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Sanofi Aims for EPS Growth of Over 5% After Genzyme Buy

Sanofi Chief Executive Officer Chris Viehbacher
Sanofi Chief Executive Officer Chris Viehbacher. Photographer: Fabrice Dimier/Bloomberg

Sanofi, France’s biggest drugmaker, said it plans to increase earnings by more than 5 percent annually and trim costs by 2 billion euros ($2.8 billion) in the next four years.

Sales should grow by at least 5 percent a year from 2012 to 2015 as Sanofi begins to move beyond the loss of revenue from patent expirations, the Paris-based company said in an e-mailed statement. Earnings per share will increase more than revenue, the company said, without being specific. Sanofi, which hosts a seminar today to discuss its strategy, also said it will increase the percentage of profit it pays out in dividends.

Today’s forecasts are the first from the company that include this year’s $20.1 billion acquisition of Cambridge, Massachusetts-based Genzyme Corp., the biggest purchase by Chief Executive Officer Chris Viehbacher since he joined in 2008. The cost cuts will come from the integration of Genzyme, which will contribute $700 million, as well as “new initiatives.”

“The focus has shifted to 2015 as people try to gain a perspective on the dynamic of the company,” Viehbacher said on a conference call with reporters. “We are essentially pointing out a new investment thesis. It is first and foremost based on a return to growth for Sanofi following the patent cliff.”

Viehbacher began downsizing Sanofi’s research and development operations after taking over in 2008. Even after shutting plants, dropping the least promising projects and reshuffling jobs, the 51-year-old executive said a year ago Sanofi’s research and development is “a work in progress.”

New Medicines

Six new medicines will be presented to regulators between July and next March, the company said in today’s statement. As many as 19 new drugs may be introduced by 2015, Sanofi said.

“The key announcements are all pretty positive,” Pierre Corby, an analyst at Aurel BCG in Paris who recommends buying Sanofi stock, said in e-mailed comments. “Tight cost control will allow for savings and better shareholder payout.”

Sanofi rose 80 cents, or 1.7 percent, to 48.88 euros at the 5:30 p.m. close of trading in Paris, paring a 3.1 percent gain as stocks declined across Europe. The stock has returned 6.9 percent this year including reinvested dividends, compared with a 1.8 percent return for the 17-company Bloomberg Europe Pharmaceutical Index. Sanofi has gained even as the company faces generic competition to its biggest-selling treatments, including the Lovenox and Plavix blood thinners.

Sanofi had forecast in July 2009 that earnings in 2013 would be equal to 2008 levels, excluding acquisitions. The company confirmed the target today.

Sanofi’s Radar Screen

Viehbacher has spent about $23 billion on acquisitions since January 2009. The executive has been building up Sanofi’s diabetes, oncology, consumer health-care, emerging markets and animal health businesses to help reduce the company’s dependence on patented pharmaceuticals.

Acquisitions will continue since there are “always things outside the company that we can do to enhance our business,” Viehbacher said at the seminar. Sanofi aims to “find stuff that isn’t on anybody else’s radar screen,” he said.

The company sees the potential for acquisitions of as much as 2 billion euros, Chief Financial Officer Jerome Contamine said.

“You have to look harder” to find good deals, Viehbacher said. In countries such as India, sellers have high expectations for the price they will receive, he said. In Vietnam and some other countries in Asia “there is a little less activity,” he said.

Multaq, Iniparib

Pressure on Sanofi increased after its Multaq heart treatment, cleared for sale in 2009, was linked to possible liver complications and a promising cancer drug, called iniparib, failed in a key clinical study this year.

Sanofi’s research and development operations are “still underperforming,” David Evans, an analyst at UniCredit Bank in London, wrote in a Sept. 2 note to clients. “We believe R&D output is essential to maintain any long-term competitive advantage, even in emerging markets.”

The takeover of Genzyme, the largest maker of medicines for rare genetic disorders, was engineered to give Sanofi access to innovative treatments that are less vulnerable to generic competition. Cheaper copies of Sanofi drugs wiped 778 million euros from sales in the second quarter, the drugmaker said on July 28. The company reported revenue of 8.35 billion euros in the three months ended June 30.

Sanofi also said today it plans to raise its dividend payout to 50 percent by 2014 from 35 percent last year and seize opportunities to buy back shares.

“Many investors had been hoping Chris Viehbacher would step up cash returned to shareholders,” Tim Anderson, an analyst at Sanford C. Bernstein, wrote in a note to clients. “We view these updates as favorable.”

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