Sanofi’s Genzyme Talks ‘Progressing;’ Earnings to Drop

Sanofi-Aventis SA’s talks to buy Genzyme Corp. are progressing, the French drugmaker said as it forecast profit will drop as much as 10 percent because of generic competition and the loss of flu vaccine sales.

Earnings per share this year will fall 5 percent to 10 percent at constant exchange rates, barring major unforeseen events, Paris-based Sanofi said in a statement today. The company reported better-than-expected fourth-quarter profit and said it’s ahead of schedule with a cost-cutting plan.

“Given the better 2010 results and the acceleration of the restructuring program, the 2011 guidance overall looks disappointing,” Justin Smith, an analyst at MF Global UK Ltd. London, said in a report. He recommends buying Sanofi shares.

Acquiring Genzyme would help Sanofi replace some of the revenue its top-selling drugs are losing to competitors. Sales of the Lovenox and Plavix blood thinners sank 23 percent and 11 percent, respectively, in the fourth quarter, the company said. Sanofi made an $18.5 billion cash offer for Cambridge, Massachusetts-based Genzyme in August.

Sanofi took the offer directly to Genzyme shareholders on Oct. 4 after the U.S. company spurned the bid as too low. The companies have since begun negotiations and Genzyme last month agreed to give Sanofi access to confidential information.

‘Working Away’

“We’ve still got our head down and we’re working away on this,” Sanofi Chief Executive Officer Chris Viehbacher, 50, said at a meeting with analysts in Paris. “We’ve made progress, otherwise we wouldn’t have been able to sign a confidentiality agreement and start looking at non-public data. This is a company that’s present in 80 countries. Due diligence is not something you take likely.”

Asked at a Paris news conference about when an agreement might be reached, Viehbacher said the company isn’t “committed to a calendar.”

Sanofi fell 80 cents, or 1.6 percent, to 50.34 euros at the close of Paris trading. Before today, the shares had returned 2 percent including reinvested dividends over the past year, compared with a 9.7 percent return for the Bloomberg Europe Pharmaceutical Index.

Earnings in the fourth quarter excluding costs such as writedowns and merger expenses were 1.84 billion euros ($2.51 billion), or 1.41 euros a share, unchanged from the previous year. The profit was higher than the 1.76 billion-euro average estimate of 14 analysts surveyed by Bloomberg.

For the full year, earnings per share climbed 2.6 percent at constant exchange rates. Sanofi said Oct. 28 it was expecting 2010 earnings per share to be between unchanged and up 2 percent.

Genzyme Price

Last year “was the first year in which the patent cliff really became visible with generic competition for several of our products, notably Lovenox in the U.S.,” Viehbacher said.

Sanofi and Genzyme have discussed a price of about $74 a share plus potential payments tied to the performance of a Genzyme drug, four people with knowledge of the plan have said. Viehbacher declined to make any comments on price during the call with reporters today.

“All options” remain on the table regarding Genzyme, he said. Sanofi will remained “disciplined and patient” in its acquisition strategy, Viehbacher said.

“We believe Genzyme has a transformative character for Sanofi and provides the financial flexibility for the French company to continue its strategy of a targeted effort to rebuild its new drugs pipeline in pharmaceuticals,” Karl-Heinz Koch, an analyst at Helvea AG in Geneva, wrote in a Feb. 2 note to clients. He has a “neutral” rating on the stock.

Cost Reductions

Sanofi is cutting costs more quickly than expected, with 1.3 billion euros of savings in 2010, the company said.

Viehbacher has shut or sold plants and canceled the least promising research projects in a bid to trim 2 billion euros in costs and ensure earnings in 2013 are at least equal to 2008 profit. Sanofi said today that it expects to reach that cost- saving target in 2011, two years earlier than first predicted.

Sales at the company slipped 5.9 percent to 7.4 billion euros at constant exchange rates during the quarter, Sanofi said. Including currency gains, sales climbed 0.5 percent.

Research and development expenses were down 7.2 percent in the quarter, the company said.

The drugmaker lost U.S. marketing exclusivity on Lovenox in July. Lovenox sales plunged 23 percent to 582 million euros in the quarter after Novartis AG and Momenta Pharmaceuticals Inc. began selling a generic copy of the anti-clotting drug. Plavix sales fell 11 percent to 505 million euros. Vaccine sales slumped 19 percent to 890 million euros after the flu pandemic ended.

‘Tough’ Year

“We know patents are expiring, we know 2011 will be tough” for Sanofi, Michael Leacock, an analyst at Royal Bank of Scotland in London, said in a telephone interview today. He recommends buying the stock.

Sanofi’s forecast for this year assumes no generic competition for the company’s Eloxatin cancer drug, and doesn’t include a possible Genzyme acquisition.

Generic copies of Eloxatin were pulled from the market last year after Sanofi won a court ruling in June. Sun Pharmaceutical Industries Ltd., one of the generic manufacturers, successfully appealed the decision, and a lower court is now considering Sun’s request to resume selling the drug.

To contact the reporter on this story: Albertina Torsoli in Paris at atorsoli@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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