Sanofi's Shantha Deal Fails to Bring Viehbacher a Sales Boost
Sanofi-Aventis SA’s 440-million-euro ($602 million) acquisition of Indian vaccine maker Shantha Biotechnics Ltd. failed to live up to analyst forecasts after manufacturing woes wiped out $340 million of sales.
The World Health Organization on July 28 dropped Shantha’s Shan5 vaccine for five childhood diseases from its list of shots that are approved for sale to agencies such as the United Nations Children’s Fund after white sediment was found in some vials. The suspension has cost France’s biggest drugmaker the $340 million in sales it planned to book from 2010 to 2012 from a contract with Unicef, said Pascal Barollier, a spokesman for the company’s Sanofi Pasteur vaccine unit in Lyon.
The shot will be off the market until 2013 while Sanofi sorts out the manufacturing problem and resubmits the vaccine to the WHO for approval, he said in a Nov. 8 phone interview. The company touted Shantha’s “state-of-the-art manufacturing facilities” in announcing the purchase in July 2009 and said the Indian company’s $90 million of annual sales would “grow significantly.”
The company is “doing everything possible” to implement corrective measures, Barollier said. Sanofi previously hadn’t disclosed publicly when sales of the vaccine would resume or that the company had lost all the revenue from the Unicef contract.
Acquisitions are part of Chief Executive Officer Chris Viehbacher’s strategy to replace revenue the company is losing to competition from generic medicines. Sanofi is attempting an $18.5 billion hostile takeover of Genzyme Corp., a U.S. biotechnology company with its own manufacturing woes.
Genzyme’s shares slumped as much as 43 percent from their 2008 high after a viral contamination last year at a company plant in Boston led to drug shortages.
“We remain to be convinced that Sanofi-Aventis will be able to add material skill in resolving Genzyme’s manufacturing issues: we note that the Shantha vaccines purchase of 2009 still has production difficulties,” Michael Leacock, an analyst at Royal Bank of Scotland in London, wrote in an Aug. 31 note to clients. He has a “buy” recommendation on Sanofi shares.
Sanofi took a 108-million-euro charge in the second quarter primarily to write down the value of Shan5, and another 171- million-euro impairment in the third quarter for products including the shot. The company declined to be more specific.
Five in One
Shan5 is a so-called pentavalent vaccine that provides protection against five diseases -- diphtheria, whooping cough, tetanus, haemophilus influenza B, and hepatitis B. The shot, produced by Shantha at a plant in Hyderabad, India, is used in poor nations including Chad and the Central African Republic. The WHO, an arm of the United Nations, “pre-qualifed” the shot, which is a prerequisite for sales to supranational organizations such as Unicef.
In September 2009, Sanofi announced that Shantha had won the Unicef contract to provide Shan5 from 2010 to 2012. The WHO temporarily suspended the vaccine in March this year because of the sediment as a “precautionary measure pending outcome of an investigation of vaccine quality,” Sanofi said at the time. The sediment wasn’t linked to any health risks.
The WHO removed Shan5’s pre-qualification on July 28 because of the sediment problem and recommended the use of competing products, according to a statement on the agency’s website. The decision, which wasn’t announced by Sanofi, means Unicef can no longer acquire the vaccine.
Sanofi “conducted a high-quality investigation” to solve Shan5’s white-sediment problem and submitted a “robust plan for corrective action,” according to the statement. However, the corrective measures require a new application for pre- qualification, the agency said.
The vaccine with sediment was manufactured before Sanofi bought Shantha, Wayne Pisano, Sanofi’s senior vice president for vaccines, said on a July 29 conference call with analysts for second-quarter earnings.
Sanofi booked none of the $340 million before the WHO suspended use of the shot, Barollier said. Sanofi had 29.3 billion euros of revenue last year.
The WHO determined that the sediment originated with the whooping cough component of the vaccine. The agency suspended the pre-qualification of a four-in-one Shantha inoculation that also uses the whooping cough shot, and halted the approval process for a three-in-one shot.
Sanofi’s Barollier declined to say what Shantha’s sales would be this year or next.
Seamus Fernandez, an analyst at Leerink Swann & Co., cut his 2010 revenue forecast for Shantha in June to zero from 105 million euros, and lowered his predictions for the next five years as well.
Sanofi has a mostly good track record in licensing or buying new medicines, Andrew Baum, an analyst at Morgan Stanley, wrote in a report last month. “The Shantha acquisition remains the only obvious soft spot in the company’s in-licensing campaign,” he wrote.
The manufacturing snag is manageable for Sanofi, said Jerome Forneris, who helps manage $11 billion, including Sanofi shares, at Banque Martin Maurel in Marseille, France.
“Sanofi Pasteur is one of the world’s biggest vaccine makers,” Forneris said in a Nov. 10 phone interview. “They have in-house experts who know how to solve these kinds of problems. Vaccine making is a complicated process and problems of this kind do pop up every once in a while.”
Shan5 isn’t the only pentavalent vaccine facing problems. Crucell NV halted production of the competing Quinvaxem last month because of a microbiological contamination at the South Korea plant making the product. Leiden, Netherlands-based Crucell reported a third-quarter loss on Nov. 9 after writing down the value of Quinvaxem inventories. The company said it expected to resume output “in the coming weeks.”
GlaxoSmithKline Plc, Panacea Biotec and the Serum Institute of India are the other makers of pentavalent vaccines approved by the WHO. The lack of Shan5 and Quinvaxem hasn’t caused shortages so far, according to Alison Brunier, a spokeswoman for the agency.
Unicef awarded contracts to supply the vaccine for a three- year period, from 2010 to 2012, according to Joan Howe, a spokeswoman for the agency. The organization may need to buy more supply for use in 2012, she said. In 2012, Unicef also will begin seeking bids for the next multi-year contracts that commence in 2013, she said. Sanofi expects to be able to bid for those multi-year contracts, Barollier said.
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