Sanofi Pledges ‘Thoughtful’ Job Cuts to Avoid Peugeot Drama

Sanofi Chief Executive Officer Chris Viehbacher
Chief Executive Officer Chris Viehbacher has been hunting for new compounds through partnerships and acquisitions to make up for the revenue losses as some of Sanofi’s best-selling products get copied. Photographer: Jonathan Alcorn/Bloomberg

Sanofi says pressing ahead with a plan to reorganize drug research in France is critical. So is caution in a country on the brink of labor unrest.

Chief Executive Officer Chris Viehbacher, speaking after PSA Peugeot Citroen and Alcatel-Lucent SA unveiled a combined 13,000 job cuts this month, said shutting labs in Toulouse and Montpellier will be done “thoughtfully.”

The 52-year-old executive wouldn’t put numbers on Sanofi’s intended French job cuts, saying he needs to consult unions and draw up a more specific proposal to be unveiled in September. Overhauling pharmaceutical research at France’s largest drugmaker may take a few years, he said.

“He’s walking on eggshells,” said Jerome Forneris, who helps manage $8 billion at Banque Martin Maurel in Marseille, including Sanofi shares. “These days you want to look for consensus, negotiate, compromise. You don’t want to risk being another Peugeot.”

Europe’s second-biggest carmaker this month announced measures to shut a factory near Paris and slash 14,000 jobs -- 8,000 more than originally intended. Socialist President Francois Hollande, elected in May after pledging to block “a parade of firings,” and his government are trying to strong-arm the company into revising its plan.

Arnaud Montebourg, the government minister mandated with promoting employment, called Sanofi’s job cuts plan “abusive,” coming from a drugmaker that earned 8.8 billion euros ($10.7 billion) in 2011 and pledged to raise its dividend payout to 50 percent within two years.

No Apology

While he’s working to placate unions and politicians, Viehbacher is sending a message to shareholders -- he won’t back down.

“I won’t apologize for being a profitable company,” he said on a conference call with reporters after announcing a

9.8 percent drop in second-quarter earnings to 1.94 billion euros. “This is what companies are supposed to do.”

Viehbacher is betting time will take the bite out of the Sanofi’s measures and subdue labor unions. He first stressed the need to reorganize research in his first speech to employees the week he took over as CEO in December 2008. In November 2011, Sanofi said it would start a second overhaul of its research that would lead to job cuts in several countries. In early July, the company met with French unions to outline its plan. The scope of the measures won’t be clear before September.

Genzyme Praise

The Canadian executive has focused Sanofi on areas such as consumer health care, diabetes and emerging markets, the so-called growth platforms aimed at providing a more stable source of revenue for Sanofi and reducing its dependence on a handful of patented drugs such as the blood thinner Plavix. Acquisitions include last year’s purchase of Genzyme Corp., the biggest maker of treatments for rare genetic diseases, for $20.1 billion.

Viehbacher has criticized Sanofi scientists for failing to develop enough new products, while praising the open, collaborative nature of Genzyme’s labs.

“Out of our research in France, we haven’t really developed a new molecule in 20 years,” Viehbacher said today. Sanofi has half of its research and development activity in France, compared with about 9 percent of sales, according to the company.

The reorganization may lead to between 1,200 and 2,500 job losses in France, according to Jean-Francois Chavance, a CFDT labor union representative.

Viehbacher declined to comment on that estimate today. He also pointed out the company will focus on places where scientists are most likely to be productive because of the fertile research environment.

Fertile Ground

“We’ve decided to align our research operations in areas that have been determined by outside experts as being the richest eco-systems for research in France, which are notably in Paris, Lyon and Strasbourg,” Viehbacher said. The company employed more than 110,000 people globally at the end of 2011.

Sanofi today said earnings excluding some costs dropped to

1.94 billion euros, or 1.48 euros a share, from 2.15 billion euros, or 1.64 euros, in the year-earlier period. That exceeded the 1.84 billion-euro estimate of 11 analysts compiled by Bloomberg. Profit was hurt by generic competition to Plavix and the hypertension drug Avapro in the U.S.

Sanofi rose 3.4 percent to 63.75 euros, the highest price since January 2008. The shares have returned 22 percent over the past year including reinvested dividends, beating the 20 percent gain in the Bloomberg Europe Pharmaceutical Index.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE