story that we tell you,” he said jokingly. Serge Weinberg gave no clue as for the advanced search for a new boss, simply stating that the names appeared here and there in the press were only “speculations”.
“We gave money to everyone, but enough to anyone”
An eye on his notes, he listed the names of the most promising groups of molecules, welcoming the launch of six new products in 2015, then leaving the floor to Elias Zerhouni, director of R&D. Recruited by Chris Viehbacher, the top-flight scientific is a star in the world of pharma. “Starting from almost zero, and with a constant budget, we rebuilt a pipeline worthy of the name. We gave money to everyone, but enough to anyone. We have refocused our efforts toward projects with high added value,” appreciated the researcher.
Led by a former Director of the NIH (National Institute of Health), the powerful American research institution, Sanofi has turned to biotechnology. These drugs manufactured in plants cells versus molecules from chemistry, already account for nearly half of the sales of laboratory and three-quarters of its research efforts. Soul of the Sanofi 2.0, Elias Zerhouni quickly foiled speculation about his possible departure, with the ousting of his friend Chris. “I do not see myself leaving the house in the near future, he assured.” I would not trade my portfolio of drugs against any one of my competitors.”
Addressing those anxious to hear how this pipeline will turn into hard cash, he said that drugs introduced between 2014 and 2020 could generate a turnover of more than 30 billion euros. To compare with 7.5 billion euros in sales generated by molecules launched between 2007 and 2013. This lesson in math is not exactly what is expected by investors and analysts, who have been calling for Sanofi to give more accurate figures for every disease treatment, particularly for diabetes.
Skepticism about trade policy
The price of Lantus, which generates more than a fifth of company’s total turnover, is indeed under pressure in the United States. Its patent expires soon and the arrival of copies (called biosimilars) due no later than 2019, will not help matters. Sanofi’s new launches are set with the ordeal: Toujeo, the “replacement” of Lantus and Afrezza, an inhalable insulin, acquired by the group this summer for $925 million, was a catastrophe. But despite this, sales of its diabetes division will be “stable or increased slightly between 2015 and 2018,” acknowledged the laboratory.
“The leaders of Sanofi are more confident than I am about the prospects of the laboratory,” says sternly Alistair Campbell, Berenberg, from London. “The Lantus insulin is very good and Toujeo does not seem to make much more. It is unclear why patients should change their treatment,” he said. It is coupled with investor skepticism, coming in the same morning from New York: “We do not have visibility on the commercial policy of Sanofi. Nobody knows the magnitude of the discount granted to pharmacy benefit managers, those in the United States are negotiating the purchase of medicines for the insurance or large groups,” he adds. “This is all the more worrying as competition sharpens with Novo Nordisk that has launched a rival insulin for Lantus, and Eli Lilly has already announced the launch of a biosimilar of Lantus.”
What is Sanofi’s response to these concerns? We must assess the value of the pipeline in its entirety. “You have to read Sanofi differently,” says Jérôme Contamine, the group finance director. “We invest 4 billion euros annually in research. This investment will generate at least 30 billion euros in sales between this year and 2024. It is a concrete result, which is better than speculation about the potential of molecules even at the stage of initial tests,” explains the finance director, according to whom the current value does not reflect the value of the company. According to him, “it was time to turn the page of Lantus.”
The future? A melting pot of 18 drugs by 2020: a vaccine against dengue, a novel treatment against high cholesterol, a molecule to treat multiple sclerosis and some of the jewels of Genzymes, specializing in rare diseases such as Gaucher disease. A boon for patients and investors? It might take a little time to know the answer.
On the “old” drugs group, Serge Weinberg said that their fate was far from sealed. “The erosion of sales may be slowed, and well managed portfolio can generate a lot of cash in the future,” he has said. From his retreat – a house a few minutes from the headquarters of Genzyme – Chris Viehbacher will rejoice. In the spring, he had worked, without informing the Board, on a possible disposal of these molecules. The famous Phoenix project, which set fire to the powder.