Aug. 1 (Bloomberg) -- Sanofi-Aventis SA, Europe's second- biggest drugmaker, reported profit that missed analysts' estimates on reduced sales of its Ambien sleeping pill and announced a 3 billion-euro ($4.1 billion) share buyback.

Profit excluding takeover costs and writedowns declined 6.1 percent to 1.68 billion euros, or 1.24 euros a share, in the second quarter, down from 1.79 billion euros, or 1.33 euros, a year earlier, the Paris-based company said today. Sanofi was expected to earn 1.79 billion euros in a Bloomberg survey. The shares fell to their lowest level in more than two years.

Generic competition and a dearth of new products caused profit to drop for a fourth quarter. Ambien sales fell 42 percent. Sanofi, which counted on the weight-loss drug Acomplia to boost growth, had to withdraw the U.S. application for the medicine last month after an expert panel linked it to suicide and depression.

``It's not a good day for Sanofi,'' said Paul Diggle, an analyst at Nomura Code Securities in London. ``Share buyback or no share buyback, Sanofi is the least of the five European majors I'd be interested in having.''

Sales fell 2 percent to 6.94 billion euros last quarter, while operating profit declined 5 percent to 2.33 billion euros. Consolidated net income was 1.13 billion euros, the company said. The share repurchase will be done before mid-May, Sanofi said.

Sanofi's stock dropped 2.06 euros, or 3.4 percent, to 59.44 euros in Paris. Shares of the French drugmaker have fallen 12 percent since a Food and Drug Administration panel rejected Acomplia on June 13. Sanofi plans to provide an update on drug development projects on Sept. 17 in Paris.

``Unless they can convince people about their pipeline at the R&D day in September, it will be difficult to get people excited,'' Diggle said.

`Difficult Year'

Sanofi repeated its full-year outlook, saying adjusted earnings per share will probably grow 9 percent. The forecast is based on a euro-dollar exchange rate of $1.25. Based on the average euro-dollar exchange rate for the first half of the year of $1.33, Sanofi's goal would translate into a 4.3 percent gain.

Competition for Ambien, known as Stilnox in Europe, was ``harsher than expected'' after the medicine lost patent protection in April, Hanspeter Spek, head of Sanofi's pharmaceutical operations, said today on a conference call.

Sanofi is selling a controlled-release version of the drug to protect sales and that newer version is selling as well as it was before the original patent expired, according to Spek.

``This makes us overall optimistic,'' he said. ``We expect to finish a difficult year in line with our expectations.''

Buyback Trend

Like larger rivals GlaxoSmithKline Plc and Pfizer Inc., Sanofi needs products to make up for sales lost as some of its biggest medicines face generic competition.

``They're not in good shape,'' said Eric le Berrigaud, an analyst at Raymond James in Paris. ``Their portfolio is pretty old now. They really need new products.''

Sanofi wants to buy time with the share repurchase to convince investors that other drugs in development are worth waiting for. These include two cancer therapies and two anti- depressants. The move may also help quash speculation it may buy Bristol-Myers Squibb Co. The setback with Acomplia has increased the pressure on Chief Executive Officer Gerard le Fur to make a takeover to add new products.

Sanofi already started to buy back stock, spending 54 million euros on 890,000 shares between July 2 and 11.

Glaxo, Europe's largest drugmaker, said on July 25 it will increase spending on shares by 7.7 billion pounds ($15.6 billion). Pfizer, the world's biggest pharmaceutical company ahead of Glaxo and Sanofi, is devoting $17 billion to a buyback.

Glaxo and Pfizer

Sanofi shares also suffered because of a plan by its largest shareholder, Total SA, to sell its 13 percent stake.

While Chief Executive Officer Christophe de Margerie said on July 7 that he ``won't sell at a moment that would hurt the company,'' Total is sticking to plans to divest the shares ``in the short term.''

Le Berrigaud said Sanofi may use the share buyback to pick up stock Total may sell on the market.

Sales of Sanofi's Plavix blood thinner rose for the first time since the second quarter of 2006 in the U.S. after Canada's Apotex Inc. flooded the market last August with cheaper versions as an attempt to settle a patent litigation suit fell apart.

Sanofi and its U.S. partner Bristol-Myers won reprieve in June when a court ruled Plavix can't be copied until 2011. Even so, the French drugmaker lost a U.S. lawsuit in February over the patent on its biggest seller, the Lovenox anti-clot drug, opening the door to generic competition.

Lovenox added 16 percent in sales to 671 million euros in the quarter, while Plavix revenue rose 13 percent to 632 million euros. Sales of Eloxatin for cancer fell 10 percent to 380 million euros after generic versions entered the market in Europe. Acomplia, which is sold in Europe, generated 22 million euros in sales.

Sanofi repeated its plan to make a ``mid-sized'' acquisition in Japan and said a deal may come later than expected, within six to 12 months.

To contact the reporter on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net

Last Updated: August 1, 2007 11:51 EDT