Sanofi says goodbye to CEO and hello to investor unrest
After a profit warning that sparked a 10% share price drop on Tuesday Sanofi’s board decided that today was as good a day as any to sack its chief executive, Chris Viehbacher.
The kitchen-sink approach sent shares spiralling another 6% to €69.74 in late afternoon trading today, giving no clues about how the French group plans to solve the tangle of competitive pressures in the US diabetes market that will take $1bn out of sales in 2015. It also cannot make it any easier to recruit a talented outsider who can placate investors, accomplish unpopular job cuts in France and execute the launches necessary to return to growth.
The weakening outlook for the flagship diabetes franchise is made all the more enigmatic by word emerging from Sanofi's main competitor, Novo Nordisk, that there are no price-cutting negotiations happening to win US market share for the long-term insulin Levemir over Sanofi’s $9bn-a-year Lantus.
Speaking in an analyst call today, Sanofi's chairman, Serge Weinberg, was less circumspect than Mr Viehbacher yesterday about Lantus’s problems, describing them as sales-force oversight issues that had resulted in missed targets. The issue lies in relationships with physicians and not payers, with whom Novo had difficulties last year.
The fear expressed in the massive sell-off, however, is that the price cuts necessary to retain 90% access in the world’s biggest drug market are not a one-off for 2015 – contracts with payers are usually just for one year – jeopardising a positive launch for Lantus’s lifecycle extension Toujeo. With Novo poised to launch its second-generation basal insulin Tresiba in the US in 2016 or 2017, and Lilly readying its biosimilar in 2016, wringing out price increases after next year will be all but impossible.
Style not direction?
Mr Weinberg put the unanimous board vote to fire Mr Viehbacher down to management style and not strategic differences, although the chairman complained that he had only learned of the now-shelved plan to sell off established products in Europe in the media.
On the need for streamlining and M&A strategy – favouring targeted acquisitions and avoiding megamergers – the board and Mr Viehbacher were apparently in agreement. M&A activity will not cease in the interim while Mr Weinberg temporarily wears the chief executive's hat, as the board has been involved in these decisions, he said.
Recruitment of a successor is under way, mostly looking at external candidates; Sanofi is by reputation a French-leaning corporation, but Mr Weinberg said the next chief executive’s nationality was not important.
But that reputation, along with an acrimonious firing and resistance to job cuts in France, will not make a C-suite office in Paris more attractive. Mr Weinberg signalled a willingness to mitigate some of the corporate governance issues by reducing the size of the board from its current 15 members and enlisting an American to join.
Mr Weinberg’s attempts to assure the markets fell flat, as shares slid this afternoon. Analysts were critical of the decision, praising Mr Viehbacher for changing the culture of the company and positioning it for growth – Leerink analyst Seamus Fernandez described a Sanofi investment as “dead money” during the transition.
As Sanofi attempts to kick-start growth, one worry is that it has one of the least fresh marketed product portfolios on the market, with 91% of its sales from launches before 2005 (Amgen lacks freshness, but is by no means the worst offender, October 23, 2014).
Given that the diabetes franchise accounts for a third of Sanofi’s total sales and is heavily dependent on the fate of Lantus, launched in 2000, this is not necessarily surprising. But the group also has some of the most promising new products cued up for launch in 2015, led by Toujeo, the cholesterol-lowering project alirocumab and a dengue fever vaccine.
As the diabetes difficulties have been blamed on a failure to oversee sales and marketing, there is an obvious worry that these too could be botched if a CEO search drags on too long. If Mr Viehbacher’s hire as R&D chief, the former National Institutes of Health director Elias Zerhouni, stays on, investors might be more confident of success.
Still, selection of an insider will raise concerns of a return to less transparent, pre-Viehbacher ways, which Bernstein analyst Tim Anderson described as being like a privately run company, “and investors could either choose to come along for the ride or not”.
If Sanofi were to reveal the name of the new chief executive at its November 20 analyst meeting this would give the markets a positive surprise. This is a long shot, but shares are unlikely to enliven until Mr Weinberg and the board can give investors some sign of direction.