Group Project
Strategic Analysis for Sanofi-Aventis Group
TABLE OF CONTENTS
ABSTRACT
INTRODUCTION
1 EXTERNAL ANALYSIS
1.1 General Environmental Factors
1.1.1 Demographic
1.1.2 Economic
1.1.3 Political/Legal
1.1.4 Social Cultural
1.1.5 Technological
1.1.6 Global
1.2 Industry analysis
1.2.1 Industry description
1.2.2 Market size and growth rate
1.2.3 Significant rends in structure and scope of firms
1.2.4 Critical success factors required in the industry
1.2.5 Five forces analysis
2 INTERNAL ANALYSIS
2.1 Introduction
2.2 Key Resources and Capabilities
2.2.1 Drugs and Products on Market
2.2.2 Strengths in Research & Development
2.3 Threats from Generic Drugs and Strategies
2.4 Unique Opportunity – Expansion into Biopharmaceuticals
2.4.1 Drug Development Using Biotechnology
2.4.2 Current Biotech Drug Market
3 STRATEGY RECOMMENDATION AND IMPLEMENTATION
3.1 Sanofi-Aventis’s Alternative Strategies
3.2 Evaluation of the Resources and Capabilities of Biogen Idec
3.3 Projected Performance Following the Acquisition
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REFERENCES
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ABSTRACT
The main objective of this paper is to strategically analyze the external factors and internal
factors that affect the operation and success of Sanofi–Aventis and give brief recommendations.
As one of the leading pharmaceutical companies in the world, Sanofi-Aventis is in a good
position in terms of resources and capabilities that create competitive advantages for its growth.
However, Sanofi-Aventis are also facing competitions from other big pharmaceutical companies,
challenges from generic drugs, and difficulties from technology development. To ensure the
healthy growth in the long run, it is necessary to maintain an innovative drug pipeline that can
keep producing incremental revenue for Sanofi-Aventis. With the analysis of related external
factors and internal resources and capabilities, we came up with a strategic recommendation for
Sanofi-Aventis: to acquire an established pharmaceutical company Biogen Idec Inc.
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INTRODUCTION
Sanofi-Aventis, headquartered in Paris, France, is one of the leading pharmaceutical companies
worldwide and number 1 in Europe. Sanofi-Aventis is engaged in the research, development,
manufacture and marketing of pharmaceutical products and vaccines. The group operates in
more than 100 countries across Europe, the Americas, Asia Pacific and Africa. It employs over
100,000 people across various locations.
As the third largest pharmaceutical companies in the world, Sanofi-Aventis has solid resources
and capabilities to support its healthy growth. Especially its world market presence in a few
therapeutic areas with big potential growth, its strength in research and development, and its
capacity for drug manufacturing and marketing, all place it in a good position for its healthy
growth in the long run. However, Sanofi-Aventis are also facing competitions from other big
pharmaceutical companies, challenges from generic drugs, and difficulties from technology
development. For example, generic drugs are competing for the drugs representing 50% of its
revenue. In addition, biological drug are getting more and more market share and some of them
have better therapeutic mechanism than traditional small molecule medicine. Currently, there are
about 270 biological medicines in clinical trials development, representing about 30% of all
drugs in clinical development worldwide. With the analysis of related external factors and
internal resources and capabilities, a strategic recommendation was given to support the
continuing growth of Sanofi-Aventis. By implementing the acquisition strategy, Sanofi-Aventis
can takeover an established pharmaceutical company such as Biogen Idec Inc. With the addition
of Biogen Idec, Sanofi-Aventis can quickly get access the biologics that Biogen Idec has
developed and speed up the entry to market and accelerate the research and development process
toward larger proportion of biotechnology presence.
1. EXTERNAL ANALYSIS
1.1 GENERAL ENVIROMENTAL FACTORS
1.1.1 Demographic Influence
As the global population continues to age, health spending increases. The number of people
aging 65 and over has more than tripled since 1950’s. The 65 and above age demographic
segment represent the prime growth opportunity group as they approach their peak years for
consumption of medication and health care services. Globally the aging population is the key
driver of booming healthcare business. Oncology demographic market segment is expected to
touch $41 billion mark by 2008. More than 11million people are diagnosed with cancer every
year worldwide. The group with its products such as Taxotere and Eloxatin has a significant
presence in the oncology market, as there is strong demand for drugs.
1.1.2 Economic Influence
Through economic upturns, downturns and subsequent recovery, the pharmaceutical is one
industry that continues to remain economically viable. The pharmaceutical industry in the year
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2000 earned a 17 percent return on both revenues and assets, making it the top performing
industry and the most profitable. According to the Pharmaceutical Research and Manufacturers
of America, the drug industry trade group that represents the country’s leading research-based
pharmaceutical and biotechnology companies, more than $30 billion was invested in the
development and discovery of new drugs during the year 2001. Pharmaceutical company stocks
have continued to show growth regardless of fluctuations in the nation’s economy.
This record of steady growth may be attributed to several factors; one of which is the aging
population of the baby-boomers requiring much heavier reliance on prescription medications for
the treatment of chronic health conditions.
1.1.3 Political and Legal Influence
Pharmaceutical products are subject to price controls or pressures and other restrictions in many
markets across the world, including Japan, Germany, France and Italy. The rising cost of
healthcare and related pharmaceutical product pricing has led to cost-containment pressures.
Some governments intervene directly in setting prices. For instance, The German Federal Joint
Committee recommended the German Ministry of Health to classify the group’s Acomplia
among non-reimbursable drugs in January 2007, but France and Switzerland included Acomplia
in the list of reimbursable drugs.
In the US, third party payers such as state and federal government authorities, private health
insurers, health maintenance organizations and managed care organizations increasingly
challenge pharmaceutical product pricing. This trend towards managed healthcare in the US has
led to various legislative proposals and enactments to reform healthcare and government
insurance programs.
In 1984, the Drug Price Competition and Patent Term Restoration Act created an abbreviated
approval process for generic prescription drugs in the US. The sales of generic drugs in the US
have increased dramatically since then. Today, nearly all top-selling drugs in the US have
generic versions available soon after their patents expire, and generic manufacturers frequently
take away more than half of a brand-name drug’s market.
The US federal government enacted Medicare Prescription Drug Modernization Act of 2003 and
Deficit Reduction Act of 2005, which significantly influence the manner in which
pharmaceutical products are prescribed and purchased, resulting in lower prices and/or a
reduction in demand. Under the Deficit Reduction Act, the US government intends to reduce its
spending on Medicaid by nearly $5 billion and Medicare spending by over $6 billion over the
next five years (by 2010). Furthermore, individual US states have passed legislation to control
pharmaceutical product pricing.
1.1.4 Social Cultural Factors
Social cultural segment has a major impact on the company. As a natural extension of its
commitment to health care, sanofi-aventis has developed an active policy of social responsibility
centered on the protection of its employees and it plays an active role throughout the world in
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supporting or developing humanitarian initiatives. Sanofi-aventis operates in an increasingly
complex environment. The Code of Ethics fully expresses the group's spirit and culture. This
Code of Ethics together with the Group Value forms a core on which every employee worldwide
will base his or her actions every day, referring to shared rules and principles.
Sanofi-aventis is committed to protecting patients' health, answering public healthcare needs and
acting responsibly in all aspects of its business. A major element of the group’s commitment is
ensuring the quality of its products. In addition to exacting manufacturing standards, sanofiaventis also combats counterfeit imitation of its medicines. Counterfeit medicines have a direct
impact on the health of patients and public healthcare. For this reason, this issue demands a
forceful response.
The Group's program confirms its commitment to the fight against malaria. Its involvement with
this pathology goes back many years, mainly in Africa, where it is backed up by recognized
scientific expertise and its relationships with the different players of the health sector.
Sanofi-aventis aims to cut down animal experiments as much as possible. The protection and
welfare of the animals for which the group is responsible is also an important matter. It maintains
a global “Culture of Care” for all the animals and ensure highest standard of animal welfare.
1.1.5 Technology
The importance of technology in the drug delivery sector is increasing as large pharmaceuticals
companies adjust their business strategies to reflect the changing climate buffeting their industry.
The need to feed direct-to-consumer marketing, difficulty in finding enough new drug candidates
to fill pipelines that see less than one percent survive into late clinical trials, and pressure from
manage care and health care economists to lower the cost of their products has created a focus on
existing products and finding ways to maximize their business value. Often, drug delivery
technology is seen as a way to effect near-term benefits. Embracing technology helps to focus
efforts in the distribution process up to a level of accuracy that insures the "perfect order" is
being achieved for clients time after time.
Med Immune Inc. licensed Sanofi-Aventis for innovative drug manufacturing technology for
creating viruses from segments of DNA, to be used in developing vaccines against seasonal and
pandemic influenza. Using the same technology, Sanofi-Aventis developed a potential bird flu
vaccine for humans, which a panel of U.S. experts recommended in February as an interim
measure until better versions are developed. If approved, it would be the only U.S.-approved
vaccine for the H5N1 and this would give the group a competitive advantage over its
competitors.
Pharmaceuticals Information Systems and all the other Customer Service Teams, work closely
together with Sanofi-Aventis to add value by continually improving technology in daily
operations.
Customer Services technology is dedicated to utilizing Electronic Data Interchange (EDI) to
transmit business information electronically. Benefits of EDI include: improved data accuracy,
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faster cycle times, more responsive customer service, and reduced administrative costs. The
company has a return of goods program that manages all complexities of return process, which is
a dedication to customer satisfaction. This ensures simplified returns, quick compensations and
provides reconciliation information.
1.1.6 Global Factor
The company derives its revenue from a diverse geographic market. Europe contributes 43.1% of
revenues in 2006, while US and other countries recorded 35.1% and 21.8% respectively.
In the past quarter of a century, the pharmaceutical industry has undergone huge steps towards
globalization. Pharmaceutical globalization has resulted in the creation of at least a couple of
companies that have achieved nearly ten percent market shares, Sanofi-Aventis being one of
them with over fifty percent.
Globalization of the pharmaceutical industry actually is a fairly recent trend considering the
overall existence of the industry. Globalization has occurred primarily through the merger of
different pharmaceutical companies. These mergers have resulted in huge companies with
operations spanning the entire globe.
One benefit to pharmaceutical globalization is found in the area of research and development.
Globalization has increased the revenue stream of pharmaceutical companies, and this expands
their ability to undertake significant research and development programs. Analysts argue that
without globalization and the significant revenue and profit streams enjoyed currently by
pharmaceutical companies could not undertake research and development on the various drugs
they are working on at this time. For example, research on drugs to control or even rid the world
of AIDS and HIV could not be undertaken.
Another benefit of globalization has been to make certain drugs available to poor nations. The
pharmaceutical industry contends that globalization has brought drugs that never would have
reached these poorer countries.
1.2 INDUSTRY ANALYSIS
1.2.1 Industry Description
Sanofi-Aventis belong to the industry of life sciences tools & services that is comprised of
companies enabling the drug discovery, development and production continuum by providing
analytical tools, Instruments, consumables & supplies, clinical trial services and contract
research Services. It includes firms primarily servicing the pharmaceutical and biotechnology
industries. The pharmaceuticals segment dominates the industry group, generating 77.9% of the
global value.
Sanofi-aventis is one of the world’s largest pharmaceutical companies ranking number one in
Europe. In the U.S., which is the fastest growing market region for the company, sanofi-aventis
currently ranks among the top five pharmaceutical companies. Backed by a world-class R&D
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organization, Sanofi-Aventis is developing leading positions in seven major therapeutic areas:
cardiovascular disease, thrombosis, oncology, diabetes, central nervous system, internal
medicine, and vaccines.
1.2.2 Market Size and Growth Rate
The global pharmaceuticals, biotechnology & life sciences industry group grew by 8.9% in 2006
to reach a value of $738.1 billion. In 2011, the global pharmaceuticals, biotechnology & life
sciences industry group is forecast to have a value of $1,079.7 billion, an increase of 46.3% since
2006. The pharmaceuticals segment dominates the industry group, generating 77.9% of the
global value.
The US accounts for 49.3% of the global industry group's value and the leading company in the
industry group is Pfizer, which generates 7.5% of the global value. Sanofi-Aventis generates
4.5% ranking number three after Pfizer and GlaxoSmithKline.
1.2.3 Significant Trends in Structure and Scope of Firms
Rising research and development (R&D) expenditures by pharmaceutical companies are, in part,
a consequence of changing industry structure, particularly the rise of the biotechnology sector.
The creation of a market for biomedical science and increased vertical competition within the
industry are likely to spur innovation and raise productivity, but they also could induce socially
wasteful spending and weaken academic science. With innovation increasingly dependent on
financially vulnerable firms and complex contractual arrangements, R&D investment might be
becoming more sensitive to price controls or other cost containment measures.
Some of the factors driving higher R&D spending are in productivity perspective. Much of the
increase is a response to the vastly expanded research opportunities created by advances in basic
science. The number of drug targets has risen from 500 to more than 5,000 in recent years, and
expansion of research activity to investigate them is a natural and desirable consequence.
1.2.4 Critical Success Factors Required in the Industry
Technology is one of the most important factors that will influence, which pharmaceutical
companies prevail in the information age. Effective, efficient and timely implementation of tools
that speed information delivery is a primary driver of competitive advantage. However, difficulty
often arises in determining how to adopt tools and integrate them into the business. Interruptions
to the business and failures in software acquisition are frequently costly, in terms of money,
resources, and lost opportunities necessitating an innovation-based approach.
A study of strategic alliances between biotechnology and medical technology companies and
pharmaceutical companies released by PricewaterhouseCoopers LLP revealed that partnership is
a critical success factor, which earns an annual growth rate of 25 percent. The total value of new
alliances valued in excess of $20 million in these industries is over $3.5 billion per annum.
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1.2.5 Five Forces Analysis
There are a huge number of generic drugs coming up driven by the high demand for the original
supply. Generic manufacturers curtail the group's revenue growth and this is a major threat as far
as eroding market share is concerned. It gives the buyers a high bargaining power for the drugs.
Government action of controlling prices and licencing generic manufactures weaken the
competitive position of the group as new entrants find it easy to acquire part of industry’s market
share.
Competitive rivalry is high because entry is likely and there are many other phamacytical firms
in the industry; there is the threat of substitute products that buyers in the market attempt to
control.
The group has control of the suppliers. By subscribing to the United Nations Global Compact,
Sanofi-Aventis pledged to support and apply its fundamental principles to human rights, working
conditions, and the enviroment and fight agaist corruption. Sanofi-Aventis wishes to partner with
all its suppliers to share the values of the company. The respect of this code determines the
continuing commercial relationship between the suppliers and Sanofi-Aventis. The supplier
makes sure that all the substances presenting an environmental risk are identified, labeled and
stored in order to prevent any risk of pollution in the event of accidental emission or discharge.
All these ensure the quality of supplies is up to standard.
2. INTERNAL ANALYSIS
2.1 INTRODUCTION
Sanofi-Aventis registered global sales of €28 billion in the fiscal year of 2006[1]. The main
revenue generation power comes from its strong portfolio and its established expertise in
therapeutic areas which show strong growth and address major public health needs. Those areas
include Thrombosis, Cardiovascular and Metabolic diseases, Central Nervous System disorders,
Oncology, Internal Medicine and Vaccines. The general strategy of Sanofi-Aventis is to be
dedicated to the discovery, development and manufacture of innovative and effective medicines
and vaccines and making these available to the physicians and their patients.
2.2 KEY RESOURCES AND CAPABILITIES
2.2.1 Products on Market
Sanofi-Aventis has two main business segments that contribute to its revenue generation. One is
vaccines and the other is pharmaceutical. In 2006, the revenue coming from vaccines business
was €2.5 billion, and the revenue from pharmaceutical business was €25.8 billion.
The vaccines division of Sanofi-Aventis Group, Sanofi Pasteur, provided more than a billion
doses of vaccine in 2006, making it possible to immunize more than 500 million people
worldwide. The Company's heritage, to create vaccines that protect life, dates back more than a
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century. It offers the broadest range of vaccines protecting against 20 infectious diseases. Sanofi
Pasteur is the largest company entirely dedicated to vaccines. Every day, the company invests
more than $1.3 million in research and development. Currently, Sanofi Pasteur produces
approximately 40% of the influenza vaccine distributed in the United States. The company is
expanding its influenza vaccine production facility in the United States, which is expected to
come on-line by the end of 2008 or in early 2009, and could provide more than double US
production capacity.
In the pharmaceutical segment, Sanofi-Aventis has been put efforts to develop a strong product
portfolio covering major therapeutic areas that address public health challenges. As one of the
leading pharmaceutical companies worldwide, Sanofi-Aventis realized that it cannot base its
success on a single drug. Its portfolio includes a broad range of highly innovative compounds
that represent genuine therapeutic advances as well as mature and generic products. It is
particularly strong in both oncology and disorders of the central nervous system.
Sanofi-Aventis has 15 top drugs on market with double digit growth excluding the impact from
generic drugs. Some of them are so-called blockbuster drugs with annual sales over a billion US
dollars. Their trade names are: Lovenox®, Plavix®, Lantus®, Taxotere®, Eloxatin®,
Stilnox®/Ambien®/Ambien CRTM, Copaxone®, Aprovel®, Allegra®, Tritace®, Amaryl®,
Xatral®, Actonel®, Depakine®, and Nasacort®. Among them, Lovenox is the best selling
medicine of Sanofi-Aventis. Its 2006 sales reached €2.435 billion [1]. Lovenox, first launched in
1987, is the world's leading low-molecular-weight heparin for any anticoagulant of its kind. On
all the major markets, Lovenox is the leader including the United States, Germany, France, Italy,
Spain and the United Kingdom. This drug has been used to treat more than 118 million patients
in 96 countries. For nine months in 2007, its sales has been more than €1.9 billion, and had a
double digit growth of 12.1% [3]. Plavix, the 2nd best-selling drug of the company, known as an
anti-platelet agent, is a blood-thinning treatment to prevent heart attacks. It is usually used in the
treatment of coronary artery disease and peripheral vascular disease. It was launched in US in
1998, and currently marketed in over 80 countries, including the United States, through an
alliance with Bristol-Myers Squibb. Despite the threats from generic drugs, the sales of Plavix
have been back on track. Its 2006 sales were €2.229 billion [1], and have increased by 12.9% for
the third quarter of 2007 [3]. Lantus, another product, is a long acting insulin for the treatment of
adults with type 2 diabetes and of adults and children over the age of 6 with type 1 diabetes. It
was first launched in Germany in 2000, then in the U. S. in 2001, in the U.K. in 2002, and in
France in 2003. It is now marketed in more than 70 countries. Since December 2003, Lantus has
been the world’s most frequently prescribed insulin. In 2006, its sales revenue was €1.666 billion
[1]
. Ambien CR™, used to improve sleep continuity without increasing residual effects upon
wakening, was launched in the United States in September 2005 when Ambien lost patent
protection. In Japan, it is sold under the brand name Myslee, and in other markets about 100
countries, the trade name is Stilnox [1].
2.2.2 Strengths in Research & Development
Sanofi-Aventis has about 17,600 research staff working on all research and development
processes over 25 research and development centers on three continents [2]. The investment
devoted to R&D has been reached 15.6% of sales. From the above facts, Sanofi-Aventis has
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clearly focused its business activities on the long-term perspective, and has been established one
of the most fertile and innovative portfolios in the pharmaceutical industry. Compared to other
industry areas, the whole pharmaceutical industry has a much bigger proportion investment in
research and development process. In 2006, the R&D expenses of Sanofi-Aventis Group reached
€4.4 billion, indicating an increase of 9.5% compared that of 2005. Significant growth
demonstrates its efforts and achievement in its seven areas of expertise. New programs were
initiated in 2006, particularly involving prevention of diabetes and cardiovascular disease, sleep
disorders, depression and anxiety, and oncology. At Sanofi-Aventis, a rich, innovative and
balanced R&D portfolio has been developed. Until September 17, 2007, it has 123 products
under development. Among them, 60 products in phases IIa, IIb and III, and 63 products in
preclinical and phase I.
On the other hand, innovation in health is not just limited to the discovery of new medicines or
vaccines. Developing a new formulation of an existing drug is another channel to provide
patients with an improved quality of life. Some new formulations facilitate easier and less
frequent administration, or reduced side effects. To ensure patients receive the most effective
treatment, in the shortest possible time, several research strategies are pursued in parallel for
each of the therapeutic areas. These can include: new therapeutic indications, new formulations,
molecular, physiopathological and exploratory approaches, biotechnology, genomics and
proteomics.
2.3 Threats from Generic Drugs and Corresponding Strategies
In pharmaceutical industry, brand-name drug companies are always threatened by generic
medicines. A generic version of the brand-name drug only needs the proven bioequivalence to
get marketing approval from US FDA. The generic companies incur fewer costs in creating the
generic drug, and are therefore able to maintain profitability while offering the drug at a much
lower price. Once hitting the market, a generic drug generally takes the market share rapidly due
to its low cost and incentive from the insurance companies. In addition, the costs of these generic
drugs are so low that many developing countries can easily afford. For example The Thailand is
going to import millions of generic version pills of Plavix with just 3 US cents per pill from India.
To extend the period of market exclusivity on their brand name drugs, and prevent generic
competition, most pharmaceutical companies usually involve aggressive litigation to preserve or
extend patent protection. Different from patent protection in other industries, patents issued on
novel medicine compounds start quite early in the drug development process, at which time the
'clock' to patent expiration begins ticking. Drug companies may seek new patents on the
production of specific forms of these compounds in the later period. For example, developing
new formulation technology on the same effective compound, adding different inactive
components in a drug salt, or making a specific hydrate form of the drug salt are all alternative
strategies to 'reset the clock' on patent expiration.
For Sanofi-Aventis, the US patent on Lovenox had been due to expire in 2012, and the patent on
Plavix expires in 2011. The future sales of these blockbuster drugs are threatened by increasing
patent challenges from generic manufacturers that are keen to get some of their market shares.
For example, Sanofi-Aventis and Bristol-Myers Squibb may face lawsuit to protect the patent of
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Plavix [5] [6]. Regarding to the patent of Lovenox, Sanofi-Aventis has lost its patent infringement
suit against Amphastar Pharmaceuticals and Teva Pharmaceutical Industries in February 2007.
Amphastar and Teva are seeking FDA permission to sell a copycat version of Lovenox. Another
company, Momenta Pharmaceuticals is also developing a version of Lovenox under an
agreement with Novartis's Sandoz unit. Sanofi-Aventis said it is currently evaluating its options
for further legal recourse and will continue to vigorously defend its intellectual property rights.
Actually, Sanofi-Aventis is facing looming generic competition for drugs representing 50% of its
revenues. Therefore, it is time for Sanofi-Aventis to take some actions to refresh its current drug
portfolio to find new growth drivers. In addition to the above litigation approach that can protect
the “market exclusivity” rights of their self-developed drugs, big drug companies can also
diversify their product portfolio to diminish the impact of generic drugs. Expanding into
biopharmaceuticals is one of the choices.
2.4 Unique Opportunity – Expansion into Biopharmaceuticals
2.4.1 Drug Development Using Biotechnology
New medical therapies are often brought in by biotechnology with landmark breakthroughs.
Moreover, modern biotechnology can be used to manufacture existing drugs more easily and
cheaply. For example, Insulin, which is widely used for the treatment of diabetes, was previously
extracted from the pancreas of bovines and pigs. That was a very expensive process and also
associated with undesirable allergic responses. By applying genetically engineered bacterium,
the production of vast quantities of human insulin was realized at low cost. Traditional
pharmaceutical companies develop drugs with relatively simple molecules through trial and error
method to treat the symptoms of a disease or illness, while biological medicines are larger
biological molecules known as proteins. These biological medicines include range from
relatively simple proteins such as insulin, for treating diabetes, to complex monoclonal
antibodies such as Herceptin, used to treat a specific type of breast cancer. Those big molecules
directly target the underlying mechanisms and pathways of a malady. They have the advantages
that are not accessible with traditional medicines. On the other hand, the manufacturing
processes of traditional medicine and bio-medicine are different. For example, small molecules
are manufactured by chemistry, while large molecules are created by living cells such as bacteria
cells, yeast cells, and animal cells.
2.4.2 Current Biological Medicines Market
At this stage, biopharmaceutical companies make up about 10% of all drugs on the market. In
2005, the total revenue generated by around 300 biopharmaceuticals across the globe, has
reached to $85 billion. Until now, about 800 million people have been treated by biological
medicines. In addition, there are about 270 biological medicines in clinical trials worldwide,
representing about 30% of all drugs in clinical development. In the future, biological medicines
will become increasingly important for health and economic success.
Currently, several of the world's top drug makers, such as Pfizer Inc, Sanofi-Aventis SA and
Johnson & Johnson, are keen to expand in the hot area of biotech medicine. In early 2005, Pfizer,
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for example, agreed to acquire Angiosyn, Inc., which had developed a promising drug to avoid
blindness. The $527 million deal was an example that large drug makers have strong interest in
acquiring biotech companies. In November 2007, Sanofi-Aventis just announced it will raise its
stake in biotech drug producer Regeneron to 19% from 4%. This is an indication that SanofiAventis is raising its stake in biotech drug.
3. STRATEGIC RECOMMENDATIONS FOR SANOFI-AVENTIS
3.1 Sanofi-Aventis’s Alternative Strategies
Currently, Sanofi-Aventis has a proportion of biotech-derived drugs about 10 percent. To
increase the portion of biotechnology presence, big pharmaceutical companies like SanofiAventis have two options. One strategy is to build internal capabilities and capacity for protein
manufacturing in quality and scale from time to time, which will involve strengthening internal
biotechnology R&D position, establishing biologics manufacturing capacity and building largescale manufacturing plant.
However, the process to develop new medicines requires a significant amount of time and
financial investment because all new therapies must undergo a stringent process of preclinical
and clinical evaluation to ensure that new products are safe and effective. This is a special
feature for new product development in pharmaceutical industry. Generally, the number of
potential compounds that move from discovery to approval and marketing are reduced in each
stage of development. Assume that we have 5,000 compounds that enter preclinical testing, only
five of them will be able to continue on to clinical trials in humans, and only one of them will be
approved for marketing in the United States. It is a long and uncertain journey taking an untested
chemical and turning it into an approved medicine. On average it takes 12 to 15 years and
between $800 million and $1.7 billion to bring a medicine to market. Therefore, it is not an easy
path to build the internal capacity.
To establish a partnership with a biotech company is also another option. In November 2007,
Sanofi-Aventis just announced it will raise its stake in biotech drug producer Regeneron from
4% to 19% spending some $400 million. However, Regeneron does not have any product on the
market until now. Sanofi-Aventis is planned to discover, develop, and commercialize fullyhuman therapeutic antibodies utilizing Regeneron's novel technologies, which improves the
ability to develop new product candidates as well as identify specific genes of therapeutic
interest. Still, the process of new drug development will go through the long journey from
discovery, clinical trials, and finally to marketing.
Another strategy is to acquire established biotech companies with a few drugs on market. This is
a more practical strategy because the acquiring company can enter markets quickly, and
overcome the high costs of developing products internally through gaining access to the
established portfolio of new drug products and drug candidates.
Another reason that Sanofi-Aventis could choose acquisition strategy is due to its experience and
expertise for dealing with acquisition and merger while creating values by integrating two firms’
operations. In 2004 [4], a $67 billion merger between Sanofi Synthelabo and Aventis created the
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current Sanofi-Aventis, the third largest drug manufacturer in the world. Following the merger
agreement, a rapid and smooth integration process was taken making up a new operational
community of 100,000 employees located in 80 countries from September to December 2004.
3.2 Evaluation of the Resources and Capabilities of Biogen Idec
One of the appropriate takeover targets for Sanofi-Aventis is Biogen Idec Inc. It is involved in
the development, manufacturing and commercialization of therapies using biotechnology. It has
3,700 employees worldwide and it has direct commercial presence in 25 key markets and
network of distribution partners in more than 70 markets. Over years, Biogen Idec has made
significant investments to advance their product pipeline, and has established momentum to
expand within and beyond their core therapeutic areas of neurology, oncology and immunology.
Currently the Company has five products on market. They are Avonex, Rituxan, Tysabri,
Zevalin, and Fumaderm respectively. In 2006, its revenue grew to more than $2.68 billion [7],
which represented an increase of approximately 11% over that of 2005. Revenues for Avonex,
the number one prescribed therapy for MS, accounted for $1.71 billion. Rituxan, the 2nd best
seller of Biogen Idec, had sales of $811 million in 2006, which grew by 14% compare to 2005.
Biogen Idec markets Rituxan in the United States in collaboration with Genentech, Inc. Avonex
and Rituxan generated very strong financial results and maintained their rankings among the top
10 biotechnology products sold worldwide. Biogen Idec recognized $36 million revenue related
to Tysabri, by collaborating with Elan Corporation. In 2006, Biogen Idec generated operating
cash flow of more than $841 million and had $2.3 billion in cash and marketable securities at the
end of 2006.
Another attraction of Biogen Idec is its more than 20 drug candidates in the pipeline of different
stages of clinical trials. Those can help the acquiring firm quickly get a closer market entry for
those promising drugs covering neurology, oncology and immunology. Strong position in
research and development is another key value of Biogen Idec. Biogen Idec has been
aggressively invested in research and development. In 2006, its budget for R&D exceeded $750
million and had 750 employees in R&D [7]. Additionally, Biogen Idec puts discovery and
development efforts for updating its existing products. For example, by extending their use to
other diseases, it could add substantial value to the company.
For biotechnology pharmaceutical industry, process sciences and manufacturing are key issues
affecting the capabilities and capacity for biomanufacturing. Especially, up to 1,000-fold higher
dosing than earlier first-generation biologics are required in today's protein-based drugs and
monoclonal antibody therapeutics. Sales of such biomedicines are accelerating, and there are
more drug candidates in late-stage development. Therefore, biomanufacturing capability and
capacity has become a critical issue for all biomedicine companies. Over years, Biogen Idec has
established three licensed and dedicated biological bulk-manufacturing facilities. One of the
three facilities is its large-scale manufacturing plant in Research Triangle Park, NC, which is one
of the world's largest cell culture facilities with 90,000 liters of bioreactor capacity. This
facility’s exceptional design, innovative modular construction methods, and strong safety record,
has won recognition from the whole industry. Two other licensed manufacturing facilities are
operated in Research Triangle Park, NC and Cambridge, MA respectively. Currently, they have
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another large-scale manufacturing plant under construction in Hillerød, Denmark. The capacity
will be 90,000-liter and is scheduled to operate in 2009. Plus the capacity from this soon coming
on-line facility, Biogen Idec will be powered with nearly 200,000 liters of capacity for
biomanufacturing in 2009.
3.3 Projected Performance Following the Acquisition
Based on Sanofi-Aventis’s total sales revenue in 2006 ($38.9 billion), 10% of it that accounted
for biotech-derived drugs, is about $3.89 billion. As mentioned previously, Biogen Idec had
revenue of $2.68 billion. If we use these figures of both Sanofi-Aventis and Biogen Idec to do
the estimation, with the acquisition of Biogen Idec, the revenue from biotech drugs will increase
to $6.57 billion, which will be 15.8% of the total revenue. By this ratio, Sanofi-Aventis is close
to its aim to double or triple the proportion of its biotech drugs by 2012.
Biogen Idec could strengthen the global biotech presence of Sanofi-Aventis. With the addition of
Biogen Idec, Sanofi-Aventis can speed on the market access in biotech drugs. Usually, it takes a
long period to market an approved drug and even difficult to produce a blockbuster drug. It not
only involves the effectiveness and safety of the drug itself, but related to lots of other factors
such as marketing and management, competition from same category products or even generic
drugs. By implementing acquisition strategy, Sanofi-Aventis can quickly have the market share
of Biogen Idec’s Avonex, the number one prescribed therapy for multiple sclerosis (MS). And
with Tysabri re-launched in the US and launched in Europe in the third quarter of 2006, it
showed a bright future for the Tysabri to become a new market driver. Especially when
considering that there are more than 400,000 patients being treated today for MS, and many
thousands who have abandoned treatment for various reasons, there is a big space for Tysabri to
explore. Physicians and patients impressed by Tysabri’s convenient dosing regimen and efficacy
are showing increasing interest to it.
In addition, with the expertise of Biogen Idec in biotech R&D, Sanofi-Aventis could accelerate
the development and marketing process in biological therapeutics. The 20 drug candidates that
Biogen Idec is currently working on could position Sanofi-Aventis in the most front field of
biologics. Moreover, Sanofi-Aventis could integrate the most innovative biotechnologies
important for drug discovery and development.
Following the acquisition, Sanofi-Aventis could restructure its internal biotech research
programs located in Boston and Tucson, Arizona with the two research centers of excellence of
Biogen Idec located in San Diego, CA and Cambridge, MA. In this way, operation cost may be
mitigated and internal cooperation can be strengthened. The scale of biomanufacturing capacity
will be significantly enlarged by considering Biogen Idec’s the nearly 200,000 liters of capacity
for biomanufacturing in 2009. Through integrating the international distribution network of
Biogen Idec that covers over 70 countries with its own channels, Sanofi-Aventis will solidify its
power of drug marketing.
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REFERENCES
1)
2)
3)
4)
5)
Annual Report 2006 Sanofi-Aventis. www.sanofi-aventis.com
Sustainable Development Report 2006 Sanofi-Aventis. www.sanofi-aventis.com
Third Quarter 2007 Sales and Earnings. www.sanofi-aventis.com
Sustainable Development Report 2004 Sanofi-Aventis. www.sanofi-aventis.com
Preliminary Injunction against Apotex Upheld on Appeal - Press Release.
http://www.earthtimes.org/articles/show/news_press_release,32577.shtml. Retrieved on
November 30, 2007
6) U.S. Judge Upholds Bristol, Sanofi patent on Plavix — Press Release.
http://www.reuters.com/article/businessNews/idUSN1931607820070619?pageNumber=1.
Retrieved on November 30, 2007
7) Annual Report 2006 Biogen Idec. www.biogenidec.com
8) 8. Data monitor (Published March 2007) www.datamonitor.com/companies/company
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