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Sanofi Relies on Shopping to Offset Patent Losses on Key Drugs

Drug giant's CEO quick to pull the trigger on M&A's


French drug giant Sanofi (NYSE:SNY) continues to seek additional mergers and acquisitions to help the company overcome the patent cliff it’s battling. Since taking over the helm at Sanofi nearly three years ago, CEO Chris Viehbacher has shown no hesitation about doing whatever it takes to recharge the company’s batteries. By acquiring 23 companies since January 2009, he has pumped up sales in emerging markets and branched out into vaccines, animal health, consumer products and rare diseases.

Sanofi’s biggest purchase was U.S. biotech Genzyme, which the French company acquired earlier this year for $20 billion. Adding Genzyme gave Sanofi its own dedicated research team in the U.S. as well as more expertise in biological drugs, which are proteins made in living cells.

The company is counting on the acquisitions to help restore profit growth, probably in 2013, when the patent cliff ends. The impact of losing marketing exclusivity on some of its key products was reflected in Sanofi’s third-quarter results, when profits declined 3% to $3.3 billion on a sales gain of 5% to more than $12 billion. For the full year, the Paris-based firm still expects business earnings per share to be 2% to 5% lower than in 2010 at constant exchange rates.

Although the company saw good results with its diabetes franchise, sales of the cancer drug Taxotere fell nearly 65% because of generic erosion. Another key drug, the anticoagulant Lovenox, saw sales dip for the same reason. Emerging markets boosted the company’s results with sales of $3.6 billion, an increase of nearly 7%.

Sanofi is counting on two Genzyme’s blockbusters, Cerezyme and Myozyme, to help offset the loss of revenues from the blood thinner Plavix, which loses patent protection in the United States in 2012. It also should help replace the erosion of revenues from generic drug competitors to Taxotere and Lovenox.

Investors appear to be sitting on the sidelines, waiting for Sanofi to gain profit traction before showing some affection for its shares. In the past year, the company’s stock price has slid about 1% versus a gain of more than 8% for the Dow Jones U.S. Pharmaceutical Index.

Investors might not want to wait too long. Last week, Sanofi and U.S. biotech Regeneron (NASDAQ:REGN) provided some impressive evidence that their new medicine, an antibody called REGN727, dramatically cut cholesterol in patients who also were taking high doses of the best-selling cholesterol drug, Pfizer’s (NYSE:PFE) Lipitor.

Given the drug will have need to undergo more testing in larger trials before it can even be considered for approval, REGN727 won’t provide any near-term boost for Sanofi or Regeneron. However, it gives the companies a promising entry into the race to market the first medicine to tap into a gene mutation that drops heart-attack risk dramatically.

The size of the market for cholesterol treatments is huge — estimated at nearly $37 billion worldwide in 2010, according to IMS Health. So it’s understandable that Sanofi and Regeneron have plenty of competitors in the hunt for treatments based on the gene mutation, led by Amgen (NASDAQ:AMGN) and Pfizer. We should learn more this week when both Regeneron and Amgen present data from early human trials at the American Heart Association meeting.

As of this writing, Barry Cohen was long PFE and AMGN.

Article printed from InvestorPlace Media,

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