Aventis Would Provide Critical Mass For Sanofi’s Mid-Term R&D – Sanofi CEO

Sanofi-Synthelabo's proposed merger with Aventis would provide the critical mass necessary to support the development of Sanofi's early to mid-stage pipeline, CEO Jean-Francois Dehecq said.

"We need more efforts in our research," Dehecq said during a Feb. 16 investor meeting in London. "That is the reason why we decided that [merging] these two companies is a big opportunity - because we have a lot of expenses in terms of research."

Sanofi's rationale for the Aventis merger is notable among recent deals, which have been primarily viewed as defensive tactics against thinning pipelines.

Sanofi said it would need to dramatically increase R&D expenses to support compounds moving into Phase II or Phase III. Sanofi has 11 products in Phase I, six in Phase IIa and 10 in Phase IIb.

Sanofi also has nine products in Phase III; the company presented positive results for the smoking cessation/obesity drug rimonabant ( Acomplia ) and the antiarrhythmic dronedarone.

The company's fourth quarter and 2003 results helped Sanofi rebut earlier Aventis statements that it is not an attractive merger partner. In the U.S., Sanofi sales were up 32.9% to $2.5 bil. in 2003, with North American sales gaining 40%. Consolidated sales increased 15.6% to $10.3 bil., excluding currency fluctuations. Profits for the year rose 18% to $2.7 bil.

Aventis has been steadfast in its pledge to block a Sanofi takeover. In its most recent move, the company filed an appeal with the French regulatory authority, Autorite des Marches Financiers, which cleared the way for a merger Feb. 3. Sanofi maintains the deal will be closed by year-end.

Aventis appears willing to consider a "white knight" bid (¹ , p. 5). However, many large-cap pharma companies - including Pfizer, GlaxoSmithKline and Roche - have said they are unlikely to seek a mega-merger at this time.

For Sanofi, a merger with Aventis could help avoid profit-sharing agreements for its late-stage products; Sanofi is presenting the merger as an alternative to arrangements like those with Bristol-Myers Squibb for Plavix (clopidogrel) and Avapro (irbesartan) .

"We are exactly in the same situation [as]...Avapro and Plavix. At that moment, we had no way to develop those products except by making a joint venture," Dehecq said.

"What we decided last year...because we will be in the same situation at the end of the year, we decided to be alone and not to share the future profits always with another party."

With Plavix and Avapro - two of Sanofi's top four pharmaceutical products - tied up with Bristol, Sanofi has pledged to find ways to avoid such agreements for the U.S. market (² (Also see "Sanofi/Aventis Merger Would Create Top 10 U.S. Pharma Company" - Pink Sheet, 2 Feb, 2004.), p. 3).

The agreements have led to speculation that Sanofi might be interested in a merger with Bristol. Dehecq denied the speculation. "We didn't do something with BMS because we felt given the current state of things, it was a fine project between Sanofi-Synthelabo and Aventis. We'll fight for this one."

While Aventis would give Sanofi a viable marketing platform in the U.S., the company downplayed Aventis' sales force as the most significant reason behind a merger.

Sanofi responded to Aventis' argument that many of its co-promotional partners would back out should the merger go through. "We think this is a rather weak argument," Exec VP-Operations Hanspeter Spek said.

"Somebody given a license or another business in a company has little reason to withdraw this business when this respective company gets stronger....We have not one clause of this kind in our portfolio," Spek said.

Genta has said a merger would not affect its agreement with Aventis for Genasense (³ (Also see "Exubera May Be Wild Card In Sanofi Bid For Aventis; Genta Deal Unaffected" - Pink Sheet, 2 Feb, 2004.), p. 7). Aventis also has a late-stage agreement with Pfizer for the inhaled insulin Exubera .

Sanofi expects that one-third of the expected $2 bil. (€1.6 bil.) in synergies will come from "positive synergies," with two-thirds from cost-cutting. Sanofi closed 10 manufacturing plants following its merger with Synthelabo.